How to Sell a Rental Home to the Tenant

Selling a house to a current tenant is a straightforward transaction.
Selling a house to a current tenant is a straightforward transaction. (Image: Thinkstock Images/Comstock/Getty Images)

Rental properties are usually income-producing ventures for the owners. Even in the best scenarios, there are times when selling your income-producing property is a smart business move. Selling a rental property to a third party while it is tenant-occupied comes with its share of challenges. Selling that same rental property to your tenant currently living there may be easier.

Have your real estate agent or attorney draft the real estate purchase contract in accordance with laws in your state. Unless you are a licensed professional, do not try to draft a purchase contract on your own. These are complex legal documents. If completed incorrectly you could face legal liability.

Provide allowance in the contract for any deposits. When selling a home to its current occupant, keeping a security deposit or pet deposit becomes a moot point -- unless the tenant purchasing the home is demanding extensive restoration work before closing. Security deposits and pet deposits are made to rehabilitate the property if damaged during the lease. Since this is not a problem when selling, it makes sense to apply any deposits the tenant provided to you during the lease term as part of the contract earnest money. The tenant receives this as a credit at closing.

Negotiate any other terms of the contract with the tenant-now-buyer. Terms to negotiate would be things like home repairs, closing cost assistance or which party pays the title policy. Once terms are acceptable to both parties and the contract signed, the next step is closing.

Sign the closing paperwork, as directed by the title company. Closing appointments to sign documents normally take 15 minutes from beginning to end. Once complete, ownership of the property is transferred from you to the new owner, and you have successfully sold your rental property to your tenant.

Tips & Warnings

  • Having a real estate agent negotiate on your behalf--even with a tenant--is a wise decision.
  • Use only state-approved forms when it comes to rental lease agreements or other real estate contracts. Non-approved forms are not legally binding.
  • Do not accept a purchase contract from a tenant without a pre-approval letter from his mortgage company. He might not qualify for a home loan.

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