Providing Lease Renewal Recommendations

If you are thinking of selling your multi-family investment property, one of the biggest challenges is determining what to do about your units. First, let’s talk through the possible scenarios you could be encountering:

  1. Tenancy-at-Will. If you haven’t heard the term before, this is essentially a month-to-month lease. The advantage for the tenant is they can give you notice anytime and be out of the unit within 30 days. The same applies to the owner - you can give your tenants 30 days notice and they have to be out within 30 days.

  2. Fixed term lease. If you have a fixed term lease, you must keep the tenants in place throughout the term of the lease. If you sell the property, the lease transfers to the new owners.

  3. Vacant. If your unit is vacant, no one is living in the unit!

So all sorts of interesting questions come up when deciding what to do before a sale. For example, if you have a lease that is about to expire, do you sign a new lease with the tenant for another year? Do you sign a shorter term lease? Do you ask them if they would consider a tenancy at will? Or do you choose not to renew and leave the units vacant?

Unfortunately I cannot give one clear cut answer here, because every situation is unique. Sometimes, having all units rented can be very desirable for a buyer. In one way, it demonstrates the potential value of your property. On the flip side, when all units are rented it can be more difficult to conduct open houses and showings and your buyer exposure could be limited.

Tenancy-at-will presents other challenges as well. On one end, it gives the owner flexibility to provide notice to their tenants prior to closing if the new buyer wants to renovate or move into a unit. On the other hand, the tenant could immediately provide 30 days notice and depending on your property it could take a while to sell, leaving you with higher than expected costs during the sales process.

This is where having an experienced real estate agent who is well-versed in multi-family sales can make all the difference. We need to look at the full picture to determine what makes the most sense for you.

I look at things like:

  1. Is this property best suited for a buy/hold investor, owner occupant or developer?

  2. Does the property need work or is it move-in ready?

  3. Do you have a good relationship with your existing tenants?

  4. Where is the property located?

  5. How likely is it to sell quickly?

If you want to talk through your unique situation, I am happy to discuss it in greater detail. This type of advice is one of many things I do to ensure a smooth multi-family transaction. If you handle this piece in the wrong way, it can create endless headaches and unnecessary disputes. If you handle this in the right way, it can lead to positive outcomes for all involved.