SS70: Handling Tenants When Selling Multifamily Properties

Selling properties with tenants living in them can be a challenging situation. In this episode, Charles discusses what to expect when selling properties with tenants and how to handle your tenants during this transitionary period.

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Talking Points:

Our company is currently selling several multifamily properties and over the years of investing in real estate, there have been some recurring themes surrounding tenants when you are selling a property.
1^st if you are planning on selling a property with a tenant; be prepared for more complaints and problems that were previously not problems being brought to light. Maintenance and repairs will not change; if something breaks; it is fixed but you will begin receiving more requests from tenants with problems or potential problems.
- Just how the properties were run previously can work here; being discerning about what is broken and what needs to be replaced. During a sale; we had tenants complain about a smell in their apartment; complain about sounds they are hearing; how they think something is going to break; yes, if we are told something is going to break; we will have management look at it next time they are at the property but we are not sending someone out same day and I am not sure how you troubleshoot sounds a tenant is hearing.
2^nd is to focus on making repairs prior to listing your property. Walk the properties prior to listing (possibly with your broker) and make a list of repairs that need to be done and have them done prior to listing the property.
3^rd is to be respectful of your tenants when scheduling walk-throughs and try to minimize them. Being courteous is the best course of action.
4^th it is best that tenants are not there when you walk the properties for inspections; they are just waiting to tell an inspector what is wrong with the property; something 2 years ago wasn’t fixed as fast as they wanted it done. They requested new appliances and the landlord never installed them; they just fixed the broken burner on the stove.
5^th don’t advertise to your tenants that you are selling. Make sure there is no sign installed on the property. Most will find out but hopefully, that is after inspections have taken place; at that time, the buyer’s team will most likely not be back to the property until closing.
6^th you need to train your property manager and their staff about how to handle the sale. It is best to have the broker take care of the tours and walkthroughs. You just want your broker and the buyer’s team there; there is no need for your property manager’s team to walk every unit; just open the ones where there is no one there. The broker should really be conversing with the buyer’s team; providing answers to questions. Maintenance people should also not be talking about the potential sale to any tenants or potential tenants.
In closing, I have been tempted but have never financially enticed any tenants at properties we have sold. It is best to make repairs prior to listing and to operate the properties as you had before. The fewer people that know about the sale of the property; the better.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing handling tenants when selling multi-family properties. So our company is currently selling several multi-family properties and over the years of investing in real estate, there have been some recurring themes surrounding tenants when you’re selling a property. First is if you’re planning on selling a property with at tenant or tenants, be prepared for more complaints and problems that are previously not problems being brought to light. Now, maintenance and repairs will not change when you’re selling a property. If something breaks, it is fixed, but you’ll begin receiving more requests from tenants with problems or even potential problems. You know, just how the properties were run previously can work here being about what is broken and what needs to be, be replaced. Over years of self managing properties, you’ll hear a lot of tenants that will bring, have a lot of issues with different things.

Charles:
And it’s usually because they just want new, new, new appliances. This, you know, this isn’t doing it. So I need to bring a new one. Well, it can be fixed or it’s not really a problem. That’s just something that you want. You kinda have to be discerning about what gets repaired and what gets replaced. And this is very important, mainly in like C-Class properties where you have to, you know, you have to really control expenses to make money. Now during a sale, we had tend to complain about a smell in their apartment, complain about sounds, they hearing how they think something is gonna break. And yes, if we’re told, so is going to break, we’ll have management look at it next time. They’re at the property, but we’re not sending someone out same day, like an emergency, like someone had a, you know, something wrong with plumbing and I’m not sure how you would troubleshoot sounds and antennas hearing.

Charles:
That’s gonna be something very difficult to, you know, figure out and find out what it is. Second is focus on making repairs prior to listing your property, you know, walk the properties prior to listing, possibly with your broker, which I would really suggest and make a list of repairs that need to be done and have them done prior to listing your property. Third is be respectful of your tenants when scheduling walkthroughs and try to minimize them be courteous. And it’s, it’s really the best course of action because you want to possibly just show their apartment once and then have the inspection, hopefully after it goes under contract. And that’s your last time, you know, just a few weeks later, and fourth is best that tenants are not there when you walk the properties for inspections, you know, they’re just waiting to tell ’em the inspector, when is wrong with the property.

Charles:
Something two years ago, wasn’t fixed as fast as they wanted it done. They requested new appliances and the landlord never installed them. They just fixed the broken burner on the stove. And these are all types of things that are gonna come to light when you’re walking properties with you know, with inspectors, with tenants there. And you know, it’s not all tenants, but you’ll find some. And we found that tenants that never had problems for several years renting with us. And then all of a sudden they find out that the property is being sold and now it’s a daily occurrence of something that’s wrong with the property. That never really was an issue that’s not really changed over the last few years. Fifth is don’t advertise to your tenant. You’re selling, you know, make sure there is a, there’s no sign installed on the property.

Charles:
Most will find out, hopefully that is after inspections have taken place at that time. The buyers team will likely not be back in the property until closing. So that’s one of the main things too, is I would just keep it as quiet as possible until it comes to light sixth. You need to train your property manager and their staff about how to handle the sale and as best to have the broker take care of the tours and walkthroughs, you just want broker and the buyer’s team. There, there is no need for your property manager’s team to walk every unit, you know, just open the units when there is no one there and the broker should really be conversing with the buyer’s team, providing answers to questions maintenance people should also, you know, not be talking about the potential sale to any tenants or potential tenants.

Charles:
I would really keep. If you tell your property manager that’s being sold it’s being listed, of course, if it goes under contract, I would definitely let your property manager know. I would possibly incentivize your property manager if it does sell. You know, these are just things that that I would do to make everything move forward. But one of the things I would also say is, Hey, you know, this is just between you and I, and there’s no need for your maintenance people to know it’s important for you to know, but please keep this between us. There’s one thing after like, you know, when inspections happen, stuff like that, you can only keep, you know, you can only keep it inside so long. But the main thing is after inspections is pretty much after inspections have passed. You’re pretty much nearing the finish line for selling the, so it doesn’t really matter too much.

Charles:
You’re not really gonna have to get back to the units. In closing, you know, I’ve attempted, but never financially enticed any tenants at properties we have sold. Now, this would probably change. I’ve never sold any single family homes with tenants in it. If I was selling a single family home with a tenant in it, I probably would incentivize them a little bit financially to make sure that everything went through you know, it’s best to make repairs prior to listing and operative properties as you had before. You know, the less people that know about the sale of the property I have found to be the better. So thank you very much. Please remember to rate, review, subscribe some comments and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

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