Advice Needed: Best Exit Strategy for Tenant-Occupied Rental?

Question

Looking for advice from experienced investors/landlords.

I own a 2 bed / 2.5 bath townhome in Riverview, FL with a tenant currently in place. I owe about $243k on the mortgage and may not have much equity after closing costs.

I now live in Texas and managing it remotely has become stressful. Payments are current, but I’m trying to figure out the smartest exit strategy before I make the wrong move.

I’ve looked into:

• selling with tenant in place
• short sale
• subject-to / creative finance
• holding and continuing to rent it

selling with tenant in place

short sale

subject-to / creative finance

holding and continuing to rent it

For those with experience:What would you do in this situation?

Just looking for real advice and insight from people who’ve dealt with something similar.

Kevin Sobilo · Answer

@Desiree Saldivar, a few thoughts:

1. Short sale: On the surface that may sound good because you get out from under the property, but to qualify you have to be financially distressed and unable to pay the shortfall. The lender does not want to let you off the hook unless its in THEIR best interest.

In addition, a short sale will trash your credit! The lender is basically writing off the shortfall and it will show up on your credit and affect it for years.

2. Subject To: This option is best suited for sellers facing foreclosure who have few options. The loan remains in your name, so if the new owner fails to pay it will affect you and then you need to take legal actions which are not cookie cutter and will require you to pay for a lawyer etc.

3. Creative finance: Like anything else you have to be prepared to deal with the possible difficulties and those could be more impactful than you normally deal with as a landlord.

4. Selling with a tenant in place: What is the mortgage payment and what is the rent? Does it make sense for an investor to buy as a rental and for it to generate a reasonable cash-flow?

5. Why didn't you mention selling with the place VACANT? Often a single family property will sell for the best price to an owner occupant who needs to move into the place. In addition, the property will show better vacant and after a bit of prep.

Yes, you will incur some lost rent, but if you are committed to selling that may well be the best option.

6. If you sell, consider negotiating the commission. Instead of paying 6%, with 3% going to the buyer's agent, maybe you can find an agent to sell it for something like 4.5% with 2% going to the buyer's agent. Be careful though, sometimes you get what you pay for or rather don't pay for!

7. Holding and continuing to rent: If you have a paying tenant, why is this so stressful? If this is working as a rental but you are just not up to landlording from a distance can you hire a local PM and will it still cover your expenses including maintenance, vacancy, and cap ex?

8. How did you end up in a situation where you have no equity? Values have risen substantially in recent years so there are not many people without equity right now.

Kevin Sobilo · Answer

In my market values have continued to rise the last 3 years. I'm not familiar with their market.

The poster didn't state how long they owned the property and most people would not buy a primary residence to only own it a short time unless it was a house hack where it should be a good cash-flowing property afterwards. That's why it seemed curious, I thought there might be more to the story.

I always tell people the over/under is ~7 years. If values remain flat, it will take you about 7 years on a 30 year full amortized mortgage to pay down the mortgage enough to cover your commissions and closing costs to sell and get your original deposit back. So, 7 years is about your "break even" point assuming no market appreciation.

Obviously, life circumstances change sometimes, so some people do move sooner and end up in less enviable situations.

Adam Bartomeo · Answer

Trying to sell with a tenant in place, if it isn’t Multifamily, is not a wise choice. You get the most value when an owner occupant buys the home. Selling with tenants in place is only for investors so the numbers have to make sense. Also, tendency not have any motivation to keep the house, nice, smelling good, clean and tidy, just to be told to move out. I have negotiated several deals where we have paid the tenants to move before marketing to ensure that we get the most and highest price for the home.

Bill B. · Answer

Could you sell to the tenant and discount it half the realtor commissions you would have to pay anyway? In your case you’re “only” saving $4-6,000.  But is that enough to break even? Especially collecting rent right up to closing day? Heck you might come out ahead giving them the whole 5-6% in either a price discount or closing cost help so they could close with no money out of pocket  or very close to it

Otherwise it has to be empty or empty by closing. You’re going to lose at least 5%, maybe 10% selling to an investor. And probably 5% or more to an owner occupant who wants to protect themselves against invisible damage AND has to move in within 30 or maybe 60 days.

Good luck.

Garrett Crosby · Answer

Before deciding on an exit, I'd separate "this is stressful to manage" from "this is a bad investment." Those are two different problems with two different solutions.

If the issue is remote management stress, the first move is hiring a property manager in the Tampa/Riverview area. A good PM in Florida typically runs 8-10% of collected rent and takes the day-to-day off your plate completely. If the rent covers the mortgage + PM fee + basic reserves, then you may not have an investment problem at all — you just have a management structure problem.

If the numbers truly don't work and you need out, Drew's point is right — waiting until the lease ends gives you the best buyer pool (owner-occupants, not just investors) and the highest likely sale price. Selling with tenant in place means discounting to attract investor buyers only. The math on waiting a few months to sell vacant almost always wins unless you're financially underwater right now.

Short sale and subject-to are both more complex options with significant downsides — I'd exhaust the simpler paths first. Feel free to DM if you want to think through the numbers.

Drew Sygit · Answer

When is the lease end date?

What specifically is stressful?

Why haven't you hired a PMC?

Selling with a tenant in place means you can only sell to other landlords - the majority of whom will be looking for an under market price so they can cashflow.

You'll maximize the sales price if you can hold out until end of lease and sell the property vacant to an owner-occupant buyer.

Advice Needed: Best Exit Strategy for Tenant-Occupied Rental?

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