Seeking Advice on Managing My Rental Property and Family Housing Needs

[Mahmuda L.]

Hi everyone,

I’m reaching out for some guidance regarding my rental property and my family’s housing situation. I own a rental house that’s currently vacant, and this August will mark 5 years of ownership. My mom and siblings are moving to the area and need a place to stay, but I’m facing several challenges.

The management company is charging me a $3,000 fine to end the contract early so my family can move in, but I’m having second thoughts. The house is 115 years old and hasn’t been renovated—only maintained. I’m concerned about my family living in an older house when they could enjoy a newer place elsewhere. If they move in temporarily, I’ll also need to arrange furniture and then move it again later, but that’s not my main concern.

Ideally, I’d like to sell the house and buy a new one for my family, but I’m worried about the 1031 exchange rules since I can’t show them as tenants because my dad will co-own the house and live there. I could keep the rental, rent it out, and look to sell, possibly through the same management company. However, I’m concerned about the higher mortgage rates (currently my mortgage rate is 3.3%, and it will more than double) and the fact that the house barely breaks even while needing significant repairs. Renting it out without improvements isn’t making financial sense either. I could have rented it by the room for more income, but that would require more hassle with advertising, and I’ve struggled to find long-term tenants since the house has 5 bedrooms and 2 bathrooms, which means sharing a bathroom and an old kitchen.

Contractors have suggested that I should demolish the house, but I’m not a serial investor—just a private landlord with a highly technical full-time job. Demolishing is out of my scope. While significant renovations are doable, I don’t have the time or passion to fix this old house when I could buy a newer one instead. Additionally, my family has location restrictions, making it tough to find a nice, affordable single-family home within the time constraints in that area.

I would greatly appreciate any advice on how to navigate this situation. What resources or data should I consider? How can I minimize losses and ideally find a solution that works for my family?

Thank you for your help!

[Dave Foster]

@Mahmuda L., You can do a 1031 exchange and then rent to your family.  You would want to work with your accountant to make sure that the lease and rent are done at arms-length with market value and reported on your tax return.  If you want to you can use your annual gift exemptions to gift them back their rent.  So they are held harmless.  But you are treating it as an investment.

I don't like that actiion from your manager.   I'd be tempted to rent to your family using the managment company.  You don't even let them know they are your family if you don't want to I would suppose.  And negotiate a lower rent so the management company makes less (it's vacant after all). The management company still gets their fee.  But you've minimized it.   They are not acting honorably.