Done being a landlord? How to sell an Indianapolis rental

First: vacant or occupied?

The biggest choice is whether to sell the house with the tenants in it, or wait until it is empty.

• Vacant usually brings the highest price from a family buying a home, because they can move in, and an agent can show it any time. But you carry an empty house: no rent, plus taxes, insurance, utilities, and often repairs and cleaning after the tenant leaves.
• Occupied means rent keeps coming in until closing, and nobody has to move. Your buyer is usually another landlord or investor who wants a house that is already rented. Showings are harder, and the price reflects the house as it is.

If the tenants pay on time and take care of the house, selling occupied to another landlord can be a good outcome for everyone. If the tenants are behind or the house needs work, an investor who buys as-is may be simpler.

Selling with tenants in place

• The lease stays. A sale generally does not end a lease. The buyer steps into your shoes as landlord, under the same terms, until the lease ends or is changed.
• Read your leases. Look for the end date, renewal terms, and anything about a sale. Some leases have special clauses; a landlord-tenant attorney can explain what yours says.
• Talk to your tenants early. People worry when they hear "sale." Telling them what will and will not change, and when, makes showings and the handoff easier.
• Do not try to force anyone out. In Indiana, only a court can order a tenant out. Changing the locks, shutting off utilities or removing doors or appliances to push a tenant out is against Indiana law without a court order.
• Registration. Indianapolis requires landlords to register their rentals with the city. The new owner handles their own registration.

Indiana notice and entry basics

• Month-to-month tenants. Indiana law says a tenancy at will can be ended with one month's written notice delivered to the tenant. Many landlords give more, and the lease or the timing of the rent due date can matter. If you want the house empty to sell, plan backward from the date you want it vacant.
• Fixed-term leases. A lease for a set term generally runs until it ends. You usually cannot end it early just because you are selling, unless the lease allows it or the tenant agrees in writing. Some owners offer tenants money to move early; put any deal like that in writing.
• Showing the house. Indiana law requires a landlord to give the tenant reasonable written or oral notice before entering, and to enter only at reasonable times. A tenant may not unreasonably refuse entry for things like showing the house to buyers. Check your lease too; it may set a specific notice period.
• Evictions in progress. If you are in the middle of an eviction, tell any buyer. It affects timing and what the buyer is taking on.

Deposits, rent and records

• Security deposits. Usually the deposits you hold are credited to the buyer at closing, and the buyer becomes responsible for returning them. Indiana's security deposit law has rules for this handoff, including telling tenants in writing who now holds their deposit. Your title company or attorney can help with the letter; until it is done right, you may stay on the hook.
• Rent. The month's rent is normally split by date at closing, so you keep rent for the days you owned the house.
• Records to gather: signed leases, a rent roll showing who pays what and whether anyone is behind, deposit amounts, recent repair records, and any open code or health department cases. Buyers ask for these, and having them ready speeds things up.
• Occupied housing complaints. In Marion County, problems in occupied rentals are enforced by the Marion County Public Health Department. Disclose any open case to a buyer.

Taxes and 1031 exchanges

This is the part to talk through with a tax professional before you sign a purchase agreement, because some choices cannot be made after closing.

• Capital gains. If the house sells for more than your tax basis (roughly what you paid plus improvements, minus depreciation), the gain is usually taxable.
• Past depreciation. The depreciation you claimed over the years generally comes back into play when you sell, and part of the gain can be taxed at a different rate.
• 1031 exchange. Under federal tax law, an investor who sells investment real estate and buys other investment real estate may be able to put off the tax with a "like-kind exchange." The rules are strict. The IRS says you have 45 days from the sale to identify replacement properties in writing, and generally 180 days to finish buying. Most people use a qualified intermediary to hold the money, because touching the sale money yourself can disqualify the exchange. It has to be set up before closing.
• Other options exist, such as spreading payments over time. A tax pro can compare them for you.

Your options

1. Keep it and hire a property manager. You keep the rent and any rise in value, and pay someone else to take the calls.
2. Wait for the lease to end, then list it vacant with an agent. Often the best price for a house in good shape, if you can carry it while it is empty.
3. Sell it occupied to another landlord, through an agent or on your own.
4. Sell it as-is to a cash buyer, tenants and all, on a date you pick. Simplest when the house needs work or the tenants are a problem. Before you sign with anyone, read our checklist for sellers.

Selling several rentals

If you own more than one, you do not have to sell them all the same way. Many owners keep the best one or two, list the houses in good shape, and sell the tired ones as-is. Selling over more than one tax year, or pairing sales with a 1031 exchange, can change the tax picture, which is one more reason to talk to a tax pro first.