What should unenthusiastic landlords do with rental property?
August 23, 2016 8:57 AM Subscribe
We own a house 1.5 hours from our location, and we're currently renting it. Our tenants are awesome, but they will only be able to stay for a couple of years. What should we do with this property?
We have 70K to 90K in equity on this house. On the one hand, our tenants have never, ever been late in their payments. They take care of the place and keep it reasonably tidy. They are easy to deal with, but they do not intend to stay indefinitely. This is scary because chances are we will not luck out with tenants like them again. At the same time, renting a place that is so far away can be stressful. We have to rush there if anything happens (repairs, for example), and it can be kind of a PitA to drive 1.5 hours and just renting in general is ugh. Plus it seems wasteful to sit on that equity when we could use the money for a downpayment in our new town.
So, we think okay, we might sell the place then. But selling the house would potentially mean paying mortgage in an unoccupied house for several months. Or showing the house with our tenants inside, which seems a little useless and unkind, and at the same time not a great idea, since our tenants love animals and have a gazillion pets (we love their pets, but for the purpose of house showing I have read this is a huge turn off).
The tenants are not interested in buying the house, but they could continue renting a couple of years more. What would be the recommended path here?
We have 70K to 90K in equity on this house. On the one hand, our tenants have never, ever been late in their payments. They take care of the place and keep it reasonably tidy. They are easy to deal with, but they do not intend to stay indefinitely. This is scary because chances are we will not luck out with tenants like them again. At the same time, renting a place that is so far away can be stressful. We have to rush there if anything happens (repairs, for example), and it can be kind of a PitA to drive 1.5 hours and just renting in general is ugh. Plus it seems wasteful to sit on that equity when we could use the money for a downpayment in our new town.
So, we think okay, we might sell the place then. But selling the house would potentially mean paying mortgage in an unoccupied house for several months. Or showing the house with our tenants inside, which seems a little useless and unkind, and at the same time not a great idea, since our tenants love animals and have a gazillion pets (we love their pets, but for the purpose of house showing I have read this is a huge turn off).
The tenants are not interested in buying the house, but they could continue renting a couple of years more. What would be the recommended path here?
Ask the awesome tenants to recommend new awesome tenants.
posted by kindall at 9:10 AM on August 23, 2016 [4 favorites]
posted by kindall at 9:10 AM on August 23, 2016 [4 favorites]
Best answer: If you are in the U.S. and the value of the house has increased since you purchased it, you should consider the rules for capital gains taxes on primary residences. In general, you do not have to pay taxes on profits from the sale of a house if it served as your primary residence for 2 of the previous 5 years.
So if you lived in the house for at least two years and the value increased and you don't want to keep it as a long-term rental, it would probably be a good idea to sell it within 3 years of the time you moved.
As far as showing it, I'd agree that you either have them move out or offer them discounted rent to keep it sparkling clean while it's up for sale. That would include not only picking up dirty clothes but also taking a big chunk of their stuff - and maybe pets - off-site.
posted by Mr.Know-it-some at 9:13 AM on August 23, 2016 [2 favorites]
So if you lived in the house for at least two years and the value increased and you don't want to keep it as a long-term rental, it would probably be a good idea to sell it within 3 years of the time you moved.
As far as showing it, I'd agree that you either have them move out or offer them discounted rent to keep it sparkling clean while it's up for sale. That would include not only picking up dirty clothes but also taking a big chunk of their stuff - and maybe pets - off-site.
posted by Mr.Know-it-some at 9:13 AM on August 23, 2016 [2 favorites]
Best answer: Even if showing a place with pets is a turnoff, you have nothing to lose by trying. I would keep the place while the current tenants are there. Near the end of their lease I would start showing the place both for rental and for sale. Make your decision at that point. Also, is there a local management company that you can get to do repairs and small work in the interim?
posted by AugustWest at 9:14 AM on August 23, 2016 [1 favorite]
posted by AugustWest at 9:14 AM on August 23, 2016 [1 favorite]
But selling the house would potentially mean paying mortgage in an unoccupied house for several months.
Fortunately you can see this coming a couple years down the road, so start saving up for it now. I don't know how the property market is where your rental is located, but there's no inherent reason it needs to stay on the market for months before selling. Typically that means you've priced it too high - unless the entire market is sluggish, which is a different argument against selling.
Anyway, if you decide you can live without using the equity to contribute to your new home purchase, you could also get a more local property manager who will take care of minor plumbing, electrical, etc., issues without you having to drive over there on short notice. This will cut down your cash flow, perhaps significantly, but it's much more "set it and forget it" if you can live with the reduced income.
posted by Joey Buttafoucault at 9:16 AM on August 23, 2016 [1 favorite]
Fortunately you can see this coming a couple years down the road, so start saving up for it now. I don't know how the property market is where your rental is located, but there's no inherent reason it needs to stay on the market for months before selling. Typically that means you've priced it too high - unless the entire market is sluggish, which is a different argument against selling.
Anyway, if you decide you can live without using the equity to contribute to your new home purchase, you could also get a more local property manager who will take care of minor plumbing, electrical, etc., issues without you having to drive over there on short notice. This will cut down your cash flow, perhaps significantly, but it's much more "set it and forget it" if you can live with the reduced income.
posted by Joey Buttafoucault at 9:16 AM on August 23, 2016 [1 favorite]
You don't want to be a landlord, I'm guessing you didn't buy this house as an investment property... it's impossible to say without the actual numbers (rent vs. value of house, not just rent vs. mortgage) but you are almost certainly better off selling it.
Look at the few months vacancy as part of the transaction cost of selling the house - I mean, you will also be paying realtor fees, etc. when you sell. Selling a house is expensive. But it's not going to get less expensive. And if a few months vacancy puts you in a financial danger zone that is ever more of a reason to get rid of the house.
Unload it!
posted by mskyle at 9:17 AM on August 23, 2016
Look at the few months vacancy as part of the transaction cost of selling the house - I mean, you will also be paying realtor fees, etc. when you sell. Selling a house is expensive. But it's not going to get less expensive. And if a few months vacancy puts you in a financial danger zone that is ever more of a reason to get rid of the house.
Unload it!
posted by mskyle at 9:17 AM on August 23, 2016
Best answer: We have to rush there if anything happens (repairs, for example), and it can be kind of a PitA to drive 1.5 hours and just renting in general is ugh.
Have you looked into using a management company? I own a condo and then I moved in with my SO and for various reasons held onto the condo and rented it. I didn't want to deal with exactly what you said so I hired a management company. They take 5% of the rent every month which, for me, is well worth them having to deal with the 1am phone calls for a leaking sink and things like that. They do a walk through every 6 months to check on the place. And they'll take care of all the "looking for new tenants" thing when that pops up. I get an electronic deposit every month but other than that I basically don't think about the condo at all.
It is SO worth the 5%.
posted by bowmaniac at 9:52 AM on August 23, 2016 [9 favorites]
Have you looked into using a management company? I own a condo and then I moved in with my SO and for various reasons held onto the condo and rented it. I didn't want to deal with exactly what you said so I hired a management company. They take 5% of the rent every month which, for me, is well worth them having to deal with the 1am phone calls for a leaking sink and things like that. They do a walk through every 6 months to check on the place. And they'll take care of all the "looking for new tenants" thing when that pops up. I get an electronic deposit every month but other than that I basically don't think about the condo at all.
It is SO worth the 5%.
posted by bowmaniac at 9:52 AM on August 23, 2016 [9 favorites]
Seconding a management company if you want to keep it as an income stream. It can be well worth the fee to never have to deal with late night calls or emergency repairs.
It is also possible to sell the house to someone that wants to be a landlord with your current tenants staying in place. You can casually list it for sale as an investment property and (mostly) only people that are interested in buying it with it still being occupied will contact you about it. The tenants would still have to deal with a few walkthroughs and an inspection/assessment, but if they want to stay in place for a few years, it would be less disruptive than getting kicked out. If you want to be kind to them in the process, you could include renewing their lease for a year at a fixed rate right before the sale, such that the new owner couldn't just immediately raise the rates.
posted by Candleman at 10:31 AM on August 23, 2016 [1 favorite]
It is also possible to sell the house to someone that wants to be a landlord with your current tenants staying in place. You can casually list it for sale as an investment property and (mostly) only people that are interested in buying it with it still being occupied will contact you about it. The tenants would still have to deal with a few walkthroughs and an inspection/assessment, but if they want to stay in place for a few years, it would be less disruptive than getting kicked out. If you want to be kind to them in the process, you could include renewing their lease for a year at a fixed rate right before the sale, such that the new owner couldn't just immediately raise the rates.
posted by Candleman at 10:31 AM on August 23, 2016 [1 favorite]
You don't say how long you have been in this position. If you're somewhat new, like less than a year, you can expect that the feeling of needing to rush 1.5 hours away will calm down, to some level. Same with the day-to-day dealings -- things do normalize, as you learn what to expect and how to handle it, and you have a plumber and a handyperson already. A management company is also an option if you really hate it, but their incentive is not to save you money.
If you do feel comfortable with these tenants' judgement, you can approach negotiating around them dealing with repairs themselves in exchange for rent savings -- this is tricky, of course, but can be done.
If you know you'll have these tenants for a few years, then you can start to throw $100/mo at a savings account to cover the mortgage when it's empty. Knowing you need to do this ahead of time is an advantage -- it could be worse.
I had the same worries for years, really, having left a place in 2008 and renting it out until 2014. I watched the market very carefully, and when I did decide to put it on, it sold in 12 days (lucky!) and it was a total of I think 1.5 months of mortgage.
It sounds like your real question is whether you want to continue to be landlords. I've seen a good reply to this: would you buy this same property now, purely as an investment? If not, then you should stop wondering, and start making concrete plans to end your landlord life, in whatever way is best for you.
posted by Dashy at 10:39 AM on August 23, 2016 [1 favorite]
If you do feel comfortable with these tenants' judgement, you can approach negotiating around them dealing with repairs themselves in exchange for rent savings -- this is tricky, of course, but can be done.
If you know you'll have these tenants for a few years, then you can start to throw $100/mo at a savings account to cover the mortgage when it's empty. Knowing you need to do this ahead of time is an advantage -- it could be worse.
I had the same worries for years, really, having left a place in 2008 and renting it out until 2014. I watched the market very carefully, and when I did decide to put it on, it sold in 12 days (lucky!) and it was a total of I think 1.5 months of mortgage.
It sounds like your real question is whether you want to continue to be landlords. I've seen a good reply to this: would you buy this same property now, purely as an investment? If not, then you should stop wondering, and start making concrete plans to end your landlord life, in whatever way is best for you.
posted by Dashy at 10:39 AM on August 23, 2016 [1 favorite]
A house doesn't have to stay on the market a long time before selling, if it's in good shape and priced appropriately. A typical scenario: owners believe their house should sell at a higher price than buyers are willing to spend; house stays on market too long; owner gives in and lowers asking price to what it should have been all along. A caveat: some months are better for selling than other months.
By the time your tenants are ready to leave, the place is going to need sprucing up. Not just deep cleaning, but also painting and other cosmetic maintenance. Showing it in its live-in condition with pet hair, odors, and normal wear and tear, would be a waste of time even where I live, in a city where houses sell fast.
Put off decisions about this until you're able to investigate. I suggest you meet in person with a few real estate agents from different companies. Show them the place, let them make their pitches.Ask them to show you pictures and data on comparable listings and recently-sold condos in the area. Find out what advice they have about renovating and preparing the place for the market. Take their suggested asking prices with a grain of salt, because some like to inflate them at first to entice you into listing with them.
You can also talk with a few property management companies/individuals. See what they can do for you, and at what cost. It costs nothing to ask, and you can learn a lot from them. They may even supervise the cleaning and fixing up of your condo.
posted by wryly at 10:49 AM on August 23, 2016 [2 favorites]
By the time your tenants are ready to leave, the place is going to need sprucing up. Not just deep cleaning, but also painting and other cosmetic maintenance. Showing it in its live-in condition with pet hair, odors, and normal wear and tear, would be a waste of time even where I live, in a city where houses sell fast.
Put off decisions about this until you're able to investigate. I suggest you meet in person with a few real estate agents from different companies. Show them the place, let them make their pitches.Ask them to show you pictures and data on comparable listings and recently-sold condos in the area. Find out what advice they have about renovating and preparing the place for the market. Take their suggested asking prices with a grain of salt, because some like to inflate them at first to entice you into listing with them.
You can also talk with a few property management companies/individuals. See what they can do for you, and at what cost. It costs nothing to ask, and you can learn a lot from them. They may even supervise the cleaning and fixing up of your condo.
posted by wryly at 10:49 AM on August 23, 2016 [2 favorites]
You could always choose to market it for sale as a rental unit, with the excellent tenants being a good selling point for a new owner/landlord.
posted by megatherium at 2:17 PM on August 23, 2016
posted by megatherium at 2:17 PM on August 23, 2016
This thread is closed to new comments.
posted by so fucking future at 9:05 AM on August 23, 2016 [2 favorites]