Selling a Rental Property

[Jeff Short]

I’m considering selling my rental property in Las Vegas. I purchased it back in 2011 near the bottom of the market for 135k. I currently rent the place for 1600/month with a loan of 80k @ 4.6%. Estimated value is 330k as of today. Cash flow is 650/month after all expenses.

Like many, this year has been a “bumpy road” with rental payments being problematic. My renter is currently 4 months behind on rent. Eviction in Las Vegas is on hold like most places.

My big question is the best time to sell and just take pay capital gains? Obviously a 1031 exchange would be best...but a 200k boost to the bank account wouldn’t hurt either.

Any thoughts/ comments are greatly appreciated.

[Andrew Kiel]

Generally speaking, for single family homes, the best use is for an owner occupant new buyer.  If you try to sell the home with a non paying tenant in place you'll be limiting your buyer pool to only the few investors out there that are willing and able to weather the storm of your bad tenant.  For that, they will expect a discount, and probably a deep discount.

So a couple of thoughts:
1. wait it out, apply for any assistance programs your city and state may offer, try and get your tenant to apply for any assistance programs, etc.
2. See if you can pay your tenant to move.  If you can pay them $500-$3000 (perhaps even more if absolutely necessary) you will get a far higher return by having the home vacant (and the ability to spruce it up a bit too).  One of the most painful things I ever do is offer a "cash for keys" program because I hate rewarding bad behavior, but it's a prudent business decision.

For your last question about a 1031 exchange, that is best left to your CPA and a very personal decision.  If you don't have immediate need for the funds (IE: to pay down high interest debt), the 1031 exchange is a fantastic way to defer taxes.