Selling my rental before the lease is up

[Cody Smith]

Hey BP, thanks for stopping by my post!

I have a bit of a moral dilemma. I have a current LTR that I have gained about $80,000 in equity since purchasing. I began exploring STR properties recently, and after much research, I am interested in purchasing a vacation rental, a condo on the Emerald Coast. I have decided that I am interested in selling my current rental ($700/mo dirty cash flow) and using the proceeds to purchase one of these STR at the beach. The proceeds would cover my down payment and other costs associated. The property should appreciate over time due to location and demand, and should bring much more monthly income than the LTR, something very important to me as I prepare to transition out of the Army in two years.

My dilemma: I placed a new tenant with a 12 month lease on my LTR on May 1st.

I would like to give them first opportunity to purchase the property if they would like, but I’m not confident they will since this is an interim home for them until they build a home in a couple years. If they don’t want to, I would be selling and forcing them out 2-3 months into their new home and new lease. My lease does state the landlord can break the lease with 30 days notice to the tenant.

I feel bad for having to possibly put them out after just settling in, but if I am going to make this move on a STR, I do not want to wait until their lease is up for fear of interest rates and prices rising even further.

What would you do?

[Nathan Gesner]

Quote from @Cody Smith:

My dilemma: I placed a new tenant with a 12 month lease on my LTR on May 1st.

I would like to give them first opportunity to purchase the property if they would like, but I’m not confident they will since this is an interim home for them until they build a home in a couple years. If they don’t want to, I would be selling and forcing them out 2-3 months into their new home and new lease. My lease does state the landlord can break the lease with 30 days notice to the tenant.

I feel bad for having to possibly put them out after just settling in, but if I am going to make this move on a STR, I do not want to wait until their lease is up for fear of interest rates and prices rising even further.

What would you do?

If you sell a rental, the existing lease transfers with the sale. Any buyer will have to honor the existing lease or negotiate something different with the renter. In other words, your Tenant is safe until their lease expires next year.

I think you're making a mistake. You have a really good investment and should keep it. If you want to invest in something else, consider cashing out some equity with a line of credit or - even better - sacrifice and save up. I also think it's a mistake to take a proven property and invest that money into something unproven like a short-term rental in a really inflated market. I was looking at the Emerald Coast myself but the prices are ripe for a correction and short-term rental performance has been higher than average for the past two years, so you can't really predict how something will perform in the next 1-5 years.