Selling rental properties, especially when the property is a single family home, can be almost as easy as selling your own home. But whether the property is a residence for a single household or a facility with dozens of units, there are special documents and disclosures sellers should provide to potential buyers when the property is a rental. If we’re buying rentals, we should also be asking sellers for these documents, too.
Here are documents commonly provided to buyers for inspection when selling rental properties.
1. Tenant Lease Files and Estoppels. Lease files should include tenant applications, credit reports, employment and income verification worksheets, and move-in checklists. Also include all correspondence, notices and notes relating to communications with tenants. Each tenant should sign an estoppel form prepared by the seller or the seller’s broker that summarizes the terms of the lease and rent payment status.
2. Rent Roll. The Rent Roll summarizes the rental history of each current tenant, providing the original lease date, original rent amount, date and amount of each rent increase or decrease, and current rent amount. Landlords may also add a column for current rent status, indicating if the tenant is current, behind, or ahead with rent payments.
3. Unit Mix. For properties with two or more units, a Unit Mix should be prepared that identifies the number of bedrooms, baths and other significant features in each unit.
4. Tenant Rules And Regulations. If not incorporated directly in the lease, provide all written rules and regulations tenants are required to follow.
5. Contractor Agreements and Estoppels. Recurring services provided by contractors should be documented in written agreements, including detailed descriptions of the services provided and their costs. An estoppal similar to the form prepared for each tenant should be used to confirm the contract and payment status of each service provider.
6. Warranties. Provide all warranties and receipts that apply to appliances and systems that sell with the home.
7. Recurring Utility Bills. At least 12 months,preferably 24 months, of all recurring utility bills help the buyer verify current rates and usage. If tenants pay any utilities, e.g. gas, electric, water, ask tenants for copies of their bills (recommend adding a requirement in the lease that tenants provide these).
8. Maintenance Records and Work Orders. Include all bids, contracts, reports and work order documents pertaining to all repairs made to the property.
9. Financial Statements. An Operating Statement for each of the past three years plus a pro forma (forecast) statement for the current year should be provided at a minimum. A balance sheet should also be provided with a detailed list of capital equipment that is included with the property, along with depreciation schedules.
10. Plans and Permits. If the property has been improved or remodeled, provide all pertaining drawings, plans and permits. Also provide blueprints used in original construction if they are available.
Each of these documents should be provided to prospective and actual buyers in phases based on your specific situation and your broker’s advice. Here is a typical scenario of when to disclose certain documents:
Before Escrow: When the property is listed for sale, provide COPIES of the Unit Mix, Rent Roll and financial statements. Redact tenant names.
During Escrow: During the inspection period, provide COPIES of all documents described above. Redact tenant names and account numbers on tenant’s utility bills.
At Close of Escrow: Provide ORIGINAL documents for everything mentioned above (but keep a copy for your records).
The documents we’ve reviewed here should be provided to buyers when selling rental properties in addition to the usual title report, CLUE (insurance) report, inspection reports, and other seller disclosures normally required for real estate sales. Your broker can provide a a complete disclosure package checklist tailored to your specific needs when its time to list the property for sale.
Have questions about selling rental properties or would you like to talk with us about listing your rental property for sale? Send us a note and we’ll get back to you ASAP.