There can be several reasons why you may want to sell your California rental property, even with tenants inside and paying you rent.
You may be in need of liquid funds or may be looking to purchase a new property. It may even be possible that you wish to get out of the rental business. In any case, selling a house with tenants in California can become a bit challenging if they are still residing in it.
So what are California tenants rights when landlord sells property?
There are several legal issues to deal with and many factors to consider. In many cases, potential buyers may become disinterested in the property if it has tenants (often demanding that it be “delivered vacant”). Despite these obstacles, it is possible to sell such a property with a bit of help from us at Priority Home Buyers.
And this guide aims to provide you with all the information required on the subject to make the process as smooth and efficient as possible. So, let’s get started!
Priority Home Buyers
Can You Sell A House With Tenants Living In It California?
It is possible to sell rental property with tenants living in it in California, and many properties being sold nowadays are tenant-occupied ones. This is because several states provide tenants the legal right to continue residing in the rental property until their rental agreement or lease expires.
However, this means that the sale will depend on the rental agreement between you and your tenants. In the case of a month-to-month agreement, selling the property may not involve a lot of hassle. But this may not be the situation when dealing with a tenant with a fixed-term lease.
Also, while it is legally possible to sell your California house with sitting tenants, it is important to consider the advantages and drawbacks before proceeding.
Market Value Of A Tenant-Occupied House California
If you’ve decided to sell your California rental property, the first thing to do is to determine its market value. It is crucial to understand here that the value of a house on the local real estate market will be affected if it has tenants residing in it.
One reason is that not many people are willing to purchase such properties, and most are California real estate investors looking for easy investments. So, properties with sitting tenants face considerable devaluation, and owners may not get good returns on their eventual sale.
How much value is reduced often depends on the agreement period, and rental agreements for longer periods result in a greater decrease in value. But other factors can also affect the market value of an occupied property, such as the condition of the housing market, buyer demand, and location.
Factors To Consider When Selling Rental Property With Sitting Tenants California
1. Whether The Property Is Staged
A staged property means property that has been fully prepared by the owner for sale. This usually involves cleaning, redecorating, making repairs, etc. Having a staged property can make selling it much easier, and in many cases, this depends on the tenants. Tenants who keep the house well-maintained and in good shape can help reduce the effort involved in the process.
2. How Attractive The Property Is To Real Estate Investors
Another factor to consider is how attractive real estate investors find the house. In this case, tenants who are easy to deal with can make the property more valuable as the investor will not have to spend much effort locating new ones.
On the other hand, if the tenants are difficult, they can not only put off prospective investors but also hinder the selling process in other ways. They may want to be present when potential buyers are shown the property, in which case it can be difficult to decide on a schedule.
Or they may not maintain the property very well, and the house may be messy, which can involve additional expenditure in cleaning it up.
3. Financial Risk Involved
Sometimes, tenants may not have paid their rent, which can pose a financial risk and make selling the house difficult. Alternatively, one or more tenants may be paying less than the market value rent, which can make the property unattractive to potential investors.
4. Pool Of Rental Buyers
Not many people are willing to purchase a tenant-occupied property, especially senior citizens searching for a place to retire or families just starting out.
In most cases, local real estate investors are the most likely to purchase such rental properties. And since they buy them for investment purposes, selling to them by appealing to their emotions is not easy.
This limited pool of buyers can get even smaller if the asking price is too high. And ultimately, you may have to sell it at a much lower price since there won’t be any buyers for the place. Similarly, potential buyers may offer a low price because of the risk involved, as they cannot be sure that the tenants will continue paying rent fully and timely.
5. Terms Of The Agreement
In the case of a month-to-month agreement, it is easier to end the agreement by giving the tenant notice for the period required under California law. But for properties located in a rent-controlled area, the laws allowing the new buyer to end the agreement may be different. It is a good idea to consult a real estate agent regarding whether to end the tenancy or leave the option to the buyer.
Also, consider whether the tenant is a long-term or short-term one. Families planning to live in the house may not want a tenant, while investors looking to earn rental income may prefer a long-term tenant.
6. Property Type
How easy it is to sell the property also depends on the property type and location. It may be situated in an area with several renters or may be occupied by many tenants, in which case, real estate investors may find it a good investment. Another factor that can affect its sale is its market value.
Families willing to live in the house instead of using it for rental income may be ready to purchase a high-value house. But they may not want to wait for the lease agreement of an existing tenant to expire and may consider other options.
Selling An Occupied Rental Property California
As explained above, the process of selling tenant-occupied rental properties in California depends on the type of lease or rental agreement.
1. When There Is A Month-To-Month Agreement
A month-to-month lease can be ended at any time by a California landlord or the tenant by giving proper notice to the other party.
When planning to sell the property, you may need to give the tenant or tenants a notice of 30, 60, or 90 days, depending on the city within California. There is no need to give the tenant any reason for the notice, which is why it is referred to as no-cause termination.
In most cases, the chances of any issues occurring when asking tenants with a month-to-month agreement to move are very low. You just need to make sure to meet the regulations regarding the notice since they can vary between different cities.
2. When There Is A Fixed-Term Lease
If one or more tenants have a fixed-term lease, selling the property may not go as smoothly as in the case of a month-to-month agreement. Such renters can continue living in the property until the lease expires if there is no early termination clause in the lease. In such circumstances, there are a few options you can try.
A. Waiting Till The Expiry Of The Lease
Waiting until the California tenant’s lease expires is the best approach if you wish to avoid the hassle of having to deal with tenants. This approach also offers additional benefits, such as helping increase the value of the property. The value of an investment property primarily depends on the rental income that can be earned from it.
And it is possible to raise the rent after the lease expires and the tenant vacates the property, thus increasing the property value. Similarly, once the tenant moves out, making repairs and upgrades is possible, and staging the home is easier.
However, in situations where the mortgage on the property is not completely repaid, waiting for the lease to expire might not be the best option. The reason is that preparing the house for sale will involve considerable time and expenses.
But if the tenant violates the agreement terms, the lease can be terminated after providing the tenant with due notice. Such terms may include the tenant causing property damage, causing problems for others, not paying rent, using the property for any illegal activity, etc.
B. Selling To An Investor
In situations where there is a lease or rental agreement, and the tenant pays rent in time, you can try selling the occupied property to a real estate investor. Investors are willing to purchase such property because they do not want to spend time and effort in finding new tenants.
But if you’re considering this option, keep in mind that the pool of buyers will be limited, as explained previously. The security deposit and the lease will transfer to the investor when they purchase a property with tenants.
Selling an occupied California property to an investor is easier since the return on investment is more important for them. And having a tenant that pays rent regularly ensures a better return.
C. Negotiating With The Tenant
Sometimes it is possible to find a buyer who is ready to purchase the property and move in soon but wants the tenant to vacate the house. In such situations, you can negotiate with the tenant and convince them to move out of the property before the expiry of the lease.
It is important to understand that the decision rests with the tenant, and they enjoy a legal right to continue residing in the house. Alternatively, if they agree to move out, it can be quite costly as they may need to be paid the moving expenses or offered some cash for vacating the property (i.e. “cash for keys” California style).
You can also pay a certain amount for the place the tenant wants to move into.
D. Utilize The Early Termination Clause
An early termination clause can be used to remove tenants, even good ones, from the property if all else fails. Such a clause usually states that the tenant’s lease will expire within a specific period, such as 30, 60, or 90 days if a sale is closed on the property.
However, the terms that can cause the termination of the lease will only be a part of the agreement if and when the tenant agrees to it.
E. Selling To The Tenant
If your tenant does not wish to vacate the property and the house needs to be sold quickly, you can consider selling it to the tenant. This can be done in various ways, such as through a lease-to-own agreement or a seller-finance agreement.
Selling The Property To Your Tenant California
Selling the house to a California tenant who does not want to move out can make things a bit simpler. You do not have to spend effort searching for a buyer, and it may be easier to come to an arrangement that both parties find acceptable.
Here are the ways by which you can sell to a tenant:
1. Lease To Own With A Non-Refundable Option Fee To Purchase
In such an agreement, the tenant pays some additional amount and gets the option to buy the house some time after the lease period starts.
2. Lease To Own Agreement
Under this agreement, which is sometimes known as a rent to own agreement, the tenant pays rent under a regular rental arrangement but can eventually purchase the property. The rent replaces the down payment usually required when buying a property.
3. Seller-Finance Agreements
In this situation, the seller plays the role of a lender to whom the buyer makes monthly payments, similar to how a mortgage operates. This means that if the tenant stops the payments, you can begin the process of foreclosure, but it can be extremely costly.
Alternatively, you can recommend to the tenants to arrange for funding from somewhere else to buy the property.
California Lease Terms And Security Deposits
When you sell a California rental property, the lease terms of the tenants will remain the same even with the new owner.
Changing the terms is not possible as long as the original agreement continues. If the new owner wants to change the terms, they may have to wait until the existing agreement expires.
As for tenants who wish to vacate the property when it is sold, you will have to return their security deposits. But in case they wish to continue residing in the house, the deposit will have to be handed over to the new owner along with the interest. Similarly, you need to transfer any other fees and prorated rent to them.
Some Tips For Selling California Tenant-Occupied Rental Properties
Here are a few tips that can help you out when selling rental properties with tenants in California.
1. Maintain Proper Communication With Tenants
Maintaining regular communication with tenants can help you be informed and avoid surprises. For instance, being in touch with the tenants will let you know whether they are willing to vacate the premises if the house is to be sold and prepare accordingly.
2. Know And Understand The Local Laws
Being aware of the various laws and regulations that govern different aspects of a property sale in your area can be very helpful. This is especially true as far as the rights of tenants are concerned, as laws regarding those can vary significantly between different states. It is a good idea to take the help of a real estate attorney to understand the laws before proceeding with the sale.
3. Inform The Tenants When You Plan To Sell
Once you’ve decided to sell the property, it is your duty to inform the tenants about it and clear up their doubts and confusion. Since the selling process will involve open houses and showings, it will require the cooperation of the tenants. They may need to be explained the process and ensured that all that can be done to minimize disruptions will be done.
4. Consider The Tenant’s Schedule When Planning Showings
In most cases, a California lease agreement states that the tenant must be provided a minimum 24 hours’ notice before the property can be shown to potential buyers. Be considerate of the tenants’ schedule and try to plan the showings at a time acceptable to the tenant. It is always possible to make a special request if the house needs to be shown at short notice.
5. Request The Tenant Not To Be Present During The Showing
Prospective buyers may not feel comfortable if your tenant is present during the showing, especially if the latter is not happy about the sale. You should respectfully ask them not to be present at that time. To make it easier for them to accept the request, consider offering them a gift card or movie tickets.
6. Provide Assistance In Property Maintenance
In the case of a tenanted property in California, the tenants are responsible for its maintenance.
But once it is listed on the property market, you may want to provide assistance in maintenance. This can be done by offering to hire a yard or cleaning service, which can help ensure that the house looks fit to be shown to any potential buyer.
7. Assist The Tenant In Searching For A New Residence
In case you own additional investment properties, inform the tenant if there are any options where they can stay. Alternatively, you can let them know about other landlords who have rental properties or any local listings worth checking out.
8. Avoid Putting Up Signs About The Sale Outside
Putting up a sign that lets people know the rental home is available for sale can be inconvenient for the current tenant. Doing so will cause interested people to come up and ask about the property, while the proper channel should be through the real estate agent.
9. Make Sure The Tenant Has Paid The Rent In Full
One or more tenants may be behind on their rent while continuing to reside in the rental property, depending on how lenient you are as a landlord. However, a delinquent tenant can create complications when selling the property, so you should insist that they pay rent as per the lease terms or move out.
If the tenant is unable to pay rent and refuses to vacate the house, you may need to resort to court action to get them evicted from the house.
10. Do Not Change The Utilities
Even after you list the property for sale and schedule open houses, you should not change any of the utilities provided to the current tenants. Electricity, water, and other utilities that tenants have access to under their current lease should not be cut off. All regular California landlord responsibilities must be taken care of until the house is sold.
11. Communicate Once The Sale Is Complete
Once the new owner takes possession of the property and all legal obligations are complete, it is a good idea to let the existing tenants know about it. Inform them that they should send all future rent payments to the new owner. Sometimes, the property manager does not change, so the renters living in it may not notice any difference.
Selling a house with tenants in California requires a lot of careful planning, hard work, and patience. Besides the standard factors to consider when selling any property, such as the market value and location, you need to deal with tenants who may not want to move out.
It’s important to factor in tenants rights when a landlord sells property in California, and communicate and work together to get it sold.
However, by maintaining complete transparency with your tenants and using various incentives tactfully, it is possible to ensure that the selling process goes smoothly. Just make sure to be aware of California laws and regulations governing such sales, and do not hesitate to seek professional help.
We’ll be glad to assist with a fast, free, no-obligation cash offer for your California property as-is! Tenants or not, regardless of existing lease agreements, we’ll be able to get it sold for the highest price possible to our local California real estate investors.
We’d love to guide you through a quick and easy sale, and are available to talk more at (877) 775-0988 today!