Selling a Rental Property With Tenants in Houston
Many Houston landlords decide to sell a rental while residents still live there. Some want to keep rent coming in until the sale, some are selling to another investor who wants the income, and some simply cannot time the sale around a lease ending. Selling an occupied property is common, but it raises questions that do not come up with a vacant house: what happens to the lease, who holds the security deposit, how showings work and which repairs make sense.
This article answers common questions about selling an occupied rental in the Houston area. It is general information, not legal or real estate advice. Talk to a Texas real estate attorney or broker about your situation.
Does the lease end when the property sells?
In general, an existing lease does not end just because the property sells. The buyer usually takes the property subject to the current lease, and the resident can stay through the lease term under its existing terms unless the lease says otherwise or the parties agree to something different. Review your lease for any clauses about sale, and make sure the buyer has a copy of every lease before closing.
If the buyer wants the property vacant, the options include waiting until the lease ends, negotiating an early move-out with the resident or selling to a buyer who wants it occupied. Any agreement to end a lease early should be in writing.
Who is responsible for the security deposit?
This is one of the most important details in a sale. Under Texas Property Code Section 92.105, a new owner of a residential rental is liable for security deposits from the date it acquires title. The new owner must deliver to each resident a signed statement acknowledging that it has received and is responsible for the resident's security deposit and specifying the exact dollar amount of the deposit. The prior owner stays liable for the deposits until the new owner delivers that statement.
In practice, deposits are typically credited to the buyer at closing, and the seller provides a rent roll and deposit list. The full text of Chapter 92 is available in the Texas Property Code.
What should I tell the resident?
Communicate early. Residents who learn about a sale from a yard sign or a stranger at the door are less likely to cooperate. A short letter should explain:
- That the property is being sold.
- That their lease stays in effect under its terms.
- How showings will be scheduled and how much notice they will get.
- Who to contact for repairs during the sale.
- That their deposit will be handled as required by law.
Respect the resident's privacy and the access terms in the lease. Some landlords offer a rent credit or other courtesy for keeping the home show-ready.
How do showings work with residents in place?
Check your lease for notice and access provisions. Schedule showings in blocks rather than one at a time, give clear advance notice and have the agent present. Many buyers of occupied rentals are investors who focus on the numbers and an inspection, so you may need fewer showings than with a typical home sale.
Which repairs should I make before selling?
Focus on items that affect safety, habitability, inspection results and the buyer's lender or insurance:
- Roof leaks and active water damage.
- Plumbing and electrical problems.
- Smoke alarms and other life-safety items.
- HVAC that is not working.
- Obvious foundation or drainage issues.
Our guide to signs of foundation problems in a Houston home explains what buyers and inspectors look for. Larger cosmetic updates usually make more sense when the property is vacant. Keep in mind that as the landlord you still have repair duties to the resident during the sale.
What disclosures apply?
Texas has seller disclosure rules for many residential sales; Texas Property Code Chapter 5 covers the seller's disclosure notice and its exceptions. Landlords also have flood disclosure duties to residents under Chapter 92. The Texas Real Estate Commission publishes the forms that brokers use in many Texas transactions. Your broker or attorney can tell you which disclosures apply to your sale.
What documents will a buyer want?
Investor buyers typically ask for:
- A rent roll showing each unit, rent, deposit and lease dates.
- Copies of all leases and amendments.
- Recent utility bills and property tax statements from the Harris County Appraisal District or the appraisal district for your county.
- Records of major repairs and any warranties.
- Insurance claims history.
Organized records make due diligence smoother. Our investor renovation scope and bidding guide explains how investors evaluate repair needs.
Should I sell occupied or vacant?
There is no single answer. Occupied properties can appeal to investors who want rental income from day one. Vacant properties can appeal to owner-occupant buyers and allow you to make repairs and stage the home. Consider the lease end date, the resident's payment history, the condition of the property and your timeline.
How can a contractor help?
A contractor can walk the property, identify repairs that might come up in a buyer's inspection and give you a written scope. That helps you decide what to fix before listing and what to disclose or price into the sale. For rentals, a contractor can also plan make-ready work once the resident moves out. Our make-ready scope of work guide shows typical items.
Planning repairs before selling a Houston rental? BPC Development LLC provides free on-site estimates in Houston, TX. Call (281) 301-4737.