That’s the text my wife got a couple of weeks ago. As a landlord that’s the worst way to deliver (arguably) the worst news. You just know that your life is going to be chaos for a few weeks or more.
However, because it’s 2020 and the world is upside-down crazy, it was the best-case scenario – given the circumstances.
Our tenant chose to move out of due to financial hardship. Based on her occupation, I think she still has steady work, but it’s not the kind of thing I would begin to question. I’m actually surprised that we haven’t had to cross this bridge with one of our three tenants already. With COVID and high unemployment, there’s a lot of financial hardship going around, and we are in a position to help (to some extent).
We could have talked about reduced rent, but she had already moved out when she sent the text. She had already paid for last month’s rent giving us almost all of August to find someone new. Given the laws in MA right now, she could have stayed there. We couldn’t evict her. We’d have to scramble to talk to our mortgage lender and see what our options were before we begin to deplete our emergency funds.
This is a best-case scenario for us given the circumstances.
We could have immediately looked for a new renter, but my wife thought of something different. What if we took advantage of the sellers’ market and sold it?
The property is a couple of hours away. Without a property manager in the area, it’s hard. We’ve lost a few whole days to some minor fixes. I realize that we should be able to get a handyman, but we’ve been through a half-dozen and something comes up such as them retiring or move far away.
I was originally thinking that we should keep it. We are seven years to owning it and being able to pocket around $10,000 a year. When my wife brought up the idea of getting a different property closer to home, I started to warm up to the idea.
We could do something that I always wanted to try: a 1031 exchange. That’s when you sell one property and buy a new one within 45 days. Why would anyone purposely choose to subject themselves to this special kind of hell? If the new property is more expensive you don’t have to pay taxes on the gains. (As always, check with your tax attorneys, we are contacting a 1031 lawyer to help us with it.)
Since the property has appreciated quite a bit, a 1031 exchange is very useful. We’ll be able to keep that equity working for us instead of giving it to the taxman.
I’m keeping this short for today. Tomorrow, I’m going to dig into some of the (projected) numbers of the gains of the property as well as the potential purchase of the new property.