Hi. I’m Jason with CTI and welcome back to our selling a house video series. In this video, we are going to be talking about selling a rental property. A popular subject with sellers who are also landlords is leaving the current tenant in place. It is often the case that a landlord wants to sell a home before the tenants have moved out and is not sure about how to go about doing so. If your buyer is ok with buying the house and keeping the existing tenants, there are a few extra steps to take on top of the regular closing process. Any buyer is going to require a copy of the existing lease. One extra piece of paperwork however, would be called the estoppel. An estoppel details things such as the rental amount, if the rent is current or if the rent is past due, and how much security deposit is currently being held. The estoppel is signed by both the tenant and the landlord. Another step would be to transfer any sort of funds that have been collected from the tenant such as a security deposit, a pet deposit, or rents collected in advance. Remember, if you have collected any money as a deposit, this is not income, and it will have to be transferred to the new buyer at the time of closing. The same would go for rents collected in advance. Simply put, if you were to have collected $1,000 in rent on the first of the month, and you sell the house halfway through the month, then you are only entitled to half of the $1,000 in rent that you have collected. You would get to keep $500 as rental income, and would need to transfer the other $500 to the new buyer since they will have owned the house for the last half of the month. In the event you have tenants who are less than ideal and are damaging the house or are not paying rent, a buyer may not be willing to take the risk. Typically for a discounted price, a buyer will still buy the house but for the worst of tenant situations, it may be in your best interest to evict the tenants on your own prior to selling. Typically the first step in an eviction process is to deliver to the tenant or to post on the door what we call a 3-day notice. A 3-day notice puts the tenants on alert that they have a specific amount of time to correct their rental violations, which is normally just to pay the past due rent. After the complete 3 days have past, the next step is usually to file a complaint or summons with the court. This is the official beginning of the eviction. If the tenants do not contest the eviction. If the tenants do not contest the eviction, the process may only take a couple weeks or so for the eviction to proceed. If the tenants do contest the eviction, this process can be dragged out well over a month. The can be some miscellaneous court motions and responses, there can be some court hearings that you will have to attend and defend your case, and there may be some attempt for court mediation, which in our experience, is not so great. For those that can stomach it, it can sometimes be a better financial decision to offer to pay the tenants a few hundred dollars to move out rather than go through the entire expensive eviction process. If you are selling a rental house, there can also be some slight tax advantages. Something a lot of people are unaware of would be IRS rule 121. This allow you to not pay any tax on any profit you make when selling a home as long as you have lived there for at least 2 of the past 5 years. (Sell within these 5 years to take advantage!) There is a limit to how much profit you can make and this varies for single people versus married people. An extra benefit is the 1031 rule, which really helps people who want to invest in a different house. This will allow you to differ paying any tax on the profit so long as you roll the money into a similar investment property. If neither of these things affect you, at least you should still be able to qualify for a long-term capital gains tax rate. This is a separate tax rate that is typically lower than you would otherwise pay. If any of these things sound like they might apply to you, talk to your CPA for the specifics and plan this all out ahead of time. Hopefully this video gave you some useful key points to know about when selling a rental property. When it is time to sell your house, give us a call or fill out the form on our website at ctiproperties.com. We would love to work with you.