During the recession, many homeowners that left town for work opted to rent their property out instead of selling at a loss or selling as a short sale. For many, this was a great alternative but now, those properties are coming up for sale. I’ve helped a number of landlords sell their rental properties and there are a few things to consider before deciding to put the for sale sign in the yard.
When is your lease up?
Yes, the lease that you’ve signed with a tenant will survive any sale so you’re faced with either trying to sell the house with a leased tenant or selling a house without one. That means, ending your lease and having to deal with making mortgage payments without any income to offset. While the second option may be the least desirable, it is the preferable strategy.
Every rental property needs some repair to bring it up to market standards. Trying to do that with a tenant in place is near impossible. Plus, there’s the issue of access (which can be difficult) and a tenant that may not want to leave anyway. Finally, if the lease will go beyond 3 months after a potential closing, most lenders will not make a mortgage to an owner occupant buyer under that scenario. So with all that being said, your best strategy and way to obtain your highest return is to plan to sell once you know your lease is just about over.
2. How’s the home’s condition
Chances are, your property manager hasn’t visited the home in awhile so you may not know the condition of your property. Almost every home needs carpet and paint throughout. If the tenant smoked in the property, prepare for a much more expensive painting bill to seal in the smoke smell (not doing so is an absolute waste of money). You may also need to replace appliances, repair leaks that were not reported, a/c that’s not functioning properly and windows that are fogged due to failed thermal seals (common issue). Depending on the size of the property, prepare to spend around $10,000-15,000. Not doing so will cost you that much and more on a resale side.
If you want to really get a feel for the home’s condition, contact a home inspector to go through the property and provide you with a report. Also, check the property disclosures of neighboring properties to see if all of the roofs were replaced about the same time. You may be eligible (and in desperate need) of a new roof due to hail or other wind damage.
3. Yard?!? What Yard!
I have yet to come across a rental property that has any semblance of a yard as most of grass is usually dead from being cut too low. While you need to have someone maintain the lawn while it’s listed, don’t worry if the yard isn’t 100% While curb appeal is critical, fertilizer and pine needles can go a long way to transforming a below average yard into something acceptable.
4. Price it to Sell
Just because you paid big bucks to get the home up to market standard, don’t squander that by over-pricing. If your carrying costs each month are $1,500, you should count on needing at least $4,500 for a month of rehab / repair, a month of marketing, and a month to close. If you over price it, you could increase your carrying costs dramatically and it may not yield a return to make it worthwhile.
5. Good News: You don’t need to come back
Believe it or not, most Sellers love it when I tell them that there’s no need to step back in the state to sell the house. A competent agent (like the one writing this blog) can line up reputable contractors, oversee repairs, market and list the property and arrange the closing. As an owner, the closing attorney will mail / email you the documents that you will need to sign. Once all is returned and the Buyer completes their portion, the sale is complete. Any proceeds are sent to the Seller after closing.