Need some advice. Sell house or keep cash flow or....

2 Replies

Hi all,

Quick background: I have a house that I am currently renting out. I still have a mortage on it. My mortgage/ins/taxes is $1200 but I am renting it out $1900 a month, so I am making a little cashflow.

I plan on getting out of the Navy this Jan 2016, also my tenants' lease is up Jan 2016. I  plan on sailing around with my girlfriend for 3-8 months once I get out. I have some money saved for this trip but not sure if it'll be enough for whole time (hence the broad window). 

My tenants have expressed an interest in buying the property, however, they have poor credit due to them both having gone through a divorce some time ago. (side note: they have been excellent tenants, paying on time, no complaints).

Here are some scenarios I've come up with:

1) Assuming they can get financing, I sell them the house in Jan and walk away with 10-20k in profit. However, since I will be sailing for the following 3-8 months, I won't be able to do a 1031 exchange and will have to pay capital gains tax (which of course I want to avoid). There's no way I can meet the time constraints of having a property identified and close on it in 6 months while I am sailing. (Mostly because I don't plan on coming back here, I will be going to a different state). Also even if I could, I would just be paying rent on a home I'm not living in, and that would limit my sailing time.

2) If they cannot get financing, I offer them a Lease-to-Own option. I would be collecting some cash flow, which would help maintain/increase my sailing time. I would however get a property manager which would cost me a bit off my cash flow. I finish sailing, then when the lease is up I sell them the house OR they decide not to buy and I keep the option fee and continue renting it out while residing in a diff state (any advice on that?).

3) I decide not to sell it and ask them if they want to continue leasing; if they do, then no issues (I keep the cashflow for sailing and possibly sell it in the future). If they don't I have to find new tenants in a rather short window and take the chance that they may be crappy tenants.

Question: If put in my situation, which do you think is the scenario you would go with and why? Or if you can think of another scenario I'm all ears!

P.S. This is my first property and I have very little experience in Real Estate. So if I'm not correct in something or something obvious has slipped my mind (i.e. further complications from those scenarios) please let me know. Your advice is much appreciated.

Also if you need some more background info, just let me know.

Thank you,

Mike Sanchez

@Michael Sanchez

I"m usually not this direct but from a sailor who made it 10 years on the boat full time I can say - Sell the house, cast off the lines, stay away from marinas and you'll be amazed at how long you can make it on the boat , how rewarding it will be, and how much your stress level will go down not having to worry about real estate owned and all the management headaches.  

A property manager will help but the freedom of cash in pocket and no ties to land is powerful.  Real estate will await your return.  Have an adventure.

Originally posted by @Michael Sanchez :

Hi all,

Quick background: I have a house that I am currently renting out. I still have a mortage on it. My mortgage/ins/taxes is $1200 but I am renting it out $1900 a month, so I am making a little cashflow.

I plan on getting out of the Navy this Jan 2016, also my tenants' lease is up Jan 2016. I  plan on sailing around with my girlfriend for 3-8 months once I get out. I have some money saved for this trip but not sure if it'll be enough for whole time (hence the broad window). 

My tenants have expressed an interest in buying the property, however, they have poor credit due to them both having gone through a divorce some time ago. (side note: they have been excellent tenants, paying on time, no complaints).

Here are some scenarios I've come up with:

1) Assuming they can get financing, I sell them the house in Jan and walk away with 10-20k in profit. However, since I will be sailing for the following 3-8 months, I won't be able to do a 1031 exchange and will have to pay capital gains tax (which of course I want to avoid). There's no way I can meet the time constraints of having a property identified and close on it in 6 months while I am sailing. (Mostly because I don't plan on coming back here, I will be going to a different state). Also even if I could, I would just be paying rent on a home I'm not living in, and that would limit my sailing time.

2) If they cannot get financing, I offer them a Lease-to-Own option. I would be collecting some cash flow, which would help maintain/increase my sailing time. I would however get a property manager which would cost me a bit off my cash flow. I finish sailing, then when the lease is up I sell them the house OR they decide not to buy and I keep the option fee and continue renting it out while residing in a diff state (any advice on that?).

3) I decide not to sell it and ask them if they want to continue leasing; if they do, then no issues (I keep the cashflow for sailing and possibly sell it in the future). If they don't I have to find new tenants in a rather short window and take the chance that they may be crappy tenants.

Question: If put in my situation, which do you think is the scenario you would go with and why? Or if you can think of another scenario I'm all ears!

P.S. This is my first property and I have very little experience in Real Estate. So if I'm not correct in something or something obvious has slipped my mind (i.e. further complications from those scenarios) please let me know. Your advice is much appreciated.

Also if you need some more background info, just let me know.

Thank you,

Mike Sanchez

 I'll take your points you've already made:

1-In all of your detail you mentioned in all scenarios that you would still me making some cash flow.

2-You already have tenants in place that don't seem to want to leave and:

(side note: they have been excellent tenants, paying on time, no complaints).

3-You are going sailing. :)

4-You are going sailing. :)

5-Even though the tenants expressed to you for buying, if they have bad credit this could give them time to fix their credit while continuing to rent. That's up to them however to clean up their credit but they still have a place to stay and you get cash flow.

6-You're not going back to the state so get a PM to run the property and continue to get cash flow from a property you already have and can avoid the capital gains if you sell.

If it were me, I'd leave the tenants in place and let them continue paying the mortgage. They are established already so for your absence get a PM.

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