The 3 Most-Critical Pieces Before Listing Your Rental
#1 is the biggest and most important by far to prevent a loss or maximize your gain. The first question you have to ask yourself is a WHO not a HOW. Who is going to buy it, not how are you going to sell it. Maybe we’re already working together or maybe you’re someone outside of Tampa Bay just searching for the best way to sell, offload, divest…. your rental or entire portfolio. These require two different solutions based on the WHO.
Who is going to buy it? There’s usually just two answers. An investor or an owner occupant.
Is an owner occupant going to be buying and living in a duplex? Maybe. That’s househacking after all, but will the average buyer do that with an 8-30 unit building or even a small portfolio of houses? Absolutely not. It’s extremely important to recognize who your target buyer is because that will determine big answers for #1-2. Your target buyer is 100% up to you, but it makes the most fiscal sense to figure out who is willing to pay the most at the time of sale. This is something I’ve been helping sellers with for years.
Tailor Your Tenancy Status to Your Target Buyer
If you aim to sell to owner-occupants, do NOT renew your tenant.
Before I go further on this, I believe in treating tenants right. I’m strictly talking about the best thing for the seller, you, because as an agent, I have a fiduciary responsibility to them, not the tenants. We owe renters a lot for paying our mortgages, providing cash flow, leverage, stability, etc. You want to treat them right - with courtesy and more notice than required by law. Being diplomatic with them will help this process go far smoother for you.
Non-renewing your tenants or switching to month-to-month leases will provide you with a huuuge buyer pool. This may require planning ahead! Roughly 75% of transactions in a given market are to owner-occupants and 25% are investors. You have so many more possibilities if you target buyers appropriately. Often times in this market (2024), the average single family house is better off targeted to an owner-occupant because they can pay more!
Why should you nonrenew and wait till tenants vacate to list your property?
Buyers cannot finance a rental property with an existing lease. Lenders may be ok with month to month or remaining lease terms of 1-2 months max.
Buyers just don’t want to see a tenant-occupied property compared to other options. It’s different walking in where someone wants to keep living there.
There are constant scheduling issues.
Belongings can get in the way with buyer inspections.
When the tenants move out halfway through the deal and it looks completely different (worse) than when they viewed it, you’ll have an unexpected large bill to get it back to the proper cosmetic condition.
When a property is vacant, it won’t have the same “rental” feel to it and won’t taint the listing.
Conversely, if you're targeting investors, then 9 times out of 10 it’s in your best interest to keep tenants month to month. Though it can vary much more case by case. If you know you are at top dollar rents, keep the tenant as that and a good tenant will help you sell! Most of the time rents are not market rate! If your rents are low, either nonrenew, raise, or let tenants go month to month so the new buyer has the flexibility to make those decisions. It’s best to contact your agent prior to making any big decisions if you plan on selling with the next year.
Evaluate and Enhance Property Condition and Curb Appeal
Before listing, you (and your agent) need to assess your property's condition. Have you deferred maintenance that needs addressing? Is the roof over 15 years old? HVAC new? Is your property move-in ready but just needs some curb appeal?
This step is the most complex with a thousand options, but it’s really not difficult.
If you’re targeting an owner-occupant, you want to make the house as nice as possible with your budget. Making necessary repairs and enhancing curb appeal are crucial steps to attract buyers and maximize value. Simple upgrades like fresh paint or landscaping can significantly impact first impressions and sale speed.
If you’re targeting a investor, this is going to highly depend on current condition. Highest profit vs time ratio could be selling as-is or fixing into turnkey. However, it could be tricky doing any work while tenants are occupying. Talk to your agent.
Organize Your Financials with Precision
Lastly, this one is geared more towards investor buyers. Most of the time, owner-occupants won’t know it was ever a rental or care about financials.
Gather all essential financial documents, including rent rolls, leases, and Profit & Loss (P&L) statements. This step, often facilitated by your property manager, provides transparency and reliability to potential buyers. Well-organized financial records streamline the sales process and enhance buyer confidence.
Your real estate agent will then package these docs with additional marketing materials and information, creating a compelling and effective sales strategy. The idea here is to make buyers and buyer agents job easier so you attract more interest. Agents constantly have to reach out every day asking the same questions to list agents who don’t know any of these answers!
Tenants total length of stay
Current rents
On time?
Renter(s) pay any utilities or lawn/pool care?
Current lease expiration
Security deposits on hand
Are power and water meters split on multifamily?
By following these steps, you can significantly enhance your property's appeal, attract the right buyers, and achieve a successful sale.
Bonus Tip
You should probably know how selling a rental property could impact you, taxwise. Large capital gains come due with any amount of profit. This can be deferred or avoided entirely by a variety of measures:
Move back into your house for 2 years prior to selling. If you have 250/500k of gains, they can become tax free by living in it for two of the past five years, and you’ll be off the hook.
1031 into a new opportunity
Seller financing
Subto
For more insights into the Tampa market, investing and rental properties, check out the rest of my blog or my Youtube channel, and as always you can connect with me 1 on 1 here.
