All Forum Posts by: Kian T.

Also, if you have any other options for my tenants to buy my home that would be great.

I decided to sell my rental property this year. My tenants would like to buy it but just haven't saved enough for the down payment. I don't blame them; the house is worth at least $785,000 - $800,000. It's in the California Bay Area. A 20% down payment would be $157,000. Anything less, and they'll have PMI and a $4000+ mortgage too. They are currently paying $2400 per month in rent.

They are interested in a rent to own situation to help build that down payment. We may be able to add $1000 per month to the rent, that can count towards that down payment (and get them used to that high mortgage cost). However, is it worth it for me to do this?

I would love to sell it to them. I’ll also save on real estate agent fees ~$47k+, and they’ll continue to pay down my mortgage until they can buy. But if we agree on a purchase price now, and I hold out (maybe a couple years) for them, am I short-changing myself in the long run? If we decide to pay fair market price when the term is up, but the market goes down, i wouldn’t want that either.

Thanks for your advice in advance.

P.S. - I owe $280k left on the mortgage if that helps with the numbers. I refinanced in 2017.

@Kyle Kadish Thank you for that information. I think this really helps me get the courage to do what would be best with this asset (sell, and keep that in real estate)

@John Warren Thanks for this advice, I've never looked into apartment buildings before (usually I cruise Zillow for all the single family homes, which I only have experience in (not sure if they even list apartment buildings?). (My current home in Denver was my second home purchase - also a single family dwelling). Doing that and getting a property manager in place are great ideas! With the single family home prices in the Bay Area now, I doubt there are good deals anymore. Since I purchased the home from my parents, I get a break on the property taxes too (it was excluded from a reappraisal when I purchased it, so taxes are based on when my parents purchased it in the 1980's). I definitely would not get that again, but I may like to leave the Bay Area market anyway (I don't think investors are flocking there) and have rentals that are local here in CO and that I could keep an eye on. Although, I do want to be diligent as I plan this "exit", so maybe I won't keep other Bay area properties out of the question. 

Thanks so much for your time again.

@John Warren Thank you so much. Part of me has held on to this property for so long because it has been easy, and without any experience in selling a property (let alone with tenants) and without knowing what to do (or whether we can get better ROI) afterwards is just scary. Do you mind if I pick your brain one more time? You mention re-deploying equity to other great deals, but didn't necessarily mention it has to be in real estate. My thoughts were always to perform a 1031 into new real estate that returns more in rent (by more properties) and also to avoid the capital gains taxes to utilize the full equity. However, might it be better to "cash out", pay the capital gains on the house now, and then invest what is left in the stock market or some other investment? I know that would be significantly less $ than the equity we would get in a 1031 exchange, however. My husband and I both know nothing about the best way to do this, but as rookies in real estate with only one property, I really want to do this first transaction right. I would hate to risk such a big move (selling our one rental) and doing this wrong by putting our efforts toward the wrong vehicle. You're right, everyone has different goals. My goal is just really to get to the place where we are financially free and have no more debts.

Thank you @John Warren for your reply. Your perspective is very helpful. Even if I were to raise the rent to the local market rate it sounds like it wouldn't affect the numbers much. Local property managers have told me I could rent it for at least $2800/month. It still sounds like that equity is better made for use in more real estate.

Thanks in advance for reading. I've been agonizing over this for months now, so I am hoping for some advice that may help me make the next best move (or not). In 2011, I purchased the home I grew up from in the Bay Area, California for $350,000. I moved around shortly after that for work so out of circumstance, this house became my first rental property. For the first few years, I barely covered the mortgage with rent, but now I get $2400/month (and recently refinanced to a $1,791 mortgage payment) which is better than it used to be. Now I have settled outside of Denver, CO and started my family here.

I have fantastic tenants (a family of 5) who always pay on time and even do minor fixes and repairs themselves. For that, I've kept rent a bit lower than the local rate too. When I refinanced last year, the home appraised at $800,000. For the past few years I have casually discussed the selling them the house. Selling the home to my tenants would keep me from having to put it on the market, advertise, and pay real estate agent fees, while helping these first time homebuyers too. However, they let me know recently they are not sure if they have enough for a down payment to make their mortgage as cheap as they pay in rent. Which is understandable. The cost of a mortgage would make them pay $4000+/ month for this house, which is crazy. And if I sold it on the market, they would probably have to move out and find another Bay Area home (for much more rent), or I suspect an investor would raise their rent high too, if they have to pay as much for the house. 

Yet, should I just hold on to this Bay Area real estate making modest profit? Maybe sell if/when my tenants are able to afford it? But maybe my tenants would never buy it? The main reason I even wish to sell it is not for the appraisal value, but because I would like to attain early financial freedom. I dream of a 1031 exchange, buying a couple rentals in Colorado, and letting those work for me and cover my housing; and I don't see it happening with this mortgage for the next 30 years. But pricing my tenants out of affordable housing so I can realize the profit just isn't what I want to do. Besides, I don't even know if buying 2 houses in Colorado would turn that much more profit than keeping one Bay Area house. I would pay much more in property taxes and might not get such great tenants (and that's for 2 properties).  

Thanks again for any advice or thoughts!