Tenant offers to purchase my property but ...

5 Replies

Hello BP members, my tenant who lives in the duplex rental I own has been offering us to purchase the property since end of last year. I ran some comps and came up with a number, twice. Last year price and last month price which is 10% up than last year. No purchase contract has been signed and he is still waiting for his own house to close in another state in another week and use the proceeds for down payment. Here, in Salt Lake City properties have gone up 10-15% appreciation every year for the past few years. Nothing is cheap anymore, inventories are very low and anywhere in the valley below $350-400k are almost guaranteed gone within hours or going through bidding war, especially in the neighborhood like where this property is. Duplexes are even more hot, expensive and hard to get. I had been watching the MLS daily lately and I realized I can’t get anything near the price range I mentioned to him if I want to do 1031 Exchange. Or I have to go to B and C neighborhood, which I am not particularly interested to invest in. The price I mentioned to him would waive the buyer/seller agent fee, but it is still much lower than others that I saw popping up recently after agent fees. Plus, the interest rate has gone up above the current rate we are paying for the house. I have an RE agent license even though I don’t work actively as an agent, hence I know what overall prices are in the neighborhood. I felt bad for him because he can’t afford going above the last price I mentioned in a fair market value, but I really can’t let go of this property if I can’t find something of equal value and interest rate. Why would I want to extend myself buying another 1031 exchange property when I can’t find something comparable, nor pay the hefty tax bill since we own the house for 14 years if we decide to cash out. I’m not urged to sell, but as an investor, realistically, I would sell if I can find a good deal to avoid cap gain tax and better investment properties. I have thought to perhaps tell him to wait until I find something first, then continue with the deal. Usually by summer and winter prices would slightly go down. But, I am worried that the interest rate will get worse as it has already surpassed the rate of my current mortgage. Will the high interest rate discourage you to make new RE investments? Have you experienced a situation like this, and what decision did you make. Why and what would you do? Thank you.

Your question is very confusing because you claim to know what it's worth but then say you can't find anything comparable in that price range.

It sounds like you are trying to justify selling this property to your tenant at a discount, which makes no sense. Why would you bend over backwards to find a replacement property instead of working to find your tenant a comparable property? In fact, you should tell your tenant to hire you as a REALTOR so you get paid for your time.

If your not interested in moving to a B or C neighborhood don't!  Easy as that.  If you are looking for something that makes sense as an investment property right now that would probably only be found in B or C neighborhoods has the prime A to A+ areas of Harvard and Yale abosolutely make no sense in investing in.  

I understand you want to be nice to your tenants and give them the property at a bit of a discount, you want to upgrade your rentals, and would like to make some money.  If you can't do those 3 things which seem to be important to you then don't do it.

Hope this helps the post a little convoluted but I hope it helped.

Forget what your tenant wants, that is irrelevant. You are in business to make money not help out others.

My guess is that based on the value of the property and the likely rental income that you have negative cash flow. You should look into selling and reinvesting to increase cash flow. That should be your primary goal not selling at a loss to a tenant.

Forget your tenant, think business and remove your emotions from your decisions.

@Ingrid B. I wouldn't have given him a price if I wasn't wiling to sell it to him for that price.  Whether intended or not you're baiting and switching him.  Sure it's not a legal thing.  But it's an ethical thing.  Tell him what you'll do and stick to it.  

But be warned that it may be optimistic to think that you and your tenant will remain on the same terms if he feels like you're going back on your word - sales contract or not.

Thanks for the feedback everyone. This property has positive cash flow and we aren’t urged to sell. You are right, remove the emotion and think realistically as investor. If I can’t find comparable exchange or spending more on higher interest rate if I do find an exchange than what my mortgage now is, there is no sense of selling it just to help the tenant. Cheers.