Options for Selling Rental Home to the Tenant?

Question

I've
 been renting my prior residence to a family. My primary residence 
exclusion benefit (savings on capital gains taxes) is set to expire at 
the end of August. I want to sell the property but the tenants are a wonderful family and I don't want 
to force them to move because I'm quite certain they don't 
have the means or qualifications to obtain a mortgage or a down payment.

I'm
 wondering if there might be any creative options or ideas for me in
 this situation that I might be overlooking? Perhaps a creative way to sell the house to them?

Additional info:

-My CPA helped me calculate that I will net about $10k more if I sell before Sep 1st vs after Sep 1st.

-The home is probably only worth about $170k but is owned free and clear.

-I
 have not brought this up with the tenants. I wanted to look into what my potential options might be before we approach them.

Thank you in advance for any insights or ideas!

Marc Rice · Answer

You could sell it to them on seller financing since you own it free and clear and act as the bank. Or you could land contract it too I believe. I'm not sure if each of these methods is treated as an "installment sale" though which may not allow you to reap the whole tax 2/5yr owner occ benefit. It's best to talk to your CPA regarding what sale methods would qualify. The easiest way is to just have them get a loan and buy the house outright. * This is not tax or legal advice, please consult a CPA and attorney *

Max Ferguson · Answer

If there is anyway a lender can push through a small downpayment loan for them, this may be your best bet. Maybe as an incentive you could provide the 3-5% down and pay closing, then maybe you agree to a purchase price that is 180k if it will appraise for that. What is the current rent? Would a 5% down loan make sense for them, could they swing the mortgage vs the rent you charge? If they can, then you can definitely get creative here. Otherwise, sell to a different investor, if the place is near or slightly below market rate it should sell quickly. I understand if that is not possible though. Keep us updated, good luck!