Keep or sell?
Hello:
I bought a new personal residence last year and rented out the unit I was living in (it has a basement apartment that I have been renting for years while I lived there, so now the upstairs is rented as well).
The new upstairs tenants informed me they were looking for a house and would not be renewing their lease. Then about a week later they informed me that they are having a hard time finding a house (we are in a really hot sellers market), and that they might stay a little longer. All things considered they are decent tenants. Then they approached me about buying the house they are living in from me...
I had not previously considered selling it, but there are some pros and cons and now I am on the fence. In our hot market the value has gone up significantly since I bought it and I have a bunch of equity. I don't know how long the market will be like this, so it may be a good time to sell. On one hand it would be nice to cash that out while I can take the homeowner tax exemption on sale of a personal residence. I don't know how much depreciation recapture I would have to pay or how that works (especially where I also occupied/house-hacked it), but that is another factor.
On the other hand the place cash flows about $500/month as it is, and I don't think I could take the money from the sale and find anything else that cash flows that much.
Yet another aspect to consider is that there are a few odd things about the house (nothing really wrong with it, but some things that might turn off a few buyers), but they know and like the house. It could also use carpet and a few little things that I would not have to pay for (depending what they ask for). It is also not a legal 'duplex', so technically the city could force me to kick out one of the tenants (but they typically only enforce this if there are complaints or problems).
I told them it was not technically for sale but as the saying goes everything is for sale for the right price and that they are welcome to make me an offer and I will consider it. They apparently have a buyers agent they are working with (which I think will just complicate things and cost more--and I am an agent myself), but they said they are working on making an offer. I am not sure what price would motivate me enough to sell it, but I have a hunch they will not qualify for enough to make me happy. But IF THEY DO, should I keep or sell? Is there anything else I am not considering?