The California Landlord’s Guide to Selling a Rental Property
The US rental market is booming. There are currently over 20 million landlords operating across the country and 500 new people starting up every day. But being a landlord isn’t for everyone. Whether you’ve had bad experiences with neglectful tenants, can no longer afford to maintain the property, or you are just burned out with managing the responsibilities that come with it, you may be wondering what your options are.
If you’re one of the thousands of property owners who has become disillusioned with life as a landlord, you’re probably looking to get rid of your house as quickly as possible. But selling a rented property isn’t as straightforward or easy as selling a normal residential home. There are all sorts of problems and pitfalls that you may face. Luckily, this step-by-step guide will take you through everything you may encounter and everything you need to do to successfully sell your property.
Reasons To Sell
The decision to sell one or all of your properties may be made for all manner of reasons. Often, it has to do with changing life circumstances. Maybe it’s time to retire, or perhaps you’ve found a different property to invest in. On some occasions, however, landlords’ other life situations may force their hand into selling before they had originally planned.
Tenants Have Wrecked the Property
Unfortunately, this happens all too frequently, and quite often it can be the final straw for tired landlords. When tenants tear through a property, it doesn’t just cause financial damage totaling thousands of dollars to the house, it can cause emotional damage, too. The emotional stress of dealing with trying to rebuild a damaged property can be crushing. It’s often far easier to simply sell and move on.
Even if you’re committed to selling the property, however, you may be able to receive compensation from the tenants or your insurer. Just make sure you follow these critical steps:
- Document the damage. Inspect the property thoroughly and record every instance of damage. You should make a physical (or digital) note of what the damage is and where it is in the house, and take photos. If possible, do this while the tenant is present.
- Contact the police. By contacting the local police force, you will receive official paperwork to help you document the event. It may also lead to an arrest if the damage is extensive enough.
- Send notice to the tenant. If you are planning on making repairs before you sell, send the tenant notice, itemizing the cost of each repair. Make it clear that they will be expected to refund you the amount in full.
- Deduct the cost of damage from the deposit. Regardless of whether you are going to carry out repair work, you can deduct the cost of damage from the tenant’s deposit. It’s unlikely to cover the full amount, but it is a start.
- Take the tenant to the small claims court. This may be your only recourse if the tenant refuses to pay for the damage. You will be provided an advisor free of charge by the Superior Court of California, which may allow you to get compensation without incurring high legal fees.
- Contact your insurer. Making a claim may increase your premiums, but if you’re looking to get out of the rental market altogether, you have nothing to lose.
You aren’t guaranteed to receive a penny, of course. And the headache isn’t over even if you have chosen to sell your wrecked property. You’ve then got to decide whether to repair the damage first or sell the property as your tenants left it. Ultimately, the amount you receive in compensation may make that decision for you.
Can’t Afford the Mortgage
While renting out a property might bring in a source of income, it may not always be enough to cover the mortgage payments. And that’s if you have tenants. The situation can be even worse if you’re property is one of the 6.8% of US rental homes that is sitting vacant. A single missed payment is one thing, but if you keep missing payments, you can expect the following:
- A missed payment fee. You usually get a two-week grace period from the date your mortgage is due in which to make the payment. Failure to do so will likely result in a charge to your account.
- A hit on your credit score. If you keep missing payments, your lender will probably report you to credit agencies who will adjust your credit score accordingly. A low credit score will impede you from taking out a loan on almost anything in the future, not just a house.
- A breach letter. Around two months after your missed payment, you will receive what is known as a Breach Letter, or a Demand. This document will state that you are in default and will outline clearly what will happen if you don’t make payment.
- Foreclosure. An auction date can be set as quickly as 90 days after defaulting. A sheriff will issue an eviction notice if anyone is currently living in the property.
Losing the property to foreclosure is entirely unnecessary when you can take steps to sell the property as soon as you realize you are going to default. Even if you are pressured to accept a lower offer because of the timescale, having something is far better than nothing.
Too Much Hassle
There may come a point in your life as a landlord when you begin to think, is it worth it? Being a landlord isn’t easy, after all. Far from it. Many different factors can frustrate a landlord to the point of wanting to stop, including:
- Dealing with property managers
- Lease violations and dealing with tenants
- Collecting (or not collecting) rent
- Evicting tenants and the cost that comes with it
- Property maintenance
These problems can become even more onerous when the landlord lives in another city or a different state from the rental property. It can be incredibly stressful to have to rely 100% on someone else—often a stranger—to handle a large part of your business for you. The trouble is, it can be just as difficult to sell the property as it is to manage it when you’re in another part of the country.
Realizing Capital Gain
Let’s face it, there is a lot of equity tied up in property. And accessing it is another reason why landlords may choose to sell their property. You may want or need the cash from your rental property for all sorts of reasons, including:
- Moving to a nicer home. After all, it’s no good spending your life providing a great home for people if you aren’t happy with your own living situation.
- Buying two smaller properties to rent. The rental income between one large property and two smaller ones could be significant—far larger than the difference in price. Some landlords prefer to manage a portfolio of smaller properties, instead of a few larger ones.
- Obtaining the cash to change your career completely. If you’re fed up with being a landlord, the cash tied up in your properties could set you on the path to doing what you really want. Whether that is starting up a new business or investing in someone else’s is up to you.
- Paying off outstanding debt. If something has happened in your life that has caused you to accrue significant debt, for instance, high medical or legal bills, selling one of your properties is a quick and efficient way of settling the debt.
You have to remember, however, that not all of the money you get from the sale will go directly into your bank account. You will have to pay off the mortgage in full with the sale money, as well as paying a commission fee to a realtor or anyone else who helps you sell the property.
Tips for Handling Your Tenants
Your tenants have rights that you must abide by when you’re looking to sell the property that they rent. Like with most things, communication is key. If you are clear and honest with your tenants, you’ll find them much more willing to cooperate throughout the process. Follow these guidelines for the best chance of a smooth move:
- Tell your tenants as soon as you have decided to sell the property. This a huge part of their lives, after all, and they deserve as much notice as you can give them so that they can find a new residence.
- You must give tenants 30 days notice at a minimum of your plans to sell the property. Now bear in mind, 30 days isn’t long when you have to find somewhere else to live, which is why it is always best to give more notice whenever possible.
- You can arrange for the new landlord to honor the lease agreement if you sell to another landlord. This won’t always be possible, however, and only accepting offers from existing landlords may increase the time it takes to sell the property.
- You have to give them time to move out. This may seem obvious, but make sure you give tenants ample time to move their belongings out of the house and for you to tidy up the property after them. After all, there is no guarantee they will leave things in good condition.
Tenants are in the position to seriously impact your plans to sell the house. We’ve already seen that they can cause untold damage to your property, but they can also refuse to let potential buyers view the house. Whatever you do, just remember that a quick sale is only possible when you handle your tenants correctly.
Deciding How to Sell
In today’s property market, there are more ways to sell a house than through a realtor. Of course, you can still use a realtor, who will take care of the entire process on your behalf, but you can also sell it yourself or sell directly to a cash investor. But what does each process look like, and which is the right one for you to choose?
Selling Through an Agent
This is the traditional way to sell a property that most people will be familiar with. You hire an agent who will market your home, arrange viewings, and negotiate the price on your behalf. The process will look like this:
- Choose a realtor. There will probably be dozens—if not hundreds—of realtors in your local area, and choosing one can be daunting. Keep things simple by speaking to friends and family members about their experiences. You can also look at websites such as the California Association of Realtors or Zillow for collated reviews from people throughout the state.
- Get your property valued. This will likely be done at the same time as choosing a realtor. In fact, many will do this for free as part of your selection process. Be careful, however. Some realtors may inflate the value of your property, promising that they can get a higher selling price than other realtors can achieve. This is just an attempt to persuade you to choose them. If one realtor values your property significantly higher than others do, then do yourself a favor and forget about them.
- Prepare your home for sale. If you’re putting your home on the market, you’re probably going to have to get the property in a livable state. The problem is, rented properties aren’t always left in the best state. That means hiring cleaners and completing any renovation work the property needs.
- Show viewers around the property. While the realtor will handle the marketing of the property, you will at least have to arrange with your tenants for potential buyers to see the home, or show them around the property yourself.
- Receive, negotiate, and accept an offer. After a period of time, you’ll start to receive offers on the property. The realtor will handle the negotiation with buyers and, once you are happy with an offer, you can provisionally accept it.
- Complete the transaction. Nothing is guaranteed until you complete the paperwork. Up until that point, either you or the buyer can pull out of the deal. What’s more, the transaction will only be complete when the property chain allows it. For instance, the person buying your property may be waiting for someone else to buy their home. They will only complete when they find a buyer. Consequently, the completion date is out of your hands.
While using an agent is still the most popular way to sell a property, the process is far from perfect. Even if a realtor does very little to sell your home, they will still take a small but significant percentage of the sale fee. The process can also take time, as well. Even if you manage to get your property cleaned and ready for the market within a few weeks, you could wait months for an acceptable offer. This is not ideal if you need to sell the property quickly to pay off a mortgage or cover other debts. It also means that your property has to be in good enough condition to attract interest on the market.
This is becoming a more frequent option for sellers who want to cut out the middleman and think they can handle the sales process themselves. You’ll have to complete all of the steps above as well as the following:
- List your property on the MLS. The Multiple Listing Service is a database that advertises properties for sale to licensed realtors. Having your property on the MLS means that it will show up in searches on Zillow, Realtor and other property websites. There are dozens of websites that will list your property on the MLS in return for a flat fee—typically a few hundred dollars.
- Market your property. Without a realtor, you’ll be in charge of marketing your property. This means designing, printing and putting up sales signs, creating a website, and creating brochures for an open house.
- Know your property’s selling points. You’re also going to have to sell the property yourself during viewings. This means knowing what your property’s best features are and being able to highlight them in an effective manner to any potential buyer.
- Perform your own negotiations. This is probably the most uncomfortable part of the process for many people who choose to sell their own home, but failure to do so will result in you leaving money on the table.
- Know and comply with California State law. When you’re selling your own property, you are going to be the only person responsible for making sure you comply with the law that surrounds the sale of property. Advice, as well as template documents and contracts, can be found online, but it is wise to have a real estate attorney look over anything you draw up.
By selling your property yourself, you are cutting out the middleman and keeping thousands of dollars that you would have otherwise paid to a realtor. However, you will still be responsible for cleaning and repairing your property to get it ready to sell. You will still have to wait weeks or even months for an acceptable offer to come in. You will still have to deal with lawyers, surveyors, and ensure your tenants move out of your property on time.
Selling Directly to a Cash Investor
If all this sounds like a lot of stress and hassle, the alternative is to sell directly to a cash investor. By selling direct, you don’t just cut out the middleman, you also cut out all of the waiting and the necessary improvements or repairs. Here’s what the process will look like:
- Speak to a company that will buy your house directly.
- A valuer will visit your property and make you a fair offer.
- You choose to accept the offer or decline.
- If you accept the offer, you pick the completion date.
- The cash investor handles everything, including ensuring your tenants move out of the property when you want.
- On the day of completion, you hand over the keys and the company makes a cash deposit in your bank account.
Not only is this a much more efficient way to sell a property, but there are a number of other benefits that are particularly advantageous to landlords. First is that the cash investor will buy properties in any condition. Even if your tenants have wrecked their house, the investor will buy it as is. This means you don’t have to waste time or money on repairs and renovations. Furthermore, you don’t have to be in the same state as the company or meet them in person. Everything can be done over the phone. There’s also no need to deal with lawyers or any other professionals. Finally, the transaction takes place when you want. That means you have the time you need to notify tenants of the sale. In fact, the company buying your property will usually ensure they move out on time for you.
Problems You Might Face
Selling a property is far from straightforward. Selling a property as a landlord is even more difficult, however. Unfortunately, landlords face their own unique set of hurdles that have to be overcome before they can hand the keys over to a new owner.
Repairs to the Property
The trouble with tenants is that sometimes they don’t look after the house as well as they would their own. This can mean that quite severe repairs can be required to a property before selling. But it’s not just a case of getting the contractors in and paying for the repairs. Depending on what state tenants left your property in, you could be looking at tens of thousands of dollars in repairs. But you also still have to work around your current tenants. You may find it difficult to repair the property with the tenants still living there, which means that you will have to evict them earlier than necessary and go several months without rental income.
That’s if you sell the property using a realtor or by yourself. If you opt to sell the property directly, however, you will not have to complete any repairs at all. The offer you receive will take into account the repairs. And, while it might not be as much as you would expect the property to be worth in perfect condition, it will be comparable to the true value of the property minus the costs of repairs.
Can’t Give Tenants The Notice They Need
As a landlord, you have a responsibility to give as much notice to your tenants as possible. When you’re at the mercy of the property market, however, you have no idea when the sale of your property might complete. Not only do you have to find a buyer, you’ve also got to wait for their property chain to complete before you can hand over the keys.
This will result in one of two scenarios. The sale may come too quickly and leave your tenants with nowhere to go. That’s if you can even give your tenants the notice they legally require. Alternatively, the sale may come too slowly. You could be left without a stream of income for months if your tenants take heed of your notice and leave quickly.
The truth is the property market just can’t guarantee a sales date. But by selling direct, you and your tenants can choose the date on which you complete. That means if you are in a rush to sell the property to pay off another debt, you can complete as fast as you want. Conversely, if you need to give your tenants time to move out, they can have all the time they need.
Viewings are Difficult With Tenants
If you’re selling your house with an agent or by yourself, eventually people are going to want to see the property. This isn’t so easy with tenants, however. After all, it is illegal to show up at their property and let yourself in unannounced. That means you have to arrange every single viewing for a time that suits them. Ultimately, this means your property could end up being on the market far longer than it has to be.
By selling direct, this problem goes away. You only need to show the property one time. That’s it. The offer can be made on just one visit and, if you accept, the company won’t need to visit again until you hand over the keys.
Dealing with Agents When You’re Out of State
If you’re an absentee landlord fed up with dealing with tenants in another state, it is going to be even worse dealing with realtors, property managers, tenants, and lawyers. It can be overwhelming to keep track of so many people.
By selling direct, you only have to deal with one person—your consultant. This will be the person who values your property and makes an offer on behalf of the cash investment company. If you accept the offer, the consultant will handle absolutely everything on your behalf.
After considering the many variables involved in selling a property that you rent. It will come as no surprise that so many landlords choose to sell directly to a cash investor. If you want to join them, start your sales process by speaking to one of our consultants. You will receive an offer on your property within a working day of your call and we’ll complete the transaction when you want.