By Justin Liva, Mojo House BuyersI buy rental properties with tenants still living there, so you don't have to wait for anyone to move out before you sell. Maybe you're simply tired: the rent has been late for months, the boiler is on its last legs, or you've moved out of state and managing from afar has become a second job. Or you became a landlord by accident, after inheriting a two-family with a long-term tenant already in it.
Selling a rental with people living in it is different from selling an empty house. New Jersey's tenant protections shape how a sale with tenants works. Here's a general overview, with the caution that landlord-tenant law is detailed and you should run your specific situation by an attorney who practices it.
Good cause, and what it means for a sale
The state's Truth in Renting guide, published by the Department of Community Affairs, explains that the Anti-Eviction Act covers most residential rentals, including single-family homes and apartment buildings. Under it, a landlord can't evict a tenant or refuse to renew a lease without good cause, and has to be able to prove that cause in court.
The guide notes the law may not apply to owner-occupied buildings of two or three units with two or fewer rentals. If you live in one unit of your two-family and rent the other, your situation may be different, and an attorney can tell you how.
For everyone else, plan on the tenants being part of the sale unless the narrow ground below applies and your attorney confirms it. If they stay, the new owner also takes on responsibility for their security deposits, covered further down.
The owner-occupancy ground, and its limits
There is one ground for removal tied to a sale. According to the DCA guide, the owner of a building with three residential units or fewer may file for eviction after contracting to sell a unit to a buyer who wants to personally live in it, if the sale contract calls for the unit to be vacant at closing. A Notice to Quit has to be served at least two months before filing, and no action can be taken until the lease expires.
Notice what that requires: a buyer who plans to move in, a small building and an expired lease. It doesn't fit a sale to an investor who intends to keep renting. It also isn't fast. The guide adds a warning: when a tenant moves out after notice that the landlord wants to live there, the landlord has to occupy the unit for at least six months, and renting it to someone else instead can leave the landlord owing the former tenant three times the damages plus attorney fees.
Some towns add another layer. The DCA guide points out that municipalities may pass rent control or rent leveling ordinances, enforced by local boards. Check with your town before assuming what rent a buyer can charge.
Security deposits follow the property
The DCA guide says that when a rental is sold, it's the new owner's duty to obtain the tenant's security deposit and accrued interest from the former owner. Whether or not the money actually changes hands, the new owner becomes responsible for returning it.
Have your rent roll, leases and deposit records in order before you sign a contract. Plan to settle the deposits with your buyer at closing, since the new owner becomes responsible for them.
Showing an occupied rental
If you list with an agent, showings depend on your tenant. The DCA guide says a landlord generally doesn't have the right to enter a rental without the tenant's consent or a court judgment, so a tenant who won't cooperate can make showings hard.
A buyer who wants to move in needs the unit empty, and that brings you back to the limits above. A buyer who's happy to keep renting it out, like me, can take it with the tenant in place, and prices with the tenant in mind.
Your realistic options
Wait for the lease to end. If your tenant plans to leave on their own and you can wait, listing the empty house with an agent for a few months can usually get you top dollar. That's my honest advice when timing allows.
Negotiate with the tenant. Another option is offering a tenant money and time to move out voluntarily. If you consider it, have an attorney handle the agreement in writing, and never pressure anyone.
Sell with the tenant in place. You hand over the lease, the deposit and the responsibility at closing, and you're done being a landlord. That's how I buy: with the tenants still living there.
How I look at a rental
When I'm asked to make an offer on a rented property, the leases, the rent being paid, the deposits held and the condition of each unit all go into the analysis. I'm looking for a deal that works for you and for me, and the rent a tenant pays today is part of what the house is worth to the next owner. My guide on how investors price houses breaks that math down.
I buy as-is, so an old boiler or dated bathrooms aren't something you have to fix before selling. I buy condos too, including ones that are rented out. Before you sign with anyone, have a landlord-tenant attorney confirm what your leases require of you. If the property needs a lot of work, my guide to selling a house that needs repairs is worth a read too. There's no commission, the offer is free, and we pick a closing date that suits you. Who covers closing costs depends on the deal, and my guide to seller closing costs lists what to expect.
When you're ready to see a number, request an offer and tell me a little about the units and the tenants.