Selling a rental home is not the same as selling a personal residence, but the process can go smoother and be potentially more profitable with a little work up front. Here are some simple tips for selling a rental home when the buyer is another investor.
Unless circumstances require a quick sale, give yourself time to get the property and your documentation in shape. You can demand a higher price when the home is in good condition and profitable.
Catch Up On Deferred Maintenance
Have the property inspected and repair or service every feature or system that needs it. The most common cause of purchase contracts being cancelled or of buyers trying to renegotiate terms during the inspection contingency period usually involves the physical condition of the property.
Make Simple Upgrades
Analyze the potential payback on easy upgrades such as new appliances or flooring. Even if these changes don’t result in a dollar-for-dollar increase in the sale price, they could make a difference in the number of offers received.
Initiate Profit Improvement Activities
Analyze the local rental market to determine if there is up-side potential for rent. Look at the operating statement to determine if there are opportunities to cut costs in the near and long term.
Assemble A Complete Business Disclosure Package
In addition to standard inspection reports and disclosures regarding the condition of the home, provide potential buyers with documentation that supports the value of the property as a viable business. Include copies of:
- Current tenant lease.
- Tenant estoppels.
- All notices, if any, given to tenants regarding possible lease violations, property abuse or other issues.
- Estoppels for regularly-scheduled service providers (e.g. pool, yard service, and pest control).
- Contracts currently in place with service providers.
- Property tax bills for the past three years.
- Current business license or permit, if required.
- Utility bills for the past 12 months that are paid by the owner.
- Detailed operating statements for the past 36 months and a pro forma operating statement for the next 12 months.
- Rent roll for the past 36 months showing all rent payments, late fees, returned check fees, etc. Show data from previous tenants if current tenants have been there less than 36 months.
- Purchase receipts and warranties for the furnace, air conditioner, water heater and other systems.
- Repair or remodel contracts and bills.
- Architectural and building plans, if available, for original construction and all permitted remodeling.
- Notices from government agencies regarding the property or the neighborhood.
- City or county safety inspection reports for the past 36 months.
Obtain Tenant’s Cooperation In The Sale
Provide tenants with a written “Notice Of Sale And Entry” and work with them to develop a mutually-agreeable viewing schedule. Get their cooperation in keeping the property clean and presentable. If the tenant currently mows the lawn and trims the bushes, consider hiring a professional lawn service contractor to maintain the grounds until the sale is completed.
NOTE: I recently published “More Tips For Selling A Rental Home” – part 2 in this series of investment property advice.