The tenant paid half, evict and sell the house?

Question

The tenant paid half the rent and struggles with payments in general, evict and sell the house?

The tenant had sec 8 voucher for 2 k, now sec 8 pays $500 only...

The tenant cant afford the house.

House is in Florida, near Cape Canaveral

May sell for 350k, mortgage 2k

The rent is 2.5K

Interest rate is 3.5%

The tenants usually section 8 and trash the house.

Hard to find a tenant who has high credit and high income in that area, since the town is blue collar...

If I sell the house, I have 130K in equity, so will be hard to find something that will make sense to buy...

I would have to do a 1031 exchange....

Even if I bought something for 350K on a 1031 exchange, with these interest rates the payment would be higher...

Or should I wait till the house is paid off in 10 years and then do a 1031 exchange? Since then I would not have to get a mortgage....

What would you do?

Thank you

Drew Sygit · Answer

SELL!

You don't know how to properly screen S8 tenants, so will continue making the same mistakes🤢

FYI - the tenant CAN afford the rent, otherwise S8 would NOT have cut how much they're paying - they just don't want to pay the rent due to their "entitlement mentality"
- If you don't know how S8 works by now - SELL🤢

Ashish Acharya · Answer

Mary, I’d probably separate the tenant issue from the bigger investment decision. If the property is renting for $2,500 and the mortgage is around $2,000, I’d first figure out the true cash flow after taxes, insurance, vacancy, maintenance, CapEx, and management. A $500 spread before those costs may be much thinner than it looks.

The 3.5% mortgage is also something I would be very reluctant to give up without a strong reason. If you sell, you are not only giving up the property, but also replacing very cheap debt with whatever financing is available on the next property. If the property still works as a long term rental and the area has reasonable rental demand, holding could make sense. If the property is consistently difficult to operate and the return on the $130K of equity is poor, selling could also make sense.

I would not do a 1031 simply because you have to. The replacement property needs to make sense on its own. And if you hold for another 10 years until the mortgage is paid off, that does not by itself eliminate the tax consequences of eventually selling. The depreciation and gain from the property still need to be considered when planning the eventual disposition.

I’d compare the after tax economics of holding, selling now, and selling later rather than making the decision based only on the tenant situation. Feel free to DM me, I’d be happy to send over a few resources that may help you compare the rental and tax side of the decision.

Hossein Sharifi · Answer

Before deciding, find out why the housing authority's share dropped. Usually it's a recertification showing higher tenant income, which means the tenant now owes more and isn't paying it. That's a nonpayment issue, and Florida's nonpayment process is relatively quick. On selling: at $350K with ~7% selling costs, you'd net roughly $105K of your $130K equity unless you 1031. With 10 years left at 3.5%, the house is paying itself down fast. I'd resolve the tenant first, then decide with a paying tenant or an empty house in hand.

Marc Winter · Answer

@Mary Jay

With the location (I'm figuring C to C-) and knowing tenants, (especially subsidized tenants) can really mess up a nice home, I'd 1031 out of Dodge.

Many parts of FL are in price/sales decline, and it seems to be headed lower.

Think about putting that exchange property in a more 'tenant-affordable' area with a lower price points, like OH or PA. Example: you can find a cash-flowing duplex in NEPA under $300k.

Good luck!

Harrison C. · Answer

i wouldnt sell. the house isnt the problem, the tenant is. a 3.5% loan with 10 years left is the best thing you own, and like you said anything you 1031 into costs more a month.

first thing id do is call the housing authority and ask why their part dropped from 2k to 500. sometimes its a missed recert or paperwork and it gets fixed. sometimes the tenants income went up and thats just the new number. you need to know which one.

if they really cant pay their part then yeah, they have to go. id offer a little cash to be out by a set date before id file, its usually faster and cheaper. and id ask a florida eviction attorney before taking another partial payment, that can mess up your notice.

how many bedrooms is it? i rent my houses by the room, each person on their own lease. one person paying late costs you a room, not the whole month. harder to run from another state tho

The tenant paid half, evict and sell the house?

The tenant paid half, evict and sell the house?

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