Selling a Wisconsin Rental Property With Tenants: The Landlord's Guide

A lot of landlords who call us have spent weeks working out how to get their tenants out before putting the building up for sale. Usually that effort is wasted. An occupied rental can be sold with the people still living in it, and clearing it first tends to cost more time, more money and more aggravation than any other way of going about it.

Below we walk through the practical side of selling a tenanted property in Wisconsin: what becomes of the leases and the deposits, how a non-paying tenant or a pending eviction fits in, why these buildings struggle on the open market, and how to think about whether selling is the right call in the first place.

The sale does not cancel the tenancy

Start here, because almost every other question follows from it. A lease is tied to the building, not to whoever happens to own it this year. When ownership changes, the tenancy generally carries on and the buyer steps into your shoes as landlord.

What that means for you in practice:

• No notice to quit is needed just because you have decided to sell.
• There is no reason to hold off until the current term runs out.
• Nobody has to pack up and leave ahead of the closing.
• From closing day onward, the buyer is bound by the same lease terms you agreed to.

Handling the deposits

A security deposit never really belonged to you; you were holding it for the tenant. At closing those funds are credited across to the buyer, and from then on it is the buyer who answers to the tenant for them when the tenancy ends.

The title company takes care of the credit on the settlement statement. Your job is to get the figures to them in good time, and to mention two problems the moment you know about them:

• Some of the deposit money has been spent. This happens far more often than landlords like to say out loud. It can be sorted out with a credit at closing, and it is a far easier conversation in week one than on the morning of settlement.
• The paperwork is patchy. Piece together whatever you can: names, amounts, dates received. A partial list that you are upfront about is worth more to a buyer than a tidy one that later turns out to be wrong.

Rent in the month you close

The current month's rent is normally split by day at closing, the same way the tax bill is. If tenants paid you on the first and the sale closes mid-month, the buyer is credited for the days after closing.

Have a simple tenant list ready: unit number, tenant name, monthly rent, due date and any balance owed. Every buyer worth dealing with will want it before anything else, and it turns the proration into a five-minute job.

Why tenants make the open market hard

The usual difficulty with listing a rented building is not the building. It is the arrangement around it.

Access depends on someone else

Agents need to get in for photos and showings, and the person living there has no stake in the sale going well. Wisconsin landlords have to give advance notice before entering, so showings cannot just be booked whenever an agent has a buyer free. Some tenants tidy up and step out. Others leave the dishes, the laundry and the dog, and the listing photos show it.

Most buyers want to move in

The bulk of people shopping for houses are looking for somewhere to live. A lease with months left on it rules them out before they ever see the place, which leaves you selling to a much narrower group: other investors.

Investors buy with a calculator

That is perfectly reasonable, but it changes the dynamic. An investor works backward from rent, expenses and repairs to a price, and there is no emotional bidding war over a duplex.

Wear from years of renting

Properties that have been rented for a long stretch nearly always have repairs that were put off, and buyers using a mortgage bring a lender and an appraiser who will notice. Older Wisconsin two-flats are especially prone to this: original wiring, old steel water lines and roofs that have been patched several times instead of replaced.

A cash buyer purchasing the place as an ongoing rental sidesteps every one of those issues. We expect people to be living there, and nobody needs to make the beds before we walk through.

Disclose the messy details early

They rarely change our offer by much. The reason to mention them on the first call is that surprises halfway through a closing slow everyone down.

Unpaid rent

We see this constantly, and it does not stop a sale. It also tends to have only a small effect on price, because a tenant who is behind is something we will be dealing with as the new owner, not a flaw in the structure.

A pending eviction

Buying while an eviction case is open is something we have done many times. It does affect the closing, including who carries the case forward and what paperwork goes with it, so we want to hear about it on day one, not find it when title comes back.

Handshake leases

Older buildings often have tenants who signed something years ago, or never signed anything, and have simply stayed on. Write down what the arrangement actually is: rent, what is included, how long they have been there. A one-page summary beats having nothing on paper.

City orders and rental inspections

Whether the building is in Milwaukee, Green Bay or Madison, find out whether the city has any open orders on it, and whether any rental registration your city requires is current. A lapsed registration or an open order is worth mentioning right away. We can close with those still open; most mortgage lenders will insist they are resolved first.

The things you would rather not mention

An apartment carved out of the attic without a permit, a lower-level room advertised as a bedroom that has no proper egress, two units sharing one meter. We can work with all of these. What causes real trouble is when a lender's underwriter stumbles across one a few days before a scheduled closing.

Treat the tenants as part of the process

The people renting from you did not decide to sell, and finding out because an unfamiliar person turns up with a tape measure is an unpleasant way to learn about it.

Nothing obliges you to ask their permission. Still, a short conversation explaining that the building is being sold and that their lease stays in place does a lot to keep things calm. We would much rather you introduce us than have us show up cold, and tenants who know what is going on are usually the ones who answer the door.

How a rental gets valued

Pricing a rental is not the same exercise as pricing a family home. The buyer is weighing the income and the physical building together, so it helps to know what they will look at, both to prepare and to tell a real offer from a guess.

Do not hold off on calling until the folder is complete. It is simply true that the more of this you can show, the less a buyer has to guess, and guesses are usually made on the cautious side.

Shared meters and owner-paid heat

This one deserves its own section, because few things affect what a rental earns as much, and many older Wisconsin two-flats run on a single meter or a single boiler.

When the landlord is paying to heat both units, drafty windows and a thin attic are not cosmetic details; they show up on a bill every winter month. Any buyer will account for that. It is also a big part of why so many owner-heated duplexes in Milwaukee and Green Bay have been barely breaking even, or worse, for years by the time the owner calls us.

If you are thinking about a 1031 exchange

Landlords who plan to roll the proceeds into another investment property can sometimes defer capital gains tax through a 1031 exchange. It comes with firm deadlines for naming and buying the replacement, and the sale proceeds have to go through a qualified intermediary who is lined up before your sale closes.

Choosing which property to let go

Landlords with several properties often sell just one. It pays to choose on purpose instead of picking whichever caused the latest headache.

• The building about to need big money. If the roof, the heating and the electrical are all reaching the end of their life together, that is a strong candidate.
• The one that takes the longest to drive to. Travel time is often what makes an otherwise workable set of rentals feel unmanageable.
• The weakest performer on paper, rather than the one with the most difficult tenant. Tenants move on; a property that has never paid its way is unlikely to change.
• The one you avoid thinking about. That is a fair reason too.

If you want to sell more than one, we can price them together and stagger the closings if spreading them out helps with taxes.

Is selling the right move?

A decision like this deserves a calm look, not a reaction to one rough month.

We mean that bottom row seriously. Many landlords who reach out are not reacting to a single problem tenant. They are tired after years of turnovers, put-off repairs and a creeping sense that the income no longer makes up for the hassle. That is reason enough to sell, with or without a spreadsheet to back it up.

What tenants are entitled to during a sale

This is general information, not legal advice. Knowing the basics makes a sale go more smoothly and keeps you on good terms with the people living there.

Notice before entering

In Wisconsin a landlord generally has to give advance notice and enter at reasonable hours for a legitimate reason. Letting a potential buyer see the unit qualifies. Knocking with a stranger beside you and no warning does not. Disputes over access are the most frequent source of tension when a rental is sold, and they are almost always prevented by giving notice properly.

The existing terms stay in force

Rent, the length of the term, and any side agreements about parking, pets or utilities remain as they were. Tenants who are told this early tend to cooperate. Tenants who are left guessing often assume they are about to be put out, and act accordingly.

Deposits stay protected

The tenant's deposit moves to the buyer at closing, along with the duty to return it, minus any lawful deductions, when the tenancy ends. Wisconsin has its own rules on how that return and those deductions are handled.

No retaliation

Wisconsin limits what a landlord can do to a tenant who has used a legal right, for example by calling in a building inspector. If that has happened and you are now selling, keep the sale and the complaint clearly apart, and make sure your buyer hears about the complaint from you.

The rentals we purchase

We buy tenant-occupied property throughout our 21 Wisconsin counties: rented single-family homes, the up-and-down duplexes found on block after block in Milwaukee and Green Bay, small apartment buildings, houses converted for students near the campuses in Oshkosh, Eau Claire, Whitewater and La Crosse, and older rentals in whatever shape years of tenants have left them.

Your tenants can stay where they are, their leases carry over, and there is nothing to repair, clean out or vacate first.

Frequently asked questions