My wife and I have owned a rental property for 30 years. We paid it off some time ago, but are retiring soon and no longer want to manage it. Our long-term tenants have expressed an interest in buying the home and say they have a large down payment. How do we go about establishing property value, and possibly selling to them? – LETTING GO
DEAR LETTING GO: As a seasoned landlord, you’re familiar with the ups and downs of managing a tenant, and have reaped the benefits of having someone else pay down your mortgage. Investment properties can pay off handsomely over the long term, but they’re not a “set it and forget it” type product like a mutual fund, RRSP or GIC. Managing a rental can sometimes feel like a part time job with grass to cut, snow to shovel, and the occasional roof or furnace to replace. Selling your rental may help you secure a carefree retirement and leave you funds to travel or pursue your dreams in this next stage.
Start the process by establishing property value. Many people end up calling several Realtors and asking for their opinions, but because you’re selling to a tenant, a Realtor’s opinion of value will not be enough to satisfy the bank for mortgage purposes. You’ll need an opinion of value from a certified appraiser, who can provide you with a market value range. From there your tenants can see if they qualify for a mortgage. If they do and decide to buy, their bank may also request an appraisal. At this point you may want a Realtor’s opinion, so you have a sense of what the market is doing in real time.
You’ve owned this property for 30 years and deserve to capture all your hard-earned equity when you sell. Provided your tenants have a sufficient down payment, and depending on what you plan to do with the proceeds of the sale, you may consider doing a VTB (Vendor Take Back) mortgage. In this scenario, you act as the bank and collect monthly payments (with interest) over a certain period of time. The term can run anywhere from one to five years, and the tenant’s purchase price can be amortized over 20 to 25 years, just like with the bank. Ask your lawyer and accountant how a transaction like this might impact your retirement. As with any investment property, you’ll have to pay capital gains on the sale, but adopting a VTB strategy may help you spread out those costs.
PRO TIP: Ask your circle of experts to help you maximize the value of your property. A friend recently told me that his brother sold a rental property to long-term tenants for a little over $100 thousand (which likely gave the tenants a windfall of $300 to $400 thousand). As a Realtor, I get paid to provide a different perspective and say “no” when necessary. Selling to tenants is easy, but the easy solution can be costly if you end up giving away a small fortune to someone else’s kids, rather than your own. #Advice #AskDavid #TheNegotiatorDavid is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Call or text today for your free home evaluation! 519-577-1212.