Property Management Blog

Draft an Addendum to the Lease When Selling an Occupied Rental House

Web Admin - Monday, April 13, 2009
By: Rob Massey, Jr., CPM
published in the NARPM’s Residential Resource

When it comes to selling an occupied rental house you should first address the feasibility of marketing the property while the current residents are in possession.  The first step for making this determination is by inspecting the house for cleanliness and showability.  If the residents are not capable or are unwilling to keep the house in reasonably showable condition, then efforts to sell the property should be postponed until possession has been obtained and market preparation of the house has been completed.   If this first test has been passed it is then critical to establish an addendum to the lease with the resident which specifically addresses the following mutual areas of concern:

  • The amount of advance notice required prior to a showing.  Local and state laws frequently dictate what is permitted, but by mutual agreement with monetary or other consideration it may be possible to deviate from the norm.  Allowing for merely a four hour advance notice prior to a showing is helpful for marketing a home for sale.  This is a reasonable request of the residents provided incentives are put in place to encourage their cooperation.  Consult your attorney for what may be permitted.
  • The expectation of the property’s condition at the time of showing.  If the initial inspection reveals very cluttered and/or dirty conditions in the residence then it is advisable to refrain from proceeding any further in the attempt to sell the property while it is occupied.  Doing so will likely lead to frustration for all involved and may hurt the efforts to get the property sold.  An exception would be if the property must be sold due to an impending foreclosure or due to the immediate need to liquidate the property.  In either of these cases, the owner must be prepared to sell the property at a price below what normal market value would dictate especially if the condition of the property is below normal selling standards.  The addendum must clearly state that the property will be kept clean and tidy during the periods designated for possible showing times.
  • Permissible times for showing the property to prospective buyers.  Even when compensation is provided for showing the home the times provided for in the addendum need to be reasonable. 
  • Monetary or other consideration to compensate the resident for their inconveniences.  The most effective methods for gaining needed critical cooperation of the resident during the sale period are realized by offering a reduction in rent during the marketing period or by agreeing to pay a moving allowance in the event of a sale and subsequent closing or some combination of both.  Structuring the arrangement for motivating the resident to assist in the sale efforts is vital to the success of marketing an occupied rental house.
  • Modification of lease term, if any, and possible change in notice requirements for vacating.  Given that a new owner of the property will likely want to occupy it shortly after purchasing, some modification of the term of the lease may be warranted.  Here again monetary consideration for effecting this change in the lease term may be the answer.  Keep in mind that when a resident understands that their lease will not be extended beyond the existing term due to the owners desire to sell the property; the resident may be more open to modifying the term of the lease.  If an agreement regarding the term of the lease cannot be made allowing for a new owner to gain occupancy within 30 to 60 days subsequent to closing then it may be best to postpone the marketing of the sale of the home until such time that it can.  Consult attorney for what may be permissible.
 Selling an occupied rental house can be successfully accomplished if you meet the needs and desires of both the resident and the seller. Establishing an agreement (beforehand) for how it is to be handled is the key.

About the Author
Robert Massey Jr., is the president and owner of Robert Massey Company, a rental property management and residential property sales company based in Louisville, KY. Robert, Jr. also founded RentalHouses.com, a leading national internet listing service for advertising rental houses.  He is an industry leader and authority in property management and online-based services in the industry, writes articles and speaks regularly to property managers and agents across the country about beneficial services and upcoming trends in property management. See more articles from Rob Massey, Jr., website: www.RobertMasseyCo.com

Reluctant Landlords

Web Admin - Monday, June 16, 2008
By: Rob Massey, Jr., CPM
published in the NARPM’s Residential Resource

Since most of the country has been experiencing a significant real estate sales slow-down over the last year or so, many of us are now being called upon to rent and manage houses for owners who really would rather sell their properties.  If we are accustomed to working with investor-clients, then we need to be aware of the new challenges facing us should we choose to represent these reluctant landlords.  As property managers we should also be prepared to inform these unseasoned soon-to-be landlords about the realities of renting out their personal homes.  

For me, the first topic of discussion for these potential new clients is whether or not they have exhausted all avenues for getting the house sold.  I take this stance for two reasons.  First, it is simply good advice to make sure its failure to sell is only due to market conditions and not house conditions.  Secondly, half of the time I’m not that interested in handling their property anyway because I know of the obstacles that I will be facing should I decide to lease and manage it for them.  Of course my own hesitation begs the question of whether I even want to manage under these circumstances in the first place, which is a whole other point of discussion for another day. 

The second topic to cover is determining the financial feasibility of renting out for these particular prospects.  Most people in this situation have no idea about how much money they will likely net each month from renting.  Once you do the math for them, they may well decide on their own that renting is not a viable option.

Typically, their Realtor has already given them a monthly rent figure that often is too optimistic.  To make matters worse, the owners likely haven’t even considered any maintenance costs, vacancy time, make-ready expenses or the emotional stress of renting out their personal home to strangers.  

Another consideration in determining the feasibility of renting out a house is the ability of the owner to survive (financially and emotionally) the worst-case scenario – an eviction.  A property owner has no business renting out their house if they cannot weather the storm of an eviction.  Granted, one of the more significant reasons that they hire a professional property manager is so that they don’t have the misfortune of an eviction, but we all know that the risk exists irrespective of how thorough we are as property managers.

I once had a reluctant landlord who had what turned out to be a bad resident placed in her home by my company.  We had done a thorough job screening but the residents went through a divorce while in they were in occupancy of the property.  The husband, who happened to be an attorney, remained in the house with his three children for a period prior to defaulting on the rent.  The end result was not good.  The wife of the couple who owned the home happened to be in town when I got possession.  Her reaction to seeing her previous personal home after the residents moved out was one that I will remember for a long time.  

Another area of misunderstanding with reluctant landlords is the needed work for placing the house on the market for rent.  Typically, these owners are surprised by and resist granting permission for the amount of preparation that we know is vital for attracting the best residents.  Stand firm on this requirement because it may well be the key to having a successful experience for both them and your company in the management of their property.  

Homeowners seeking an alternative solution to selling their homes in a weak sale market need to consider renting their home out.  Contacting a professional property manager is their best bet for determining the pros and cons of that option and for understanding what they might expect should it be a logical choice for their specific situation.

About the Author
Robert Massey Jr., is the president and owner of Robert Massey Company, a rental property management and residential property sales company based in Louisville, KY. Robert, Jr. also founded RentalHouses.com, a leading national internet listing service for advertising rental houses.  He is an industry leader and authority in property management and online-based services in the industry, writes articles and speaks regularly to property managers and agents across the country about beneficial services and upcoming trends in property management. See more articles from Rob Massey, Jr., website: www.RobertMasseyCo.com

Spring is in the Air

Web Admin - Wednesday, February 06, 2008
By: Rob Massey, Jr., CPM
published in the NARPM’s Residential Resource

Yes, the Forsythia has bloomed, the Pear trees have blossomed out, tulips are punching their way through the ground and the Dogwoods can’t be far behind.  Spring is definitely in full swing in the eastern U.S.  With the awakening of the trees, grass and flowers comes a stronger rental market in most areas of the country.  It’s a great time to take a closer look at the outsides of our rental properties, particularly the vacant ones.  

As the cliché goes, we only have one chance at making a good first impression.  When a prospective renter pulls up to your rental house his first impression is already formed before he or she even gets out of his car.  So, the opportunity to increase your chance of successfully getting your vacancy filled has already passed before you even officially meet your prospect.  Therein lies the importance of properly preparing the outside of your client’s rental properties.

When first counseling a new owner on company management procedures it is important for them to know how significantly the exterior condition of a property can affect its rentability to qualified renters.  I have always informed them from the outset of the necessary work required to attract the right people and made sure to address the exterior needs of their rentals.

As owners and managers we really don’t know how many people have driven past our properties and never called us when it didn’t meet their visual sniff test.  Below is a checklist of the more important exterior components of most rental houses:

  • The lawn – always keep the grass properly cut.  In the spring it is easy to let that first cut go a little too long, not only turning off the prospective renters but also making the neighbors angry.  It certainly doesn’t help your public relations!  Be sure and get the grass cut promptly when spring has sprung in your area.  The first cut should also include a general yard clean-up.  Leftover leaves, sticks, twigs and litter should be properly removed.
  • The exterior trim, siding, roof, windows & doors – Always make sure that the house does not need painting and that there are no other obvious items of deferred maintenance such as gutters overflowing, mold growing on the roof, broken window shutters, dirt on siding etc.
  • The driveway – An easy method for rejuvenating a worn, old looking asphalt driveway is to have it sealed.  It is not very expensive and it goes a long way towards making it not stand out as a defect.  Badly cracked concrete driveways should be replaced with either new concrete or asphalt, the latter being much cheaper.  Gravel drives need to have fresh looking gravel and they need to be neatly edged.
  • Flowers and shrubbery – Large overgrown shrubbery is a negative for any property.  Not only do they constitute a security hazard, they also can promote unwanted wildlife and aesthetically detract from the house.  When replacing old shrubbery, steps can be taken to minimize trimming, edging and other yard maintenance for the future.  Some flowers are easily maintained whether it is done by the resident or at the expense of the property owner.  Ask your landscape professional for low maintenance plantings and bed configurations. 
  • Fencing and retaining walls – Neither of these items usually require a significant amount of routine maintenance but failure to pay attention to these items when they have needs can result in personal injury and liability not to mention poor aesthetics.
Spring brings new life, a stronger rental market, and sometimes allergies, but always longer days and warmer temperatures.  Let it serve as a reminder to us that the exteriors of our properties also need new life which in turn will help our owners benefit financially.  

About the Author
Robert Massey Jr., is the president and owner of Robert Massey Company, a rental property management and residential property sales company based in Louisville, KY. Robert, Jr. also founded RentalHouses.com, a leading national internet listing service for advertising rental houses.  He is an industry leader and authority in property management and online-based services in the industry, writes articles and speaks regularly to property managers and agents across the country about beneficial services and upcoming trends in property management. See more articles from Rob Massey, Jr., website: www.RobertMasseyCo.com

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