When it comes to selling a property, the age-old debate revolves around whether to sell it vacant or with tenants already in place. As a seasoned real estate investor, I’ve been asked this question countless times, and the answer isn’t always black and white. Various factors come into play, such as the type of property, current market conditions, and the target audience of potential buyers. Let’s delve into the advantages and disadvantages of selling different property types with or without tenants.
Single-Family Homes
- Single-family homes typically fetch higher prices when sold vacant because:
- Owner-occupants are willing to pay more for a home compared to investors looking at it purely as an asset.
- Owner-occupants represent the largest buyer pool for single-family homes.
- Vacant properties can be adequately prepared and staged to attract buyers.
- Repairs and updates are easier to undertake when the property is vacant.
Exception: Low-Value Markets
- In markets with low property values but decent rental rates, selling a property with tenants might be more beneficial. This scenario is often seen in turnkey rental operations where properties are sold to long-distance investors with tenants already in place.
Multi-Family Properties
Duplexes
- Having at least one rented unit is advantageous for duplexes because:
- It appeals to house hackers who want to live in one unit and rent out the other.
- Rental income can help buyers qualify for financing.
- Demonstrates proven rental income potential.
Larger Multi-Family (5+ Units)
- For properties with five or more units, it’s generally better to sell when fully occupied. Key points to consider include aiming for market-rate rents, maintaining a good payment history from tenants, and keeping meticulous income and expense records.
Commercial Properties
Small Commercial
- Small commercial properties can go either way, with vacant properties appealing to owner-occupant businesses and potentially fetching higher prices from owner-users than investors.
Large Multi-Tenant Commercial
- Larger commercial properties with multiple units are usually better sold with tenants already in place, as investors prefer stabilized income. Having a few vacant units to showcase upside potential might also be beneficial.
Single-Tenant Large Commercial
- Selling these properties can be challenging, with specialized uses making it harder to sell when vacant. Adding significant value are triple net leases with strong tenants, as property value is closely tied to tenant quality and lease terms.
Special Considerations
Mixed-Use Properties
- Mixed-use properties are generally better occupied, especially if tenants are strong. It’s recommended to separate business operations from real estate and consider the property’s potential use when determining its value.
College Rentals
- Selling timing is crucial for college rentals, with the best approach being to sell either fully rented during the school year or vacant right before the rental season to avoid vacancies during off-peak periods.
In conclusion, while guidelines suggest that single-family homes are usually better sold vacant, multi-family properties are typically better occupied, and commercial properties’ status depends on their size and type. Market conditions, property condition, and timing all play crucial roles in deciding whether to sell a property with or without tenants. Remember, these guidelines are not set in stone, and it’s essential to assess your specific situation before making a decision.
