Your tenant asks to buy the rental house: what to do next
Treat it as a regular sale to a buyer who already lives there. Get your own price from an agent, decide whether to sell at all, put every agreement in writing, and sort out the lease, the deposit and the closing date. The tenant has no right to buy unless your lease or a contract says so. Ask your tax preparer about gain and depreciation before you name a price.
Does the tenant have a right to buy?
Not unless something says so. A standard lease gives the tenant the right to live in the home for the term, not to buy it. A right of first refusal or an option to purchase would have to appear in the lease or a separate signed agreement. If you do not have one, you can say no, say yes at your price, or sell on the open market.
If you have ever promised the tenant in writing that they could buy the house, read what you signed. Our post on rent-to-own and lease option risks explains why these deals deserve extra care.
Setting the price
Ask a local agent for a comparison of similar homes sold nearby, and decide your price from that, not from what the tenant says they can afford. A sale to a tenant does not need an agent, but an agent's market view protects you from underpricing, and a buyer who has a mortgage will have an appraisal anyway. If you have a relationship with the tenant and sell below market as a favor, note that a very low price can affect your tax outcome and may raise questions with your lender, so ask your tax preparer and servicer first.
Example a made-up house would list at $360,000. Your loan balance is $230,000. Selling costs without an agent come to $9,000 for title and closing. Cash after the sale is $360,000 - $230,000 - $9,000 = $121,000. If the tenant offers $335,000, your proceeds would be $96,000, so the $25,000 gap is the real cost of the favor.
The lease, the deposit and the closing date
Until closing, you are the landlord and the lease stays in force. Keep collecting rent and keep the home in repair. Decide in writing when the lease ends: usually at closing. At closing the tenant becomes the owner, so the security deposit must be dealt with. Many sales credit the deposit toward the price, or return it with the itemized statement your state requires.
If the sale falls through, the lease continues. Do not give notice to end it on the assumption that the sale will close.
Questions to put to your tax preparer
Selling a rental can trigger tax on gain and on the depreciation you claimed. IRS Publication 523 covers selling a home, including a home that was used for rental, and our post on depreciation recapture explains how it works. Ask for a quick estimate at two possible prices before you answer the tenant. If you are replacing it with another property, ask about timing rules before you sign anything.
A plain order of steps
- Decide if you want to sell and at what price range.
- Check the lease for any option or first refusal.
- Get a market value from an agent and a tax estimate from your preparer.
- Put the agreed terms in a written purchase contract, with the closing date, the deposit and who pays closing costs.
- Let the buyer's lender and title company do their work, and keep the lease alive until closing.
A real estate attorney or title company is usually involved in a closing; ask them about your state's disclosures.
How DoorKeeping handles it
Until the sale closes, DoorKeeping keeps charging and matching rent and keeps the deposit shown as held for that tenant. At closing you can ask your own Claude or ChatGPT for the property's income, expenses and ledger to hand to your tax preparer, with every action waiting for your one-tap approval. One house is $2 per unit per month. DoorKeeping gives no legal or tax advice.
Sources
Questions
- Does my tenant have the right to buy my rental house?
- Only if your lease or another signed agreement gives an option or a right of first refusal. Otherwise you decide whether to sell and to whom.
- What happens to the lease when I sell to my tenant?
- It stays in force until closing. At closing the tenant becomes the owner, and the deposit is credited or returned under your state's rule.
- Do I owe tax when I sell to my tenant?
- You may, on gain and on depreciation you claimed. IRS Publication 523 and your tax preparer can estimate it at different prices.