Do tenant leases survive a sale in Texas?

Yes. Under Texas common law and the standard lease forms used in Texas (TAR/TREC Texas Residential Lease), a sale of the property does not terminate the existing lease unless the lease itself contains a termination-on-sale clause (rare in residential leases). The buyer takes title subject to the existing lease — the tenant remains in possession, the new owner becomes the landlord, and the lease terms continue unchanged. This is a feature, not a bug, for cash buyers who specifically want occupied rentals.

How does the security deposit transfer at closing?

Texas Property Code §92.105 requires the seller to either (1) transfer the security deposit to the buyer at closing and provide the tenant with written notice of the transfer, or (2) return the deposit to the tenant. The standard mechanic is a closing-day credit from seller to buyer in the amount of the deposit, with the buyer assuming the deposit liability going forward. The tenant gets a notice letter naming the new landlord and confirming the deposit is now held by them. This is straightforward and handled by the title company.

What if the lease ends in the middle of the sale process?

Three options, ranked by clean-ness: (1) renew or extend the lease before closing so the buyer takes a known occupied position, (2) move the tenant to a month-to-month holdover at the existing rent so the buyer can decide later, or (3) let the tenant vacate and sell vacant. Most cash buyers prefer option 1 or 2 — they're buying a known asset. Option 3 introduces vacancy risk and reduces the offer accordingly. If the tenant is good and current, keeping them in place almost always lifts the offer.

How does a Section 8 voucher transfer to the new owner?

Section 8 (Housing Choice Voucher) tenancies survive a sale just like any other lease. The HAP (Housing Assistance Payment) contract between the local housing authority (DHA, HACA, HHA depending on the city) and the landlord is between the buyer and the housing authority going forward. The transfer requires (1) the buyer signing a new W-9 and direct-deposit setup with the housing authority, (2) the buyer being approved as a new landlord (typically a 7–21 day process), and (3) updating the HAP contract. Some buyers specialize in Section 8 portfolios; most cash buyers can handle individual voucher tenancies.

Should I evict the tenant before listing to get a higher price?

Almost never. Eviction in Texas takes 30–60 days minimum even for a clean nonpayment case (Justice Court timeline plus appeal periods plus writ of possession). It costs $2,500–$5,000+ in legal fees. Evictions on a tenant's record create downstream consequences for them, which is real harm. And the gross-price uplift you'd get from a vacant listing is usually offset by the eviction cost, the lost rent during the eviction, and the repair/turnover cost after the tenant leaves. The exception: tenant has stopped paying entirely, is destroying the property, or you have a vacant-listing buyer who's already at-price and just needs vacant possession. In most cases, sell with the tenant in place.

Selling a Texas House With Tenants In Place

You bought the rental in 2014 thinking it’d be a side hustle. Twelve years later it’s a part-time job you don’t want anymore. The tenant’s been there four years, pays on time, takes care of the place — but you’re tired. The water heater went out in February, you spent a Saturday in March getting a new HVAC quote, the property tax bill arrived in April with another 8% increase from the appraisal district, and last Tuesday you got a text from the tenant about a leak in the upstairs bathroom that the plumber says is going to be $1,800.

You want out. The question is whether you have to put your tenant out to do it.

The short answer: no. You can sell a Texas rental house with the tenant in place, and for a lot of cash buyers — including us, and most other legitimate buyer-rehabbers operating in Texas — an occupied rental is more attractive than a vacant one, not less. This piece walks through how that works, what the law actually requires, the mechanics of a tenant-in-place sale, and when (rarely) eviction-first is the right call.

Why retail buyers can’t close on tenant-occupied properties

The first thing to understand is why this is a question at all. The reason you can’t just list a tenant-occupied rental on the MLS and sell to a typical retail buyer comes down to financing and showings:

Financing: FHA, VA, and most conventional loan programs require the property to be either owner-occupied at closing (for FHA/VA primary-residence loans) or vacant at closing (for most conventional second-home and investment loans without seasoned rental history). The buyer’s lender won’t fund a primary-residence loan on an occupied rental because the buyer can’t actually move in. They won’t fund a typical investment-property loan without either rental history documentation or vacant possession.

Showings: Texas Property Code §92.0563 gives tenants the right to “quiet enjoyment” of the leased premises. Showings require tenant cooperation, and a tenant who has no interest in being relocated is rarely going to cooperate with 30 showings over a 60-day listing window. Even where the lease has a “right to show during the final 30 days” clause, the practical reality is that hostile or indifferent tenants make MLS marketing nearly impossible.

This is exactly why cash buyers exist for occupied rentals. They underwrite the property as an income-producing asset, they have their own capital, they don’t need to schedule 30 showings, and they’re often looking for occupied rentals to add to a portfolio.

Texas Property Code basics on tenant rights during a sale

A few statutory pieces you should know:

Leases survive sale. The buyer takes title subject to existing leases. The tenant is not displaced by the sale itself.
Security deposit transfer (§92.105). The seller must either transfer the deposit to the buyer (with written notice to the tenant) or return it. Standard practice: credit at closing, notice letter to tenant.
Notice to vacate rules (§24.005). If a buyer takes a vacant-possession deal and the tenant is on month-to-month, the standard notice period is 30 days; for fixed-term leases, the lease has to expire (or the tenant has to agree to terminate). Cash buyers who want vacant possession typically negotiate cash-for-keys, not legal eviction.
Tenant’s right to quiet enjoyment. The seller and any prospective buyer can’t barge in. Walkthroughs require at least 24 hours’ notice in most lease forms, and the tenant has a right to be present.
Section 8 / Housing Choice Voucher tenancies. Same rules plus the HAP contract transfer mechanics described in the FAQ above. The local Public Housing Authority is involved.

If you want the full rule set, the Texas Apartment Association and the Texas Attorney General’s office both publish landlord-tenant guides that go deeper than this piece can.

”Subject to existing lease” — the closing structure that works

When we buy a tenant-occupied Texas rental, the deal closes “subject to existing lease.” Here’s what that actually means in the closing documents and at closing:

Purchase agreement identifies the existing lease as a property condition the buyer is assuming. The seller represents the lease is current, no material breaches exist, and no security-deposit deductions are pending.
Estoppel certificate. The tenant signs (or the seller produces from records) an estoppel — a one-page statement confirming the rent amount, lease end date, deposit amount, and that no claims are outstanding against the landlord. This protects the buyer from later surprise claims.
Lease assignment language. The deed or a separate assignment document transfers the landlord’s rights under the lease to the buyer.
Security deposit credit. At closing, the seller credits the buyer for the full security deposit amount via the settlement statement. The buyer assumes the deposit liability going forward.
Notice letter to tenant. Day after closing, the buyer sends the tenant a §92.105-compliant letter naming the new landlord, providing payment instructions, confirming the deposit has been transferred, and providing the new contact information.

Total additional time on top of a standard cash close: zero, if the documents are prepared in advance. We have estoppel templates and notice letters that we use on every tenant-occupied deal.

The cash-with-tenant-in-place model

Cash buyers who specialize in tenant-in-place rentals — us and many of our peers — underwrite differently than buyers who underwrite for vacant-possession rehab.

Vacant-possession rehab buyer: ARV minus repair minus margin. The cap rate isn’t directly relevant because they’re flipping. They want the tenant gone so they can rehab and resell.

Buy-and-hold investor: current rent minus expenses, divided by purchase price, equals cap rate. They want the tenant in place because the cap rate only works if there’s no vacancy gap. A vacant property loses 30–60 days of rent during turnover, plus turnover costs.

The buy-and-hold cap-rate math typically goes like this. A $1,800/month rental in DFW:

Annual rent: $21,600
Property tax (~2.2%): ~$5,000 on a $230K property
Insurance: ~$1,400
Maintenance reserve: ~$1,500
Management or self-management cost: ~$1,800 (10% of rent)
HOA, if applicable: $500
Net Operating Income (NOI): ~$11,400
At 7% cap rate target: $163,000 purchase price
At 8% cap rate target: $142,500 purchase price
At 6% cap rate target (hot market, low rates): $190,000 purchase price

If the same property would sell vacant for $215,000 retail, the buy-and-hold investor at 7% cap is paying meaningfully less than retail — but the seller doesn’t have to evict, doesn’t have to do turnover, doesn’t have to handle showings, and walks away with cash in 14 days with the tenant comfortable and undisturbed.

For sellers with multiple rentals, this math gets more attractive — a portfolio sale of 5 doors to a buy-and-hold investor often clears at slightly above per-property cap-rate math because the buyer values the portfolio’s scale.

Section 8 portfolios and the HAP transfer

Section 8 (Housing Choice Voucher) tenancies are common in DFW, Houston, and the smaller Texas metros. They’re a real category of rental property and they sell well to investors who like the guaranteed-rent component of the HAP contract.

The mechanics of selling a Section 8-occupied property:

Listing the property under the existing HAP contract. The buyer needs to know the contract rent, the tenant’s portion vs. HUD’s portion, and the contract end date.
Buyer landlord approval. The buyer applies to the local Public Housing Authority (DHA in Dallas, HACA in Austin, HHA in Houston) as a new landlord. This is typically a 7–21 day process involving W-9, direct deposit setup, and a brief background review.
HAP contract transfer. Some PHAs require a new HAP contract; some just amend the existing one. The mechanics vary by PHA.
Closing happens normally. Security deposit credit, notice letter to tenant, lease assignment.

For a portfolio sale of multiple Section 8 doors, the buyer may want to verify the PHA relationship is in good standing — no inspection failures pending, no abatement letters outstanding, no contract terminations in process.

Why eviction-first is usually the worst path

Some sellers think “I’ll just evict, repair, and list” will get them the highest gross. Walk the actual math.

Eviction timeline. Even a clean nonpayment-of-rent case in Texas takes 30–60 days from posting the §24.005 notice to vacate through Justice Court judgment through writ of possession execution. Contested cases can stretch to 90 days. The tenant has appeal rights to County Court at Law that add another 10–21 days.

Eviction cost. Filing fees, attorney fees (often $1,200–$2,500 for a single eviction), constable fees for the writ execution, locksmith for the lockout day. Total: $2,500–$5,000 routinely.

Lost rent. During the eviction and the turnover after, you’re not collecting rent. On a $1,800/month rental, 60 days of lost rent is $3,600.

Turnover repair. Evicted tenants — particularly contested evictions — often leave damage. Carpet, paint, drywall, appliances, sometimes structural. Add $2,000–$8,000 routinely.

Lost MLS days. Even after the eviction and turnover, the listing process takes another 60–90 days.

Total from “I want to sell” to “the wire hits my bank account” with an eviction-first path: 5–7 months and $5,000–$15,000 of out-of-pocket cost before you see a dollar of sale proceeds. And the resulting net is rarely $15K higher than the tenant-in-place cash offer would have been.

The only scenarios where eviction-first makes sense:

The tenant has stopped paying entirely and is destroying the property — eviction protects the asset, regardless of the sale.
You have a specific retail buyer at-price who needs vacant possession and won’t budge.
The lease is expiring on its own within 60 days and the tenant has already given notice — in which case it’s not really an eviction, it’s just letting the lease run out.

Tenant communication during the sale process

Tenants get nervous when the property they’re renting goes up for sale. A tenant who’s been quiet and current for three years can become a problem tenant in a week if they think they’re being kicked out.

The communication that works:

Tell the tenant before listing the property. Explain that you’re selling, the buyer will likely be an investor, and the lease will continue. Mention that nothing about their rent or terms will change.
Reassure on the lease. Texas leases survive sale. The tenant doesn’t have to move.
Coordinate any walkthrough requests. Most cash buyers do one walkthrough total. Schedule it at the tenant’s convenience.
Don’t promise what you can’t deliver. Don’t tell the tenant the buyer will keep their rent at exactly the current level forever. The buyer is the new landlord and can renew on different terms when the lease ends.

A cooperative tenant during a sale process makes the closing easier, the estoppel cleaner, and the buyer more confident. A hostile tenant kills deals.

Capital gains, depreciation recapture, and the 1031 option

A rental property sale has different tax treatment than a primary-residence sale. The key pieces:

Depreciation recapture. If you’ve been depreciating the property on your tax returns (Schedule E, MACRS 27.5-year residential), the IRS recaptures that depreciation at sale at a 25% rate. On a $230K property held 10 years, depreciation taken is roughly $80K, so depreciation recapture tax is roughly $20K. This applies whether or not you actually claimed the depreciation — the IRS treats “depreciation allowed or allowable” as if it were taken.

Capital gains. Long-term capital gains tax (15% or 20% federal depending on income) on the gain above adjusted basis.

1031 exchange. If you’re rolling into another investment property within the timing rules (45 days to identify replacement, 180 days to close), a §1031 like-kind exchange defers both depreciation recapture and capital gains tax. This is the standard strategy for landlords trading up or rebalancing portfolios.

Cash sale doesn’t disqualify a 1031. Some sellers think only a financed retail sale can be part of a 1031 exchange. Not true — cash sales work fine for 1031, as long as the proceeds go to a qualified intermediary (not directly to the seller) and the replacement property timing rules are met.

We are not tax advisors. If you’re selling a rental, talk to a CPA who handles rental real estate before signing a contract. Get the basis number, the depreciation taken, and the projected tax hit in front of you before deciding between cash, listing, or 1031.

Rental property pricing — cap rate vs. comps

Owner-occupied houses are priced by comps. Rental houses are priced (by sophisticated buyers) by cap rate. The two methods sometimes converge and sometimes diverge significantly.

In rising markets, comps run above cap-rate math. A house that comps at $260K might cash-flow at only $230K. The retail buyer pays $260K (because they’re not running cap-rate math); the investor pays $230K (because they are).

In declining markets, the gap widens further. Investors stay disciplined on cap rate; retail buyers may overpay relative to fundamentals.

What this means for the seller of a tenant-occupied rental: the cash-buyer offer will probably be at cap-rate math, not comp math. If your house comps at $230K and the cap-rate math says $200K, expect offers in the $200K range. The trade-off — covered above — is you don’t have eviction, turnover, repair, listing, commission, or carrying costs eating into the difference.

The bottom line

Selling a Texas rental with the tenant in place is a real and legitimate option. The leases survive the sale, the deposit transfers cleanly at closing, the tenant doesn’t have to move, and the buyer pool of cash and buy-and-hold investors is large and active.

The exceptions — the situations where eviction-first or vacant-listing makes sense — are narrower than most sellers think. Run the actual eviction math against the tenant-in-place cash offer before you decide.

We buy Texas rentals — single doors and small portfolios, retail tenants and Section 8, market-rate and below-market leases — across DFW, Houston, San Antonio, and the smaller markets. If you’re tired of being a landlord and want to see what your tenant-occupied property would clear, tell us about the property. We’ll write a number against the existing lease and you can decide from there.

Selling a Texas House With Tenants — What Works and What Doesn't