How Can You Make Sure You’re Financially Ready to Invest in Your Next Rental Property

If you’ve had a good experience with your first rental property, you may be thinking about purchasing another.

But while a successful stint as a landlord is definitely a good sign that you’re prepared to take on another property, it’s important to remember that all the same financial risks that came with your first purchase still apply.

Consider these important factors to make sure you’re truly financially ready to buy your next rental.

Cash Flow
From a month-to-month standpoint, the most important thing to consider is whether your cash flow can support a new investment, even above and beyond saving for the initial down payment.

Ideally, you’ll have enough free cash flow saved up to pay for both (or all) of your rental properties entirely on your own for at least three months.

That kind of buffer ensures that you won’t be caught off guard if you have difficulty securing quality tenants for the new property, or even if you lose your existing tenants at the same time.

In short, you need to make sure you can cover catastrophic scenarios for all apartments simultaneously, or risk falling into debt.

Additional Costs
It’s crucial to remember that you’ll incur most of the same additional costs during a second property purchase that you did for the first property.

Of course you’ll need to calculate the “always expected” costs of things like property and income tax for a new property, but you also need to include all the incidental and one-time costs that might arise.

Use your experience with your first rental property to estimate a broad window for how much you’ll require in repair and renovation costs when purchasing an additional property.

You’ll also want to keep in mind any advertising or brokerage costs that might be required to find quality tenants in your area.

In general, it’s a good idea to sit down and make a list detailing every penny you spent on your initial property during its first one to three years, then make sure your cash flow or savings can accommodate at least that amount for an additional property.

If you had an especially easy time of things the first time around, you’ll want to be more pessimistic in your calculations, and assume for safety’s sake that you’d need to spend more with a new property.

Assessing the Market
Beyond your own finances, one of the biggest factors to consider is whether your local market is a good choice for renting at all.

Nearly every city has a very active rental market, but you need to confirm what the exact state of that market is, and how it may have changed since your first purchase.

Accordingly, you need to do all the research you did the first time around.

Look at how many active vacancies exist, what the going rental rate is, and how long the average apartment stays vacant.

If any of those factors have soured since your first purchase, you’ll need to adjust your plans for cash flow accordingly, and may need to delay the new purchase entirely.

Once you’ve ensured that you can support not only the purchase price and mortgage, but also all additional expenses and worst case vacancy scenarios, you should be well on your way to expanding your rental property portfolio.

 

Specialized Housing

How to Make Sure You’re Matching Up with the Fair Housing Laws

Specialized housing, which is intended to provide housing to a specific niche of the market, must also comply with the Fair Housing Act.

This law, which was enacted in 1968, prohibits discrimination in the housing market based on gender, race, nationality, familial status, and disability.

Because specialized housing, like student or senior housing, aims at a particular demographic by its very definition, complying with it can seem like a tricky proposition.

Here are some guidelines for landlords in, or entering, some of the most common specialized housing markets. Use them to make sure your properties always match up to fair housing laws.

Fair Housing Laws and Student Housing

While all types of discrimination are possible within student housing, it is the familial status aspect that is the most problematic.

Studies have shown that rentals listed as “student housing” have high rates of discrimination against families with children, especially in situations where student housing takes the form of dormitories or “by-the-bed rentals.”

For landlords who want to invest in the student housing specialized market, it is important to make sure that there is always an option for every segment of the population – a specific dorm room meant to accommodate a family is good idea to maintain and have available for those with kids.

Students with disabilities also present unique challenges to owners of student housing.

Often disabled people need customized access to the property – like wheelchair ramps – or have a particular need – like a guide dog for the blind – that can present conflict with other renters, especially in dormitory style situations.

Before building or investing in student housing, it’s a good idea to run through all the possible scenarios you may have to deal with later.

Fair Housing Laws and Senior Housing

Senior housing may seem like it is discriminatory by its very nature, and it is.

But an amendment to the Fair Housing Act called the Housing for Older Persons Act, signed into law in 1995, gives senior housing an exemption from the “familial status” restriction.

This means that housing designed to be a senior living community can discriminate against renters under 55 years of age, and still be in full compliance with the law.

Be aware that all other facets of fair housing still apply, and senior housing, in particular, should be ready to accommodate those with disabilities and other special needs.

Single Room Occupancy Units and Fair Housing Laws

Single Room Occupancy units (SROs) are another specialized housing niche that can seem confusing and contradictory to fair housing laws.

Because SRO units are designed to only house a single person, discrimination against families seems almost impossible to avoid.

According to the Department of Housing and Urban Development (HUD), SRO units do need to comply with all fair housing laws if they are used for permanent housing.

But because the majority of SRO units are used as temporary and short-term housing solutions they do not need to meet the same criteria as long term housing.

This means that SRO units that are used as shelters, particularly for the homeless, or as extended stay hotels only have to meet the same non-discrimination clauses as those used by the hospitality industry.

If the unit is intended for residence however, or if a formal rental contract or lease is signed, then the unit falls into a different category and is subject to the full letter of fair housing law.

What You Need to Know About Refinancing a Rental Home

Refinancing a rental home is usually a bit more complicated than refinancing your primary residence.

Before you start sending applications to lenders, here are a few things that might help you navigate the process.

You’ll Need Plenty of Equity in the Rental Home

Most lenders want you to have 20 percent equity in your own home to refinance your mortgage, but when it comes to refinancing a rental home, you need at least 25 percent equity.

Few reputable lenders will go below the 25 percent mark. Since the property isn’t your primary residence, lenders see it as a bigger risk.

If you have at least 25 percent of the home’s value invested in the property, lenders know that you are committed to maintaining the house and paying your mortgage on time.

The Lender May Not Care About Rental Income

Today’s mortgage lenders are all about lowering risk.

That means they are unlikely to consider your rental income when deciding whether they will refinance your mortgage. If the current tenant moves out, then that money disappears.

Given its capricious nature, many lenders simply don’t care how much you can potentially make by renting the property.

Some factors may make a lender more or less likely to consider rental income.

For example, if the tenant has been living in the home for several years, the lender is more likely to look at the income. Long-term tenants come with less risk than new tenants.

Having a new tenant isn’t the only reason that lenders may disregard rental income.

If, for instance, you are renting the property to a relative, the lender will want to see proof that person is paying an appropriate amount each month.

Lenders may think that relatives can get away with more than other tenants, so they represent a higher risk. If you have bank statements proving the relative has been paying for several years, the lender may take a different position.

You’ll Probably Pay a Higher Interest Rate

Between November 2015 and February 2016, rates for 30-year mortgages bounced between 3.88 and 4.15 percent.

Rates for a 15-year mortgage fell as low as 3.15 percent during the same period.

Not surprisingly, higher risk associated with income properties means you will pay higher interest when you refinance.

In most cases, lenders will add about 0.5 percent to the going rate.

It’s not a substantial amount, but it’s worth thinking about because the higher rate will increase your overall costs.

You Can Deduct Associated Fees at Tax Time

Refinancing a rental property is often more difficult than refinancing your personal residence, but the rental gives you more tax advantages.

In fact, you can deduct every expense associated with the new mortgage, including

  • Fees for credit reports
  • Application fees
  • The cost of appraising the property
  • Insurance premiums
  • Points

Most of these deductions are spread over the life of the mortgage, so you can expect to save a little money each year.

Even if you only save $100 each year on your taxes, it’s still more than you would get from refinancing your home, and it will help make your rental property more profitable.

Refinancing the mortgage on a rental property could help you lower your expenses and free up cash that you need to repair the home or invest in other properties.

Getting a lender to refinance the mortgage, however, takes some work.

That doesn’t mean it’s impossible, but you should expect to face closer scrutiny and higher costs.

What Fees Should You Expect When Financing a Rental?

Interest rates remain low, making this a great time to finance an investment property.

However, it is important to be prepared for the extra fees you will face when taking a mortgage for a rental home.

These fees must be paid along with your down payment at the time of closing, if not before, and planning ahead will help prevent any bumps in the road.

Fees Charged by Your Lender and Service Providers

Many of the fees you will pay to finance your rental property are paid directly to the lender.

The figures below are approximate.

For detailed information on specific costs charged by your mortgage company, check your Truth in Lending disclosure.

  • Processing Fee: Your lender receives this amount, which is intended to cover costs associated with processing your mortgage application. These fees do not usually exceed $1,000.
  • Underwriting Fee: This charge is assessed by your lender to cover costs associated with decisioning your loan application. Underwriting fees are often as high as $795.
  • Miscellaneous Fees: Your lender is likely to charge you for any fees incurred in processing your application — for example: courier fees, postage fees, and credit report fees. All of these fees are fairly small, but they can add up to several hundred dollars.
  • Appraisal Fee: Though the cost of getting an appraisal is paid to the appraisal company, it is typically paid to the lender, who then hires the appraiser.
  • Loan Discount Points: If you wish to bring your insurance rate down, lenders may offer you the option of prepaying interest in the form of loan discount points. At closing, you pay one percent of the total loan amount, which will reduce your payments going forward.
  • Flood Determination: Lenders want to know whether your property is at risk for flood damage, so an assessment of whether the area is in a flood zone is required. Fortunately, the charge for this service is fairly low.
  • Title Fee: You want to be sure that no one but the seller has claim to the property you want to buy. Your title company will conduct a thorough search on the deed to ensure you don’t run into future issues. Costs for this service vary widely.
  • Survey Fee: Some states require a survey company to ensure that property lines are accurately recorded. Costs for this service vary, but they do not usually exceed $450.
  • Closing and Escrow Fees: The individuals who conduct your closing (for example, the title company or real estate attorney) charge a fee for their service. The costs are typically calculated at two dollars for every thousand dollars of the home’s purchase price, plus an additional amount of approximately $250.
  • Recording Fee: This is a charge assessed by the city or county recording office responsible for documenting real estate records.
  • Buyer’s and Lender’s Attorney Fees: When buyer’s and lender’s attorney fees are required, they can add a significant amount to the bottom line payment due at closing.
  • General Inspection and Pest Inspection: Whether or not your lender requires a general inspection or an inspection for wood-destroying pests, the cost is well worth the peace of mind of knowing you won’t face thousands in repair costs down the road.

The upfront costs of financing a rental property can rapidly climb into the thousands.

Preparing for these fees ahead of time will prevent unpleasant surprises when you finally get to closing.

Additional Resources

Truth in Lending Fee Disclosures

Primary Residence vs. Non-Occupied Single Family

When investing in real estate, it’s important to understand the different types of property and residence referred to in loan documents.

A single-occupancy primary residence loan is usually available at a lower rate and with a lower down payment.

Investment property often comes with a premium price tag on financing and more restrictions on a loan.

If you are interested in real estate investing but don’t have a lot of cash on hand, buying a primary residence can be a way to get the best rates without putting up a lot of cash.

What Is a Primary Residence?

A primary residence is a living space in which you reside for the majority of the year.

You must live in the house for at least six months and one day each year.

When you buy a primary residence, you may be eligible for loans with no down payment or lower interest rates. You might also be offered a longer term on the loan.

What Do Lenders Look for in a Primary Residence?

When you try to secure a loan for a primary residence, lenders look at the property differently than they would an investment property.

They look to see if the property has everything you need to make it a comfortable living space. Does it have bedrooms, a kitchen, bathrooms, and other living areas?

They might also check to see if the space is comparable or better than your existing living situation.

For example, if you currently live in a single-family house, lenders may deny a loan if you are buying a townhouse replacement. From their perspective, that would be a step down in living accommodations.

If you can’t satisfy the residency requirement, you can’t sign a loan for a personal use property.

Second Home vs. Primary Residence

You might be interested in buying a vacation home or second property if you do a lot of commuting.

You could also be interested in buying a house for a family member.

In those situations, there are ways to list the second home as a primary residence.

For example, if you are buying a home for your college-aged child, you might be able to buy a property as a primary residence.

Buying a Non-Occupied Single-Family Home

A single-family home, in the context of a mortgage, is simply a property that has only residential space and only houses a single family.

A property with an additional rental unit would not meet the definition of single family; instead, it would be a multifamily property.

A mixed-use property, one with both commercial and residential space, would also be out.

When buying a non-occupied single-family home, you are looking for a property with only a single unit.

Non-occupied refers to the fact that you won’t be living in the home after the purchase.

You could be buying on speculation or with the intent to rent out the home, but it won’t be your primary residence.

That means you need to find funding that is not dependent on residence.

Be Upfront About the Intended Use

No matter what you intend to do with the property, give your lender full disclosure.

If you intend to rent the property from day one, you qualify for a different type of loan than if you intend to move in.

If you plan to live in the house for at least a year, you might qualify for a personal mortgage.

By providing all the information, you allow the lender to find the right financing package for your needs and intended use.

What Are You Legally Required to Disclose When Selling a Property?

If you’re currently a landlord thinking about selling a house, you may have to fill out a disclosure statement first.

Even if your state doesn’t require this form, it’s recommended that you provide it, since it can protect sellers in the long run.

Here’s how it works and what kind of information you need to provide.

Major Defects on the Property

In general, you have to disclose anything that would affect property value, which includes defects that you’re aware of.

For example, if you know the faucets leak, the roof needs to be replaced, and there are cracks in the foundation, you need to disclose these problems.

This applies whether you have seen them yourself or your tenants have pointed them out.

Similarly, if there is evidence of a termite infestation on the property, let the buyers know in the disclosure statement.

Even if you’re aware that there are lots of barking dogs nearby or construction noise, you should disclose these issues because they could affect the value of the property.

Inspection Requirements

You don’t have to get a full inspection before you sell the house. You only have to disclose the issues you know about, not look for more.

Of course, the buyers will likely hire a property inspector anyway, so they will probably unearth any problems that weren’t obvious before.

If you hire an inspector yourself, and that inspector discovers problems you didn’t know about, you will have to disclose them.

But on the upside, if your inspector doesn’t find additional problems, you will have the documentation you need if the buyer accuses you of not disclosing defects in the future.

If they’re not in the inspector’s report, it will be clear that the defects are new and, therefore, the responsibility of the new owner.

Federal Disclosure Requirements

No matter where your property is located, you need to disclose whether there is lead paint in the home. That’s because the Lead-Based Paint Hazard Reduction Act of 1992 is a federal law.

However, it only applies if your house was constructed prior to 1978.

If this is the case for your home, let the buyers know that the house might have lead-based paint, and then give them 10 days to test the paint for lead.

You should also make sure they know the dangers of lead-based paint, which can be achieved by giving them a pamphlet by the EPA called “Protect Your Family From Lead in Your Home.”

Then you need to have them sign a statement that they’re aware of whether or not the house contains lead.

Keep this signed document for at least three years as proof that you’re in compliance with this federal law.

Additional Information to Disclose

Once you have disclosed the presence of lead-based paint and general defects in the home, you should find out if there are any other disclosure rules specific to your location. That’s because they vary by state.

For example, most states don’t require you to disclose a death in the home, but the exceptions are California, South Dakota, and Alaska.

In California, you must disclose any death that took place in the home in the last three years, even if it was due to natural causes.

But sellers in South Dakota and Alaska only need to disclose murders or suicides that took place within the last year.

In New Jersey, sellers have to disclose whether the house is fit to live in.

They also have to disclose any hidden defects that they know about.

On the other hand, sellers in Georgia aren’t required to offer a disclosure form at all, but they’re still encouraged to do so.

If you’re not sure what to disclose, you can ask your real estate agent about the rules that apply to your specific situation before you sell the house.

What Are the Requirements for a Mortgage on a Rental Home?

Securing a mortgage for a rental home can be a headache.

Although these mortgages work similarly to conventional mortgages, they often have stricter qualification requirements.

Below are some you may be expected to meet.

Credit Score

Your credit score plays a significant role in determining your eligibility for a mortgage on a rental home.

The biggest influences on your credit score are your payment history and debt load – together, these two components account for 65 percent.

Lesser influences include the length of your credit history and the age and mix of your credit accounts.

Maintaining a credit score of 720 or higher can help you to qualify you for a low interest rate on your rental home mortgage. Below that, lenders may charge you a higher interest rate.

Credit Report

In addition to checking your credit score, lenders examine your credit report to gauge your readiness to repay your mortgage debt.

All lenders use information from at least one of the three national credit reporting bureaus: Equifax, TransUnion, and Experian.

If your credit report reveals that you have liens or judgments against your name, you will need to pay these off in full, or negotiate a payment plan with your creditors, before obtaining a mortgage.

Income

The maximum loan size for a rental home is linked to the income you expect to receive once your rental home is tenanted.

Lenders typically require your potential rental income to be 25-30 percent higher than your mortgage payment.

They may also request proof of your personal income and cash reserves to ensure that you have sufficient funds to cover any void periods – times when your property is untenanted or rent is not paid.

Employment History

Rental home mortgages are a serious financial commitment and lenders rely on a stable employment history to determine your ability to make your repayments on time.

Most lenders require at least two years’ verifiable work history, as well as proof that your employment is likely to continue for a minimum of three years.

Lenders verify your employment history by checking with your current and past employers and/or requesting pay stubs and tax returns.

If you are self-employed or work on commission, lenders may ask for at least two years’ worth of accounts to substantiate your employment history.

Debt to Income Ratio

Most lenders require that your debt be no more than 30 percent of your income. This is your debt-to-income (DTI) ratio. The higher your DTI ratio, the more interest you will pay on your rental home mortgage.

If your DTI ratio is too high to qualify you for a mortgage, consider paying off high interest debts to get below the required limits.

Down Payment

Rental home mortgages often require larger down payments than conventional mortgages to compensate for the risk of void periods.

Most lenders request a down payment of at least 15 percent of the loan amount. A higher down payment may be required if you are a new investor and/or you have a credit score below 620.

Understanding the requirements for a mortgage on a rental home is an important first step in the buying process.

Knowing that you meet the requirements can boost your confidence and make it easier for you to negotiate with lenders.

Where Do You Go to Get a Mortgage Geared Toward Rentals?

If you have a rental property and want to expand, or you need financing for your first investment real estate purchase, a mortgage is usually the best way to obtain the funds.

Mortgages for rental properties work a bit differently than loans taken out for a residence.

Not all banks offer extensive financing services for prospective landlords, so you need to know the questions to ask and what you’ll need to close the deal.

Defining the Different Types of Lenders

Banks usually have two different ways of offering financing for investment properties: direct loans and underwriters.

Working with underwriters means that a third party looks at your financial portfolio and determines your ability to repay the loan.

An underwriter may or may not have much experience in the rental market and can pull out of the deal at any time.

A sudden loss of financing can leave you struggling to close on time.

With direct lending, the bank agrees to finance your mortgage.

There is no third party involved in the process, and you can talk directly to the decision-makers along the way.

The more communication between you and your lender, the more likely you are to get through escrow and closing with no hassles.

Loan Limits and Documentation

For a personal mortgage, you need to show proof of income and have a reasonable credit score.

In most cases, you’ll need to show at least two years of W-2s, though you may be able to use copies of your tax returns if you are self-employed.

The same is true to qualify for a mortgage on rental properties.

Some of the biggest differences in the requirements for a mortgage on a rental property come into play when you have multiple properties under lien.

Fannie Mae allows real estate investors to sign up to 10 loans for investment properties.

Most banks limit lenders to four simultaneous mortgages.

For the first four, the requirements are fairly standard.

You must have a credit score of at least 630, and you also need a fairly hefty down payment, typically around 20 percent.

Of course, if you have a credit score closer to the bottom limit, you are likely to pay more for the same financing.

After you sign for the first four mortgages, the credit score requirement jumps up to around 720 and the down payment to 25 percent.

Documenting Your Cash Reserves

Another issue when looking for a mortgage for a rental property is your cash on hand.

Most lenders want you to have at least six months of operating costs per property.

Having that much of a reserve ensures that your lender will still get paid if you experience extended vacancies or need to do major property maintenance.

The more cash you have on hand, the more comfortable lenders are issuing you a loan.

If you don’t have the necessary cash reserves, you might find other investors to help land you the financing.

Closing the Loan

As with any mortgage, large banks often have financing options available for prospective landlords.

Be sure to talk with a lender, not a broker, whenever possible.

A lender is a direct path to financing; a broker is just a pass-through between you and the lender.

Shop different banks and check to see if they have an investment branch.

That can save you a lot of hassles as you work to line up funding. It’s always best to work with a lender that is used to issuing mortgages for landlords.

Mortgages on Single-Family Rentals vs. Multi-Family Rentals

If you’re planning to invest in rental property, you have the option of a single-family rental or multi-family units.

Obtaining a mortgage will have similarities and differences, depending on which path you choose, and it’s important to understand those differences before commencing to make the loan process as straightforward as possible.

The Differences in Multi-Family Rentals

A single-family residence is a property that houses only one family; for example, a detached house is a single-family property.

Multi-family properties are more complicated, and for financing purposes, they are broken down into residential and commercial properties.

If you have four or fewer units in your property, you should know it’s considered a residential property; this includes a duplex or triplex.

More than four units in one property is deemed to be a commercial property, and apartments and condominiums are included in this category.

Financing for Residential Multi-Family Properties

Financing a property with four or fewer units is considered a residential loan, and it operates much the same as a single-family property purchased for a rental unit.

If you plan to live in one of the units and rent out the others, you can apply for an FHA loan.

You’ll likely have a large cash reserve requirement and may be limited to how much of the rental income can be included in the income qualification. The benefit of this loan is a lower down payment with only 3.5 percent required.

If you don’t plan to live in any of the units, you’ll need to seek out a conventional residential loan; regardless of whether you want to purchase a single-family property or multi-family home, you have a limit of 10 for Fannie Mae.

Of course, many lenders impose even stricter regulations, often capping out a four.

Whether you have four single-family dwellings or four multi-family properties, your restriction would be the same, but the income received would be quite different.

Your credit score is a significant factor when purchasing rental properties, just as if you were buying your own personal residence.

However, the requirements become even stricter when you are purchasing more properties; the first four loans require you to have a credit score of 630, while any loans over that amount will only be approved with a credit score of at least 720.

The requirements for down payments go up with a higher number loans, especially if they’re multi-family dwellings.

For loans above four with Fannie Mae on single-family properties, you’ll need 25 percent down, while the first four loans only require 20 percent down.

Multi-family property loans require at least 25 percent for all, and many lenders set even higher terms.

Commercial Multi-Family Property Loans

If you plan to purchase a property with five or more units, you’ll need to apply for a commercial loan.

This type of loan has a different set of requirements, often requiring the borrower to have some experience in property management. They’ll also have to provide a copy of the rent roll along with their own personal income information and business tax returns.

Lenders will look at the net operating income and how much cash flow the property has in relation to its debt, and the borrower will be required to have at least 25-30 percent for the down payment.

Multiple loan products are available, just as with residential loans, and they may be long-term or short-term with five to 10-year terms. The interest rates may be either fixed or variable, or they may start out fixed for a specific term and then adjust at the end of the period. In general, commercial loans are more expensive than residential loans, but they are also usually allotted for a higher amount with many loans originating for several millions of dollars.

Most property owners who choose a commercial loan will purchase the building as an LLC or limited liability corporation, which limits the liability on the owner or owners, providing them some protection of their own personal assets.

They will need to provide a lot more documentation than on residential loans, and they may be requested to include photos of the property, the description, floor plans, listing of current rents and expectations for raising or lowering them, and even information about competing properties within the vicinity.

If the owner has plans to upgrade the property, this intent will also need to be included along with the costs for these changes.

Most beginning landlords will apply for a residential loan until they have proven experience in the business. The key for any loan on an income property is to find a lender who is experienced in investment properties, which helps ensure a smoother process.

Anyone who plans to enter the rental property industry should consider long-term goals, whether they want to tie up their loans in single-family properties and limit their income or purchase multi-family residences.

No matter what type of rental property you intend to purchase, you should find an experienced lender to guide you through the process and work with a real estate agent who has experience in this area.

Rely on their expertise, and do your own research to be prepared, since this will eliminate much of the hassle and ensure the end result is you becoming the owner of your own rental properties.

What to Consider When Selling a Rental Property

For whatever reason, you have decided to sell your rental property. While this may be a sound business decision, you have a lot to consider before you begin the process or sign the final closing papers. Do it right, and you won’t have any regrets.

Informing Your Tenants

If your property is occupied, you will have to inform your tenants at some point. In multifamily units, it may not be a big deal.

Chances are pretty good your buyer will continue to maintain the property in the same way and keep the same tenants as long as they are current on their rent.

Things could be much different in a single-family dwelling where the buyers could want the home for themselves.

In this instance, you have to give your tenants an appropriate amount of notice.

A side benefit is that your tenants may be interested in buying.

If you can offer incentives, such as paying part of the closing costs, you may discover a buyer.

Otherwise, you may need to provide 60 days’ notice to be fair, even if the law in your state only requires 30 days.

Showing the Property

To sell the property, you will have to show it to prospective buyers — another good reason to let your tenants know. You need to find out what times are convenient for them and plan appointments during those times.

Unlike homeowners trying to sell their own property, your tenants may not be as cooperative because it doesn’t benefit them for you to sell.

One way around this problem is to offer them an incentive.

Perhaps you offer to deduct an amount from their rent in return for allowing a certain number of showings per month.

Include one or two open houses in the deal, and you are more likely to get full cooperation if they agree.

Make the deal even sweeter by providing an added discount if they find the buyer.

This puts both of you on the same team.

Realtor or FSBO?

You will also have to decide whether to hire a Realtor or sell the property on your own as a For Sale By Owner.

While hiring a real estate agent puts another person in the mix, it can also result in your property selling faster and for more money.

The key is to hire someone knowledgeable about investment properties.

A real estate agent should know the legal details of selling an investment property.

However, you should also talk with your lender about any ramifications of selling your rental and find out if there are any prepayment penalties or other concerns.

Legal Advice

While many home sellers use an attorney when selling their homes, it is essential for a property owner selling a rental.

Landlord and tenant laws vary by state, and you should find an attorney experienced in rental matters to ensure you don’t break any laws and end up being sued.

Selling a rental property is a major decision.

You have to consider the tenants and all the legal issues that can result.

The best way to navigate through this process if this is your first time is by working with an experience agent and lender to help you make the right choices as you sell your property.