Selling a Spokane Rental With Tenants in Place: What Changes for the Landlord

The two questions we hear most from Spokane landlords are “do I have to get the tenant out first?” and “what happens to the deposit?” The answers are no, and it goes to the buyer. Here is how an occupied sale works, what Washington law requires along the way, and where the typical landlord gets stuck.

The lease survives the sale

In Washington a tenancy does not end because the property changes hands. Whoever buys the house steps into your shoes as landlord, on the same lease terms, with the same rent. That means:

• You do not need to serve notice or evict to sell. In fact, under the state’s “just cause” rules, wanting to sell is not by itself a reason to end a month-to-month tenancy unless the specific statutory conditions are met, so trying to clear the house first can add months.
• The security deposit transfers. At closing, the deposit is credited to the buyer on the settlement statement, and the buyer becomes responsible for returning it to the tenant later. Washington requires the tenant to be told in writing where the deposit is held, so the new owner sends that notice.
• Rent is prorated. If closing lands mid-month, escrow splits that month’s rent between you and the buyer.
• The tenant is told who to pay. After recording, the new owner notifies the tenant of the change in ownership and the new payment address.

What a retail buyer needs that a cash buyer does not

A conventional buyer with a mortgage usually wants the house vacant, or at least wants a tenant estoppel letter, an inspection with the tenant’s cooperation, and photos of every room for the listing. Tenants who are behind on rent, hostile, or living in a cluttered house make all of that difficult, and lenders are wary of occupied properties in poor condition.

Horizon Home Buyers buys occupied rentals as they are. We do one walkthrough, scheduled with proper notice to the tenant, and we do not need the property listed, photographed, or shown. If the tenant is current and reasonable, they usually never notice a difference beyond a new address for the rent check.

Selling with a problem tenant

Non-payment, damage, unauthorized occupants and hoarding are the usual reasons a landlord calls us. Washington’s eviction process has become slower and more expensive for landlords: notice periods, mandatory court forms, the right to counsel for tenants in many cases, and court calendars that can stretch the whole thing past 90 days. Every one of those months is a month of no rent and continuing mortgage, tax and insurance payments.

We price the situation into the offer and handle it after closing. You are done at recording; the tenancy, the court process if one is needed, and the cleanup become ours. Our guide to seven warning signs it is time to sell a problem property covers the signals that it has reached that point.

Selling a tired building

Sometimes the tenant is fine and the building is the problem: a roof at end of life, galvanized plumbing, a sewer line that keeps backing up, or knob-and-tube wiring that no insurer wants to cover. A retail buyer’s lender will require the repairs. We buy as-is and do the work ourselves.

Taxes to think about before you sell

Two items are worth a conversation with your CPA before closing, because timing can matter:

• Depreciation recapture and capital gains. A rental you have depreciated for years will usually produce a taxable gain on sale.
• A 1031 exchange. If you plan to buy another investment property, an exchange can defer that gain, but the replacement property must be identified and closed within strict deadlines, and the exchange has to be set up before you close, not after. A cash sale with a firm closing date makes those deadlines easier to plan around.

This is general information, not tax or legal advice.

What we need from you

The address, the current rent and lease terms, whether the tenant is current, and anything you know about the condition. We can usually make an offer without disturbing the tenant at all until a sale is agreed. Call 509-383-3034 or use the form on this page. The short version of this article is on our tenants FAQ.