Most flippers who are unable to sell quickly will put tenants in their properties. It has the benefit of providing monthly income to help pay your own holding costs, interest, taxes, and insurance. The tenant pays the utility bills. It keeps down your insurance costs because insurance for vacant houses is often much higher than for occupied homes. In addition, some theft and vandalism losses are often not covered at all if the property is vacant for some period of time.
Your lender will be much more willing to renew your note if you have a tenant in place. It shows that you have taken steps to minimize your losses, and acted in a businesslike manner.
On the negative side, tenants can damage your property, making it harder to sell without spending more money for repairs. At the very least, the most careful tenant in the world will cause some wear and tear, meaning the house will no longer be move-in perfect for a new owner. On the other hand, very few buyers expect perfect homes, so that should not affect your sale price.
Another word of caution about tenants. An acquaintance of mine once rented a large home in a very desirable part of town. He lived there for several years, and then the owner decided to sell. My friend was paying rent substantially lower than similar properties in the market. Plus, he was nested in to the house and comfortable. He did not want to move, but he also could not afford to pay the asking price. He did graciously offer to show the house to prospective buyers, so the owner would not have to drop everything each time someone called. On the morning of each showing, he did three things. In the summer, he turned off the air conditioning and in the winter he turned off the heat. Next, he brought an overflowing cat litter box into the house, rather than its normal spot in a shed. Finally, he flipped a few circuit breakers so that, as he entered rooms and tried to turn on the lights, he could complain about the wiring and then correct the situation by flipping the circuit breaker back into the on position. The poor owner received no offers. After a year, she sold the house to the tenant at a deep discount. Don’t let this happen to you.
This story also points out the biggest problem with tenants, they move into the house because they want to live in the house. No one wants to sign a lease with a clause saying the landlord can kick them out if he or she sells the house. Normal landlords can pass that off as boilerplate, and say it is just in case but not likely to happen. You will be different, because you will be actively trying to sell the property, from the start. As a result, you might have problems attracting tenants.
One solution is to find a tenant, put them in place with a standard one-year lease, and then sell your house as a piece of income producing property to an investor. This may or may not be a good strategy. Depending on where the house is located, an investor might pay more or less money than a homeowner. Be sure to research this issue before choosing this route. Also, most investors base their buying decisions on something called the NOI, Net Operating Income, from a property. In other words, what is the cash flow after receiving all the rent each year and then paying all expenses except mortgage payments? Obviously, the higher the rent, the larger the NOI and the more an investor will be willing to pay. You cannot put a tenant in the house at a discounted rent and then expect to sell the property based on what the rent should be with a different landlord.