If you are a real estate investor or a homeowner considering renting out your property, there is a critical concept you must understand before you sign a new lease or extend an existing one.
Recently, a homeowner contacted our team at Kopa Real Estate because they needed to sell their home quickly. Unfortunately, they ran into a major roadblock: the property had a tenant with an active lease running through the middle of next year.
Many people mistakenly assume that selling a home automatically terminates a lease. In reality, the lease stays with the property, and the tenant goes along with it to the new owner. This creates several hidden complications that can drastically lower your home's value and marketability.
Here are three major reasons why trying to sell a home with a tenant in place can hurt your bottom line:
1. Showings are Rarely Successful
Statistically, about 99% of the time, a tenant-occupied house does not show well to prospective buyers. Tenants have zero financial incentive to make the sale easy for anyone else. While landlords often assume their tenants will be highly cooperative, that cooperation rarely lasts. By the fourth or fifth showing, residents grow exhausted from constantly tidying up and managing daily clutter, which leaves the property looking less than ideal during crucial walkthroughs. Furthermore, taking care of deferred maintenance is significantly more difficult when a tenant is actively living in the home.
2. You Eliminate the Vast Majority of Buyers
When you sell a property burdened by a long-term lease, you immediately disqualify owner-occupant buyers who rely on traditional financing. Most conventional mortgages require the buyer to sign documents stating they will legally occupy the residence within 60 days of closing. If your lease runs well past that 60-day window, a standard buyer simply cannot purchase your house.
3. You are Forced to Sell to Investors Looking for a Deal
By eliminating standard home buyers, your pool of potential buyers shrinks to just two groups: cash buyers and real estate investors. Real estate operates on simple supply and demand. Because investors know your options are limited, and because they are rarely paying top dollar in today's market, they will expect a significant discount to take the property off your hands.
Talk to a Professional Before You Sign That Lease
Real estate is a fantastic wealth-building tool, but its biggest drawback is that it is an illiquid asset. If you suddenly experience financial trouble and need access to fast capital, you may not have the credit or income required to borrow against the property.
Before you sign a new lease agreement or extend a current one, look at your long-term goals. If there is even a small chance you might need to sell the home in the near future, get in touch with us at Kopa Real Estate first. We can run through your options and ensure you don’t accidentally lock yourself into an expensive situation.
If you plan to sell your home, now is the best time to attend our Free Home Selling Seminars. If you want to attend a seminar, contact us, and we will notify you when they are scheduled. As always, you can check KopaSeminar.com to see the dates and times of our in-person and online Free Home Selling Seminars. For years, home sellers have told me they benefited from attending our events. Sign up for our Free Home Selling Seminar in Austin or Cedar Park at KopaSeminar.com.
The information on this page may have changed since we first published it. We give great real estate advice, but this page (and the rest of our site) is for informational use only and is no substitute for actual real estate, legal and financial advice. If you’d like to establish a Broker-client relationship, reach out to us and we’ll tell you how we can make it official. Sending us an email or reading this page alone doesn’t mean we represent you.
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