Selling a Rental Property in Alabama: Tenants, Leases, and Repairs

• Sell with the tenant in place. Your buyers are mostly investors. The rent, the lease terms, and the tenant's payment history matter more than the paint.
• Wait for the lease to end, then sell vacant. You can make repairs and list to owner-occupant buyers, who may pay more. But you carry the house empty, with no rent coming in, while you fix it and sell it.
• Sell as is for cash. Tenant or no tenant, repairs or no repairs. It is faster and simpler, usually at a lower price than a fixed-up vacant listing.

The right answer depends on the rent, the condition, the tenant, and how much more of your time you want to give this property.

If you plan to sell with the tenant in place, tell them early. A tenant who knows the lease stays in force is more likely to keep paying and keep the place ready for a walkthrough. Surprises tend to go the other way.

A sale generally does not end a lease. The buyer takes the property subject to the existing lease and steps into your shoes as landlord, with the same rent and the same end date. Read your lease for any terms about sale, showings, and entry before you schedule anything.

Security deposits need attention. Alabama's Uniform Residential Landlord and Tenant Act generally caps a deposit at one month's rent and requires the landlord to refund it, or give an itemized list of deductions, within 60 days after the tenancy ends (Ala. Code § 35-9A-201). When you sell, the deposit should be credited to the buyer at closing so the new owner can meet that obligation.

Put it all in the contract: every lease, every deposit, any prepaid rent, and who gets the rent for the month of closing. Rent is normally split by the day at closing.

If the tenant is not paying, you have two clocks running: the eviction and the sale.

In Alabama, an eviction for nonpayment starts with a written notice giving the tenant at least seven business days to pay (Ala. Code § 35-9A-421). If the rent is still unpaid, the landlord files an eviction case in district court. The tenant has seven calendar days after being served to answer (Ala. R. Civ. P. 12(dc)), and either side has seven days after the judgment to appeal to circuit court (Ala. Code § 35-9A-461). Each step costs filing fees and often attorney fees, and an appeal adds more time.

You do not have to finish the eviction to sell. Some investor buyers, including us, will buy with a nonpaying tenant still in the house and take over the situation after closing. That trades some price for not having to see the case through yourself. If the tenant has damaged the house, we buy it as is.

Rentals collect deferred maintenance: the roof that should have been replaced two leases ago, the original heating and air, the bathroom patched between tenants. You have three ways to handle it.

• Fix it before selling. You pay for the work up front, the house usually sits empty while it is done, and you hope the price covers it.
• Price it in. Give the buyer a credit or a lower price. A financed buyer's lender may still require certain repairs before closing.
• Sell as is. The buyer takes the condition. We buy rentals in any condition, and you make no repairs.

Before spending on repairs, ask whether the money comes back. If the contractor bids are larger than the price difference between selling as is and selling fixed up, skip the work. An investor buyer prices the repairs in either way, so you are really choosing between paying for the work now or accepting a lower price later.

Compare your options on what you keep, not on list price.

1. Hold and keep renting. Yearly rent, minus mortgage, taxes, insurance, repairs, vacant months, management, and your own time.
2. Fix and list vacant. Expected price, minus repairs, minus months of carrying costs with no rent, minus commission and closing costs.
3. Sell as is for cash. Our offer, minus your loan payoff. There is no commission and we pay the normal closing costs.

Talk with your tax preparer before you sell a rental. Depreciation recapture and capital gains can change your net, and the home sale exclusion that applies to a main home generally does not cover a rental.

Tell us about the property, the lease, and the tenant. We usually make a cash offer within about 24 hours, and there is no obligation to accept it. If you do, we close through a local title company or closing attorney in as little as 7 to 14 days, or on the date you pick. Your mortgage and any liens are paid from the proceeds at closing. You pay no commission, we cover the normal closing costs, and the leases, deposits, and keys transfer to us at closing.

Our offer will usually be below what the same house would bring fixed up and vacant on the open market. If you have the time and cash to do that, it may net you more. If you want out of the property now, compare our number to the math above.