Imagine if you will, your tenant has just given a 30-day notice. However, you count on the rent to pay the mortgage and cover other expenses. You cannot have a vacant property, so you check your lease agreement to make sure you have the right to show the rental property while the tenants are still there, and to your relief, you do.
You instruct your manager to dig out the old marketing pictures and put the home on the market immediately. You want showings to begin ASAP and have even asked about the possibility of an open house. Is this a good idea? I’ll explain.
Should You Advertise an Occupied Property for Lease?
No, a landlord should not advertise an occupied rental property for lease. As good of an idea as it may seem, there are some real drawbacks to actively marketing occupied properties for lease. Here, we will outline ten reasons not to put occupied rental units on the market for lease. We will also address when you can show an occupied rental unit for lease and talk about how your property manager can help.
10 Reasons Not to Advertise Tenant-Occupied Properties for Rent
1. It Burdens Tenants
Filling a vacancy usually takes several showings, which need to be arranged with current tenants. It can easily take up to a dozen showings or more. Even the most understanding tenant will become uncooperative after the third showing, and a landlord may want their cooperation later.
2. Shows Poorly
Landlords only get one chance to make a first impression. If the current occupant has boxes on the floor and everything is in disarray while packing, the place will show poorly.
3. Bad Energy
Just because your tenant allows open houses does not mean they will be baking cookies and acting friendly. If your current tenants are giving the prospective tenant the “stink eye”, the prospective tenant will move on to the next place.
4. Hard to Show
Just because your current tenants say they will allow showings, it does not mean they will say yes when it comes time. Tenants will often come up with excuses and may even refuse entry once an appointment is set. This “passive-aggressive” tactic is very common.
5. Extra Risk
Remember, landlords are essentially walking people they don’t know through an occupied property. What if something goes missing? The tenants will suspect it was from the showing. A disgruntled tenant could even make a false accusation. Either way, allowing strangers through an occupied home creates an extra level of liability.
6. Days on the Market
If your rental property is listed on the market but not available to be shown or if it is particularly difficult to show it will start to accumulate “days on the market” giving the impression that nobody is interested. This may cause people to skip viewing it altogether or make “lowball” offers just like in the “for sale” market.
7. Prospects Visualize Themselves
Prospective tenants may be hesitant about what will be required when they leave and whether they will have to allow showings. Remember that the tenants looking at your place are leaving somewhere else where they probably do not have to allow showings.
8. Red Flag on Landlord
Today’s tenants have concerns about pushy or aggressive landlords. Having a rental property on the market while the current tenants still live there may concern prospective tenants.
9. Need Time to Make Ready
Having the new tenant’s move-in date too close to the old tenant’s move-out date may not give landlords enough time to make the rental property rent-ready. This turns the make-ready process into an emergency, creating greater chances for mistakes and potentially increased costs for overtime and rush fees.
10. Tenant Holdover
What if the tenant does not get out as agreed and the landlords have already signed a legally binding lease with someone else? They now have a huge problem, pretty much of their creation. Landlords can’t legally force their current tenant to immediately get out. They now face a legal obligation with their new tenant that will not go your way in a court of law.
Is It Ever OK to Show an Occupied Property for Lease?
Although it is a bad idea to advertise an occupied property for lease, there are very few special circumstances where it is OK to show an occupied property. Let’s call them “Goldilocks” situations, where everything is just right.
It may happen when you have multiple rental properties in the same general market area and you have a great candidate that applied and qualified for a similar rental property but lost out to another applicant. Then maybe if the tenant is amenable to a showing you might be able to arrange something.
We do this when we can. However, this is a very special situation and there are risks. You have to have excellent tenant relations and be very careful doing so. Just like Goldilocks, these special circumstances are more like a fairytale and you don’t want to get caught by the three bears.
How a Property Manager Can Help
Property managers can “soft market” your upcoming vacancy to potential renters looking at comparable homes. Sometimes prospective tenants are looking for homes a couple of months in advance and most landlords won’t hold a rental property that long, when it can be rented much quicker.
A property manager should keep track of what is coming up and inform prospective tenants when appropriate. People love to know what is about to hit the real estate market. This way when your rental property is ready to go there will be potential tenants waiting to jump at the chance.
Tenant-Occupied Property Marketing: Bottom Line
Don’t try to market and show your occupied properties for lease. You will burden your tenants, your rental property will show poorly and there will likely be bad energy. It will be hard to show, you are taking on extra risk and accumulating more days on the market.
The prospective tenants will visualize having to deal with showings during their time as tenants and it raises a red flag regarding the landlord in general. Most of all, you may not have time to make the unit rent ready for the next tenant and you run the risk of the current tenant not getting out as agreed putting you in legal jeopardy.
Sure, there may be special “Goldilocks” situations where tenants are found while a rental property is occupied but they are more often than not “fairytales”. If you do make these agreements you need to be very careful that you have allowed enough time to make ready and addressed the possibility that your current tenant may not get out in time.
Your property manager can do “soft marketing” to get a jump on lining up people for when your tenants are out. You just need to be careful not to jump the gun where you are more likely to create problems than you are to reduce vacancy time.
Of course, at the Mike Dunfee Group, we would be happy to discuss marketing and showing strategies along with any other of your rental property management and real estate brokerage needs in the Long Beach, Los Angeles, and Orange County areas. We are happy to help.
Dunfee Real Estate Services
DRE # 02026232
