Selling Investment Property to Tenants: Dos and Don’ts

I have had some landlords ask me: “Should I sell my property to my current tenants? They have taken great care of the property and treasure it”.

Though this may seem the rational thing to do, but will the tenants pay a premium price for your property?

We will go into some pros, cons and the potential costs involved in this process.

Will tenants pay the highest price for your property?

Being a landlord myself I would like to think so.

As a real estate agent we often see home buyers get emotional when buying property.

It could be that your tenant may genuinely be emotionally attached to the house and may be willing to pay a good price for your property.

However from working within our property management department we find that most tenants don’t think of your property the way you do.

For example some tenants can feel a sense of ownership or entitlement and take on fixing/improving things themselves sometimes with or without your permission or knowledge.

If they have lived in the property the many years and made personal changes they start to think that you should reduce your price for what they have done to the property.

Some of these “improvements” may have actually devalued your property but they will still expect a discount.

You will also need to think about the wear and tear on the property when selling.

When the tenant moves they may need to restore the property back to the condition that it was in when they originally signed lease.

The property may be due for new carpeting or a fresh coat of paint.

This may help you get more for the property than if you sold it to the tenant in its current condition.

On the other hand, because your tenants have lived in the property and know it well, they may see past the imperfections of wear and tear that have occurred over the years and accept it in its current state.

How to handle your property manager

If you have a relationship with the tenants it may be a good option to approach them directly, but make sure you are a smart negotiator and don’t agree to below market price.

If the tenants are currently in a lease, it may be a good idea to get your property manager to approach them, but keep in mind you are not obligated to sell with your current property manager.

Ordinarily, managing agent agreements don’t have fees and charges if you decide to sell with a different real estate agent.

Tip: keep in mind there could be a lease break fee that you may have to pay to the agents and the tenants so double check your agreement. A good idea is to wait until the lease is up so you can keep your options open.

Another thing to keep in mind when selling is that legally, the ‘contract of sale’ should mention whether the property is tenanted or vacant.

Selling to tenants pros and cons table

Here is a table that can assist your decision process, but bear in mind if you do decide to sell directly to tenants, you can miss out on the highest possible price for your property.

Sell directly to tenants	Sell the market and tenants
It can be acquired process with no signboard out the front of your property	A large signboard in front of your property
Tenants could feel a sense of entitlement of the work they have done and ask for a lower price	Tenant will be competing with all the buyers in the market and this may push the tenant to pay a higher price than what they expected
No pressure on the tenants to buy	Tenants will have a sense of urgency to buy- they may stick to their legal limit of two inspections per week of buyers coming through
Save on agent fees	You may have to pay for an agent to get the marketing right
The process can be very transparent if you have a good relationship with the tenants	The tenants will have to contact the selling agent for information
Process may be fast	Listing your property for auction will involve four weeks auction campaign
Dealing with the property manager may be difficult	The selling real estate agent will deal with the property manager on any issues that arise and for tenant communication

As you can see, there is not a one size fits all solution for everybody as everyone’s situation differs. 

I hope this table helps you sort out the easiest and most profitable option for you.

Ultimately, if you hire a good real estate agents to sell your property on the market you should be able to get the best possible price for your property with a lot less hassle.

The reason being is that you are dealing with an emotional buyer that is ,in theory, in love with your property for which they now have to compete for with the market.

This may be just the kick they need to give you the price you want.