Buying & selling investment property is very different from selling other types of properties, especially single-family homes. Sure, it may look similar, but there are vast differences which could hinder the transfer of moneys or title itself.
Having an agent experienced in buying and selling leased property is vital.
In listing your investment property, the agent orchestrates the transaction between the sellers and buyers, both closing companies, banks and attorneys – just like any other transaction; however, the agent who is seasoned in investment property transfers makes sure certain procedures and contingencies are included whether selling the property or buying property.
When working with a buyer, one of the most important contingencies to include in the purchase agreement are the “assignment of leases” and “notification to the tenants”.
Notification to Tenant according to 562A.12.5(a),
The tenants need to know what is going on during the sale of a property. It’s not only a good idea, but it’s the law. Tenants have the right to know in the transfer how much of their deposit is being transferred, to whom and who will be managing their unit and lease; even if the unit will be self-managed.
The seller has the responsibility to have the paperwork for the notification (and Assignment of Lease) drawn up by an attorney or their agent. It’s handed to the buyers at closing and it’s then the buyer’s responsibility to mail the documentation to the current tenant(s) with a stamped envelope enclosed. The tenant has 20 days after the mailing of the notice to object to the deposit amount stated in the notice. If not submitted to all parties and reviewed before closing, it becomes messy as to who takes care of the discrepancy?
If the notice is not sent out to tenants, then the tenants are deprived of their right to any objection of the deposit held by the new landlord. Could be a problem at the time of move out, if not sooner.
Assignment of Lease according to 562A.12.6,
An Assignment of Lease is a form signed by the current owner when a rental property occupied with tenants’ transfers from the current owner to the buyer. The Assignment of Lease releases the current owner from all rights, title and interestsas a Landlord of all the current tenants’ current and future leases held between the current tenant and landlord and transfers all the rights, titles and interests of the current tenant to the new owner who is now the new landlord.
The reason this is so important, is not only because the original owner/landlord of the property is officially no longer responsible for the tenants’ leases and property, but it gives the new owner/landlord complete “legal share” of the property and includes the tenants’ leases. If there comes a time while the original lease is still in effect, the new owner has the ability to take legal action against the current tenant, should the need arise.
If not included at the initial writing of the purchase agreement, this important contingency may be missed and becomes very messy to catch up at or after the closing. Rents and deposits may get missed or transferred incorrectly at closing, causing a new buyer to lose out on tenant deposits or pro-rated rents from the start and must be caught up when it becomes time to cash out the tenant at move out. If missed, and it has just recently, the new owner and management company a lot of headaches.
In choosing a real estate agent, just because they have many years in the business, doesn’t mean they have the experience selling tenant-occupied dwellings. For example, there was recently a multi-million-dollar multi-plex – almost completely rented. Kacena Real Estate Management was asked to manage the property after the property closed.
We met with the new owner right after closing. The new buyer had the keys and lease copies, but no “assignment of lease” or notification to tenants as required by law. The listing agent missed it. The buying agent missed it; even BOTH attorneys missed these documents as well as the rent roll!
The seller wasn’t one of our owners, so it was difficult to go back to the previous owners to have them sign all the needed paperwork, but we (as the management company) were able to work through it. However, because the rent roll wasn’t prepared and distributed to the parties for review prior to closing, the buyer actually lost out on the full amount of the deposits (he’ll have to make up when the tenants move out) and he completely missed out on the pro-rated rent for the rest of the month. It was only one day, but it amounted to over $1,000 of his money.
Additionally, should any tenant slow or no pay, taking legal action against the tenant would be difficult because the original owner were still lease holders of the leases.
Using agents who are not experienced enough in tenant occupied properties, could cost you plenty.
Just recently I represented our owner in the sale of their duplex with tenants. We received a very very clean offer – no contingencies – no inspections and for asking price. A pretty sweet deal for the seller. The offer also didn’t ask to review the leases or to include deposits at the time of possession nor pro-rated rent. The purchase agreement didn’t even include asking for the assignment of lease, which legally must be included.
Of course, I brought all the documentation and assignments to closing just to make sure the closing went smooth and done right. However, when I gave the buyer’s agent (who actually had 20+ years in real estate) and the buyer the Notification to Tenants and the Assignment of Leases, even though they had purchased several investment properties using this agent, they had NO CLUE to what I was giving them – even though it is legally required.
Between David and I, we have over 50 years experience in the real estate business. We specialize in selling and buying investment/tenant occupied properties; we know what needs to be done and how it should be done. Both of us are seasoned in 1031 Tax Exchange, multi-family, commercial and of course, single family property. The best part? We have personally been in your properties throughout the year and we know what updates or repairs have been done.
I promise, if I haven’t seen your property recently, I will preview it before I list it.
We will give you our experience for when you’re ready to buy or sell. If you’re looking to add to your rental inventory or want to sell some to buy more, give me a call today!!
I would love to help you and make sure you are taken care of.
My motto has always been, “Service is JOB ONE! If there was no Service, the Job was not Done Well.”