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Invisiblemetalfaith
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Selling A House with the Tenant?
    #27706475 - 03/24/22 04:49 AM (1 year, 10 months ago)

Got a situation here if anyone knows, I am far from an expert.

Long story, but I'll try to keep it brief.

I own a rental property I purchased (Florida) outright with cash(cost 100k, own outright) . I stand to make nearly 100k(gross of course) if the house that just sold a few doors down is any indication.

Problem is I have a tenant in there who is a friend(my wifes loose friend). She is a single mom, in Nursing School(freshly divorced) and planning to graduate in January. Problem is I love Jesus and I would never do that to someone else.

HOWEVER, as housing prices have steadily gone up, it is beginning to become quite clear that the net Gain far outweighs the net Loss(obviously from my perspective, right?).

But really... Im entertaining two options:

1. Try to sell yhe house but with a tenant in it? Problem is, while this is likely possible, I would guess I would have to pay a premium for thay type of purchase, due to my complete guess.

2. Kick her out, help her move myself and give her like 2-3k to get her started at her new place. And of course maybe toss her like 300 a month for the next few months. Part of my rationale here is: if I wait and the market crashes, I will lose far more in profit than the few thousand Ill give her. So it's more of a bird in the hand vs bird in the bush thing for me.

Or of course 3. Let her stay and hope the market stays hot until January, when she graduates.

Ultimately I intend to take 120k and pay my mortgage off. Then just invest the rest with my other investments.


Input? Thoughts? Suggestions? Things I missed completely?

What do you guys think?


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Edited by metalfaith (03/24/22 06:06 AM)


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Re: Selling A House with the Tenant? [Re: metalfaith]
    #27706836 - 03/24/22 11:34 AM (1 year, 10 months ago)

You don't need to kick the tenant out before sale, and at least here in California (where renters have a lot of protection), it may not even be legal to do so.

While selling a house with a tenant in it can potentially reduce your pool of buyers (in turn resulting in less bid competition which equates to a lower closing price), that is not always the case.  If the home is in a desirable market, the rent your tenant is paying is in line with the market rate for the region and more than covers average expected financing costs for a buyer, you shouldn't suffer on finding buyers and thus shouldn't worry about having to sell at a lower price than anticipated.  If there are rent control laws in the area, that can adversely affect you selling the property as a rental.  You should also inform your tenant of the anticipated sale, as a courtesy, so she can be prepared if the new owners decide to have her vacate in order to use the home as their own private residence.  If you want to split the difference, you can probably draw up a new lease with the tenant that covers her necessary stay, in which case the new buyers would likely have to honor the existing lease agreement.  This will limit you largely to investment buyers however, whom can be less emotional and more shrewd in their bidding.

With regard to "something you may have missed"... do you have a plan for the money that you would receive for the sale?  Inflation is running very hot, and unless you have another inflation resistant asset to park that capital in, I would let it stay in the home.  Rental property has two things going for it, that are particularly important in an inflationary environment:
  • Generating income on an ongoing basis that can adjust upward with aggregate cost of living.
  • Generating more equity capital value as property value tends to track well with aggregate inflationary pressures.


If you sell that home and bag $100K and just stick it in a savings account, which might get you a 1% annual return, you're losing money big time (even if by year end and several more Fed hikes that savings account could yield 3%).  You're missing out on the rental income, which generally falls between a 5%-8% annual return, and you're missing out on further capital gains in the underlying property value.  I will concede that the housing market can potentially suffer a shock that may contract prices in a big way, however one must consider that historically these shocks have been relatively short lived and has always recovered.  So unless you have a concerted plan for the capital to be put to immediate (or very near term) use, I would think long and hard about selling out of a valuable, income generating asset.


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Invisiblemetalfaith
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Re: Selling A House with the Tenant? [Re: geokills]
    #27707639 - 03/24/22 11:04 PM (1 year, 9 months ago)

Oh Geo. You're always so solid and so thorough. Thanks for that, even though I did dis-apparate from my previous attempt at actually participating in a long-er term discussion :laugh2:

Quote:

geokills said:
(in turn resulting in less bid competition which equates to a lower closing price), that is not always the case.  If the home is in a desirable market, the rent your tenant is paying is in line with the market rate for the region and more than covers average expected financing costs for a buyer, you shouldn't suffer on finding buyers and thus shouldn't worry about having to sell at a lower price than anticipated.  If there are rent control laws in the area, that can adversely affect you selling the property as a rental.  You should also inform your tenant of the anticipated sale, as a courtesy, so she can be prepared if the new owners decide to have her vacate in order to use the home as their own private residence.  If you want to split the difference, you can probably draw up a new lease with the tenant that covers her necessary stay, in which case the new buyers would likely have to honor the existing lease agreement.  This will limit you largely to investment buyers however, whom can be less emotional and more shrewd in their bidding.

With regard to "something you may have missed"... do you have a plan for the money that you would receive for the sale?  Inflation is running very hot, and unless you have another inflation resistant asset to park that capital in, I would let it stay in the home.  Rental property has two things going for it, that are particularly important in an inflationary environment:
  • Generating income on an ongoing basis that can adjust upward with aggregate cost of living.
  • Generating more equity capital value as property value tends to track well with aggregate inflationary pressures.


If you sell that home and bag $100K and just stick it in a savings account, which might get you a 1% annual return, you're losing money big time (even if by year end and several more Fed hikes that savings account could yield 3%).  You're missing out on the rental income, which generally falls between a 5%-8% annual return, and you're missing out on further capital gains in the underlying property value.  I will concede that the housing market can potentially suffer a shock that may contract prices in a big way, however one must consider that historically these shocks have been relatively short lived and has always recovered.  So unless you have a concerted plan for the capital to be put to immediate (or very near term) use, I would think long and hard about selling out of a valuable, income generating asset.





Quote:

  • Generating income on an ongoing basis that can adjust upward with aggregate cost of living.
  • Generating more equity capital value as property value tends to track well with aggregate inflationary pressures.
 




This is the type of shit I deeply appreciate and exactly why I posted here.

I absolutely will do far more than the courtesy.

My big plans are as follows:

Step 1. Sell House
Step 2. Pay off my Mortgage
Step 3. Profit?



So.... Let's parse the details I am using to consider this decision:

1. I have come full circle. I grew up poor as fuck, always outside and always happy. In other words: I realized the money I was making had seemingly contributed to a (fairly profound) decrease in my overall happiness / well-being. Obviously many, many other factors. However, let's also look at the sub-points here:

A. Science shows above a certain threshold people do not appear happier with more money. So if I am not improving my happiness, is it still wise to make the most efficient financial decision?

B. There's always the illusion of the credit card rewards. Only problem is due to the fact that you have a credit card, you are purchasing 10% more products because you can't see the cash. In this instance, its obviously not that clear cut.... But my lifestyle inevitably changed, regardless of how cheap I tried to be. This didnt matter then, because the Bonus rates were obscene. But the lack of discipline the wife and I displayed (turns out we veered off with this kid/infidelity/etc in even more ways than we realized). That is concerning because it obfuscates the details that surround the decision. Which makes it pretty much impossible to make the "right" decision with any confidence. Yes, maybe tomorrow my wife and I will have better circumstances and simply use self-control to be better about managing our money. And maybe tomorrow Urb will have a lovely day and stop using dope. Anything is possible. But how likely is it? (Sadly I kinda believe I could likely do this, but my wife wont anytime soon. I could work on it with her, but I've got 10 more important relationship problem right now.)

C. Regardless of my personal lack of taste for expensive shit, I am quite blessed.

-- Wife and I stay at our Home (110k debt/valued 200ish)

-- I own 2 acres with a small house that I inherited from my dad. His girlfriend is living out her last days there, per his request to me. (She has zero legal recourse other than being a tenant. 100% in my name. Made that prudent move before dad died lol.)
-- I own my rental 100% outright. And my wife is an only child and so we will eventually be 100% heirs of... At least a 300k+ house 20 years down the road. Yes this is the sprinkles on the frosting on the cake and I am not banking in any of that... (Also important to know 6 of the 8 years we have been married weve lived with other people. Only reason we haven't moved back into my wifes parents is because my crazy mom stays in our garage.

While my wife does like occasional fancy clothes.... When is "enough" money? My literal favorite hobby, that I haven't really participated in since trying to run the hamster wheel? Gardening. Could there be a less cost-intensive hobby? I have spent 20+ hours digging this fucking grass up, listening to music and savoring the (absolutely free!) joy of the peaceful digging up of this MOTHERFUCKING GRASS THAT WONT DIE:witch: but honestly enjoying the hard work and sun.


I undetand it's certainly not the most straight-ahead financial decision... To sell my rental to pay off my mortgage and start working part-time at 31 years old. But if not now, when? And if it isn't a reasonable move under my incredibly blessed circumstances, when would it ever be one?


And for the most important detail of all: my baby is 3 years old. The best thing I can give her is a rock-solid, intensive education that can also double as some of the most precious years of both of our lives. But especially hers of course.

Would it be better to leave her more money than less? Sure. But how about: would it be better to give her more money, or buckle down now and get her 5+ years ahead on her education? Based on the her intelligence/understanding now, Id say we are either on course or ahead of course.

When is/does/should Time become a more precious commodity than Money? How do you parse this question?

P.S. do you see some increased likelihood of potentially imminent circumstances in which it would be wise to have absolutely minimum bills?

Edit P.P.S. you have filled my gaps in knowledge, thus making this more a preferential choice. I wanted to check first because Im really not a shrewd businessman.


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Edited by metalfaith (03/24/22 11:08 PM)


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OnlinegeokillsA
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Re: Selling A House with the Tenant? [Re: metalfaith]
    #27707989 - 03/25/22 11:00 AM (1 year, 9 months ago)

Thanks for sharing your stream of consciousness.  I do believe that time (and health) is generally a person's most valuable asset, and I also agree that owning one's home free and clear is an attractive goal for personal security and peace of mind.  However, I do see some conflict and confusion through the course of your musing...

You insinuate that making more money has resulted in decreased happiness.  Now, I can understand how this can happen, which is generally by exchanging too much of your time for pay and thus not getting to truly enjoy the rewards, or otherwise being too stressed from overwork.  A secondary mechanism that tends to decrease happiness is the latent greed that is culturally programmed into us, whereby enough is never quite enough and we always strive for more.  Indeed, I do agree that there is a threshold of income that, once crossed, produces diminishing returns with regard to satisfaction/happiness.  If you live in the US, covering your basic needs with some free cash for discretionary spend, will generally require somewhere between $60,000-$120,000 of annual income depending on the area you live (e.g. California and Hawaii require significantly more income to cover basic costs of living, relative to Ohio or Mississippi).

There is also the very real trap of being too quick to expand one's budget as soon as the money needed to do so becomes available.  You even state that you and your wife have had some trouble spending within your means.  That is a very common problem, but don't fall into the misbelief that it can be solved simply by reducing your income and paying off your mortgage.  Overspending indicates a problem with basic discipline, so if you're in the habit of overspending, you will find ways to do so regardless of your income and expense levels.



On that note, and especially in light of the fact that you want to provide a secure and stable foundation for your child, I would suggest that keeping your income property, which will allow you to pay off your primary mortgage over time, while working to reign in your discretionary spending, will be the best path forward for your family.  Particularly if you have a fixed rate mortgage; with interest rates going up and inflation widespread, it just makes sense to allow your rental to generate income while your mortgage financing costs remain low.  You don't want to sell a high yielding asset (i.e. your rental property) to pay off low cost debt (i.e. your mortgage).  It just isn't financially smart.  If your income property is a big headache because it's dilapidated and requiring extensive maintenance, then I can understand why you might want to sell out of it, but honestly, income property is how I have gained the bulk of my financial freedom and security, and I would strongly advise you to allow it to work for you too.

Circling back to the value of your time... how exactly would you be gaining time for yourself by selling your income property (which is generally a hands off operation), and starting a part-time job?  It seems to me you would actually be losing free time by doing that.  And if the part-time job is something you want to do because it is something that brings you genuine fulfillment, you can still do that while allowing your income property to steadily pay down your mortgage, right?



As one last comment, in response to your notion to "buckle down now and get [your 3 year old] 5+ years ahead on her education"... I would strongly discourage this approach.  My boy will be turning 5 years old in a couple of weeks, and although we do take a lot of time to expose him to different experiences, read books, have enrolled him in preschool and other enriching classes such as ceramics and swim lessons; balance is so very necessary, and kids at this young of an age shouldn't (in my opinion) be pushed too hard to "get ahead".  Now if your kid is showing interest in something more technical, by all means help cultivate that intrigue and allow her to experience and learn in that direction.  But in my view, it is a mistake to take an preschool/elementary school child and feel like they need to do every extracurricular activity and be pressured to excel across the board.  This is a very special and very brief moment in their lives, where almost everything is novel and experimental.  Brain development and cognitive ability is going to proceed at a genetically set pace regardless of how many classes or educational efforts you push them into... so why not let them enjoy this amazing time of being a child, without pressure and stress to "get ahead"?  I think it's so very important, and I also think that the tendency for parents to push young children too hard, too fast, into doing too many things, is why we as a society witness so much depression and anxiety amongst our teenagers and young adults.

Don't get me wrong, I think education is important, and exposing your child to different experiences throughout their youth is also important.  Just keep those expectations in check, try not to put undue pressure on them.  Recognize that their brains simply aren't ready for the level of critical and complex thinking that many adult tasks require.  Be their guide and be their champion, but let them largely choose their own direction, and don't make them feel like they need to be "5+ years ahead" of anyone else.  You've mentioned yourself that being outside and shoveling dirt brings you immense joy.  Remind yourself of that when you feel like you need to push your daughter to do any number of things that she may not be interested in.


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Re: Selling A House with the Tenant? [Re: geokills]
    #27709926 - 03/26/22 09:45 PM (1 year, 9 months ago)

There is much to chew on here. I will do that and make a more detailed response later, if you are care to continue the exchange.

I see you speak from a very well-educated perspective. I am absolutely open to changing direction and being educated on things I don't really understand (pretty much this). In fact, that's really why I posted here.

However, you believe it would require $60,000 for my wife, my child and me to survive? And thats without a mortgage?


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Re: Selling A House with the Tenant? [Re: metalfaith]
    #27710108 - 03/27/22 02:47 AM (1 year, 9 months ago)

.


--------------------
hmm...

"I'm naked and fearless... And my fear is naked."

"life isn't worth living without the threat of death"

"I got my plans in a ziploc bag, let's see how unproductive we can be"

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Re: Selling A House with the Tenant? [Re: metalfaith]
    #27710837 - 03/27/22 05:54 PM (1 year, 9 months ago)

Quote:

metalfaith said:
However, you believe it would require $60,000 for my wife, my child and me to survive? And thats without a mortgage?




Well, as is so often the case, it depends.  I don't know what your property tax situation and various insurance costs may be, nor what your retirement goals may be or your lifestyle preference; but I know food can cost a lot (highly variable depending on how you prefer to eat), and kids, well, they're a pretty big mouth to feed and time to tend... let alone putting away a 529 savings plan for their potential path through higher education institutions if that's on your radar.  If you have to drive anywhere on the regular, automobile expenses and gasoline in particular is starting to put a fairly major dent in scrappy budgets.

Point being, the numbers are averages.  You can always find (and perhaps be) an outlier in the equation... but fact of the matter is, money is a means to various ends, and something that is practically necessary to have in some quantity for a basic standard of modern-conventional living throughout the US.

You tell me... have you worked your numbers?  Would love to see a breakdown of basic/recurring expenses and what you think you may need to produce on a go-forward basis.  These are questions that, regardless of whether you want to field them publicly, are absolutely necessary to consider as part of making an informed decision about how to handle your income property.


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Re: Selling A House with the Tenant? [Re: geokills]
    #27746728 - 04/22/22 12:49 PM (1 year, 9 months ago)

Im posting back to update. Thank you Geokills. :justastonishing:

You singlehandedly have stopped me from selling this house.

I initially thought I was going to get around to doing a really long post about how the housing market is higher than the last bubble and im worried about instability of the market and that I want to live a simple life, so getting to zero and learning to live according to the income I have. While all these things are still things I believe, to varying degrees of strength.

I was telling myself I was going to get around to it and that was my intent. And I put it the side thinking Id just work on the life emergencies and then do it.... And here we are. Emergencies aren't done and I hadn't even proverbially looked at the issue because all my bandwith was still being used up with those emergencies.... Well if you got emergencies still?! that means there is zero percent you are in a place to override someone you respect in a category you consider yourself unskilled in...

Here it was:
Quote:

that old beast!




I went "damn it really has been so long it absolutely is appropriate to call it that.. I really should have realized when I ghosted my other thread asking for advice. I 1000% intended this to be an ongoing discussion... Partially to prove Im not the type of person who ghosts someone... Apparently I am... Now?

I realized if I can't even get the numbers done, because of marital issues and substance use (under control now) - but really the reasons are 100% irrelevant - if i cant get that done, Im absolutely not my best self.

This is absolutely not a decision to be made at anything less than 100% mentally healthy, and 100% sober. Period. End of story.


Thank you again Geokills. I thank you again for your advice. It literally has singlehandedly stopped me. I havent even told my wife yet (she prefers me to run 100%), but im pretty resolute. It's preposterous to even consider a decision this large while knowing you are not 100% mentally healthy...

And I apologize again for the random timing and near-ignoring of your comments. This is my first real experience with mental health issues (I am actually officially calling it that for the first time right now), and it's been a wild ride. I sensed (I think?) Your frustration in the "old ass post" or whatever you said, and that gave me the hint: if one of the literal 2-3 people that I respect in regards to wisdom, at least financially - or whatever. Im real high right now so I can't recall, but some combination of posts has earned you a fuck-ton of credit in my book. And I am literally always trying to find people to truly help me make decisions, but it seems like almost everyone I know is either not someone i believe is either A. As intelligent as I am, or B. Not someone I would respect in regards to finance. And on this topic, all the people I respect I - for one reason or another are either incapacitated or someone that I do trust in regards to finances, but I don't really respect him in regards to lifestyle.

Anyway, this is also largely me thinking out loud, in real time... And I genuinely feel bad for not responding, because I see the genuine effort and intent in the two threads I made... And I did ghost the first one and the second one I nearly had(ve?).

But also I know that you will know that people feel really good when they help others... And you have helped me immensely.

Anyway, back to spring cleaning. It's spring here in The Great Humbling.

Maybe as I transition out of era of The Great Humbling, I will post back here with more perspective, but I'm putting an indefinite hold on this and putting it back into the quiver of the many life ideas I have for the future.

Godspeed.


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Edited by metalfaith (04/22/22 01:32 PM)


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Re: Selling A House with the Tenant? [Re: metalfaith]
    #27746851 - 04/22/22 02:23 PM (1 year, 9 months ago)

And just in case anyone thinks I still sound quite arrogant... Youll have to know my social circle has been about 10 people wide for like 2 years, as the wife and I have really been trying to invest in our relationship.


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Re: Selling A House with the Tenant? [Re: metalfaith]
    #27749817 - 04/24/22 05:38 PM (1 year, 8 months ago)

Good call focusing on your mental health.  Definitely sketch to be making huge financial decisions without a clear head.  Alas, sometimes we do have to fudge the lines a bit, 'cause life is going to keep on moving regardless of what's bouncing around in our own head.  Keep us posted as things unfold, and I'm happy to hear my feedback provided some welcome perspective for your decision making process.


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