The first and most important question is always the seller’s motivation. If they are definitely selling, then you can list it and sell it.
The challenge is that it is occupied by a tenant, so now the tenant’s motivation becomes the next issue. Often a tenant does not want to move, and since they don’t benefit from the house showing or selling, it can be difficult to get their cooperation.
The solution is #1) to treat the tenant with respect and let them know that you will be cooperative with them in showing the house, so they will be cooperative with you in showing it. #2) Encourage the seller to give the tenant a financial incentive to keep the property clean and to cooperate with showings. This incentive should be paid when the tenant moves out (after they have cooperated, rather than before).
And don’t forget to find out if the tenant is interested in buying the property, which makes everyone happy!
Hey there, it’s Kevin. I’ve got a great question here from one of my coaching members actually. “What should I do when a property is occupied, tenant occupied and the owner is interested in selling the property? Problem is, it’s occupied by a tenant, can’t be staged, and the owner is interested in selling, but if it doesn’t sell they would continue renting out to the same tenants. When I ask him about his motivation he said, ‘It is high,’ it’s an expired listing. What do you do when you have a tenant occupied property and the people want to sell the property?”
Number one, it’s an expired listing. The most important thing always, always, always forever is motivation. Why do they want to sell? How high is his motivation? He says, “It’s high.” Well, high is relative, right? How high is your motivation to make a million dollars? “Well it’s high.” Well how high? Are you willing to do whatever it takes, or is that just a big wish? First thing you gotta decipher or determine is, how strong is the motivation? Why are they wanting to sell? What are they going to do with the money? Are they making money on the property, are they losing money, are they breaking even? Do they have other plans for the equity? Is there equity? All of those are important questions.
The first thing is, do they want to sell or not? If they want to sell, they can sell. Let’s say they’re motivated to sell, so here’s the challenge with a tenant occupied property. More than anything else, the problem is it’s occupied by somebody who’s probably not interested in it selling. This is somebody who lives there, and if it doesn’t sell, they’re going to keep renting it to the same tenants which means the tenants probably don’t want to move.
When the tenants live there and you show the property, the tenants aren’t really interested in being cooperative so the real key is, if you’ve got motivated sellers and they want to sell, is you have to work with the tenants directly and treat them with the same level of respect as if they are the owner. You literally have to do that. Let’s just say that sellers definitely motivated to sell, they want to sell, they list it. So here’s how you do it. The seller obviously has to give notice to the tenant, but I’m going to be the one that controls setting up showings, and all of that kind of stuff. First, educate and kind of instruct your seller how to make an arrangement with the tenant to do this, get the tenants cooperation. How do you get the tenants cooperation? Well, by incentivizing them with a rebate on their rent at closing.
Here’s how it goes. The seller requests that the tenant, and the tenant, unless the lease is somehow written weird, otherwise the tenant has to cooperate. They have to allow the property to be shown typically, and so forth. The landlord, the seller has to give notice to the tenant. Then the tenants supposed to cooperate. The tenants don’t really cooperate. They may not be there, but they don’t make up their beds, they don’t clean the kitchen, it’s a mess, it stinks. There’s a dog, whatever it is.
What needs to happen is the seller agrees to reimburse or to rebate the tenant for a portion of the commission. Let’s just say it’s $1,000 a month rent, and they agree at closing from the time the property is listed until it is no longer showing. However long that is, they’re going to rebate them 30%, 40%, 50% of the rent at closing. Now, you don’t, you never The seller should never tell the tenant, “Well while it’s on the market, you only have to pay me $700 a month in rent, cause then the seller, the tenants going to pay $700 of rent, and the place is still going to be ugly. It has to be an incentive, and it’s a rebate based on this. One, that the tenant gives … With a one hour notice, the tenant cannot deny a showing under any circumstances between 9:00 AM and 6:00 PM or 7:00 PM depending on the time of year, and what the norm is in your market. They cannot deny a showing, and they must keep the kitchen, the sink empty of dirty dishes. The kitchen must be cleaned. House must be cleaned, beds must be made, no animals in the house when there’s a showing. That’s got to be the case. If the feedback comes back from an agent that the property was a mess, or the tenant was asleep in the bed, or somebody was watching television, or whatever like that, then there’s no rebate, or now you’ve got to have a conversation.
Now, that’s the leverage. Your job is now to have a conversation with the tenant to say, “Look, I know this is a pain in the neck for you.” And I talk to them, I say, “So first, as you know the sellers are in the process of selling a property, they’ve hired me to help. But I also know it’s where you live. I really want to be respectful of you, and I want to work directly with you to make this as smooth and easy for you as possible.” If you treat the tenant like they’re the enemy, like they’re a nuisance or they’re a problem, they’re going to be a nuisance and a problem.
But if you treat them with respect and with dignity as if they are a major player in the success of this transaction, and you collaborate with them, then they’re going to be more likely to be respectful, and cooperative. So you’ve got to treat them with that respect. Say, “Look, here’s what we need to do is we’ve got to setup the best way for showings to happen, so that the house shows well, and that you guys are able to know it’s coming, and be prepared, and have you not be … So that nobody’s here, ’cause the house, nobody needs to be here when buyers come, when the house is shown. We need to set that up. I can do either a 30 minute notice, or a one hour notice, which would be better for you? One hour notice, okay perfect. It’s only going to show between like nine o’clock in the morning, and six o’clock in the evening, or seven,” or whatever.
That’s totally legit, it’s totally fair. If there’s a pet, you gotta deal with the pet and ask them how they’re going to take care of the pet if there’s a showing and so forth. The key is number one, seller motivation. Number two, getting the tenant cooperation. And you have to understand, a tenant occupied property tends to not show as well, so it tends to not sell as well. Now, there’s one exception, and that is if a property is a great rental property, and it could sell for as much to an investor who would keep it as a rental property. In that case, you just need the house to look good, and the tenant can stay, and so forth. One other thing, really important. Find out by talking to the tenant once you get the listing, “Why don’t you guys buy the property?”
There’s a lot of times they are like, “You know, we’ve thought about it, we’ve talked about it. I don’t know if we can qualify,” or whatever. Well then I’d say, “Look, let me hook you up with my lender. Let’s have a conversation, let’s just take a look and see what it would take for you guys to be able to own this property, and then you wouldn’t have to move, and you would own it. Every month you’d be paying yourself and building equity, rather than paying somebody else.” There’s a lot of situations where the tenant will actually end up being the buyer, you just double ended the transaction. Use common sense, be respectful of everybody. Straight forward conversations, tell the truth and stay on top of everything. If the sellers are motivated, and you work well with the tenants, it’ll always work.