Selling an apartment is complicated enough, and more so when you're renting the place out. Whether you've got a townhouse with a separate rental unit or an investment co-op or condo, you'll have some extra questions to consider as a seller: how are you going to market the place to buyers? What's the most painless way to set up showings? And what are your legal obligation to the tenant?
From the get-go, when you put your place on the market, you'll want to make it clear to buyers what they're getting into. "Make sure your paperwork is in order, and be careful with disclosures," warns Dean Roberts, a real estate attorney with Norris, McLaughlin, and Marcus. "If [what you tell buyers] constitutes a misrepresentation, you can get in trouble." This means double checking the terms of the lease, and triple checking that the apartment isn't actually supposed to be rent-regulated. "The thing you have to watch out for is brokers who promise things" to buyers, says Roberts—for instance, saying that a tenant can be easily shooed out when in fact, they've got a lease for another nine months and aren't intending to move out sooner.
And since you'll be marketing to a smaller, more specific segment of buyers—those on the hunt for an investment property rather than their new residence—you'll need to tailor your approach accordingly. "We always put 'investment property only' in the listing so it's clear to buyers that they can't move in," says Peggy Dahan, an agent with Siderow Residential Group. "When we have the investor [i.e. the potential buyer], we get the tenant's lease in front of them, along with information on costs, maintenance, taxes, etc. We have an Excel spreadsheet so they can see how much the apartment costs versus how much it's bringing in."
For buyers who are truly looking for an investment, an established tenant might be seen as a plus. "Sometimes buyers will spend more money because they know they'll be making income from day one, and know the exact return on their investment," adds Dahan. "Basically, an investor wants to see how much money is coming in. The last two investors I worked with didn't even visit the property—these aren't people who are looking to buy today and sell tomorrow."
If that's the case and you don't have to deal with showings, you can let the tenant know about the new ownership (and where to start sending the rent checks) as part of the closing process, Roberts tells us. In fact, some owners like to keep their sale quiet until it's finalized to avoid spooking the tenants.
But in the (very likely) scenario in which the person buying your apartment actually wants to see it? Video-tape or photograph the apartment before you ever rent it out, so you'll have something to show buyers without having to bother your renters, Dahan recommends. And from the start, put a clause in the lease saying that you'll give 24 hours notice for showings if you end up trying to sell the apartment, and will accompany any prospective buyers who are coming through.
If it's too late for that, your ideal scenario is to show the place when it's looking as clean and decluttered as possible, and when the tenant isn't home. "It's in everybody's interest not to have the renter present for showings," says Bellmarc Realty broker Richard Silverman. "The goal is to get a tenant to keep the home in good condition and be helpful and cooperative" during the sales process, he adds. To ensure good will all around, make it worth their while. "The broker can offer incentives or rewards to ensure that a tenant will cooperate," says Silverman, who suggests offering half-priced rent during the month you're doing showings in the apartment, gift certificates, "or even a small vacation."
On top of that, it can help to make your tenant feel like they've got options. "The first question should be if the tenants would like to purchase the home," says Silverman. "Sometimes the people living there love it and they could buy it." And if you're getting interest from buyers who might want the renter out before the lease is up, it can't hurt to see if they'd be open to it. "You can always offer to buy someone out," notes Roberts. "You can't harass them, but you can always negotitate."