Long-time lurker and first time poster who is hoping to get some advice from fellow mustachians. My wife and I bought a townhouse in Iowa in 2006 for $126,000 when we started grad school for no money down using 80/20 mortgages. The original terms of the loans were 5/1 ARM at 7% and 15 Year Balloon at 8.875% for the 80% and 20% mortgage, respectively. This was clearly before we were introduced to the mustachian lifestyle.
We had an enjoyable 4 years there, but found ourselves unable to sell the home when we moved to Connecticut in 2010 due to the loss in value (dropped to ~ $100,000) and limited supply of buyers in the area. We were however able to find a good property management company in town to rent our home for the past 4.5 years charging 8% monthly (rent of $900 with distribution to us of $828) and keeping it occupied (2 excellent renters over that time with a total of 11 unoccupied days). During that 4.5 years, our 80% mortgage adjusted to its current rate of 3.375% and we were able to pay off the 20% mortgage just last week leaving us with the details listed below.
Market Value: $112,500 - $125,000 (discussed below)
Original Purchase price: $126,000
Original Mortgage Amount: $126,000
Interest Rate: 3.375% (annually adjusts to 2.875% + 1 Year LIBOR on June 1st with 2% Adjustment Cap)
Mortgage Term: 5/1 ARM for 30 Years
Term remaining: 21 Years, 7 Months
Amount remaining on mortgage: $86,400
Gross Rents: $900 per month ($72 management fees + $828 distributed to us)
Principal and Interest (the P&I of your PITI - should match with the above info): $470 per month
Taxes and Insurance (the T&I of your PITI): $200 per month ($175 taxes + $25 insurance)
HOA costs: $50 per month
Deferred maintenance notes: We have had almost no repairs in the 4.5 years it has been rented which means we are on borrowed time
With just finished paying off the 20% mortgage on our end-unit townhouse and a recent rise in home values (an interior-unit sold for $109,000 last summer and there is now an interior-unit listed for $120,000 and an end-unit listed for $125,000), my wife and I have been discussing refinancing into a 15 Year or 30 Year loan to lock in a low interest rate and potentially harvest a bit of equity. Before refinancing, we thought it would be worth reaching out to the renters (under contract through June) to see if they were potentially interested in buying the townhouse since we doubt we can ever get to monthly rents of 1% home value to allow for us to be profitable landlords in the long-term. Our contact at the property management company reached out to the renters on our behalf and gave us word that they might be interested depending on the price. We gave an initial price of $123,500 recognizing that we may be negotiated down a bit.
At this point, we received an e-mail from another staff member at our property management company who is a licensed real estate agent stating that when the company lists and sells a home for a landlord they charge the standard 6% broker fee, but in the case where the current tenant is the buyer they lower the fee to 3%. After several e-mail exchanges with the agent, it appears to me that very little work (i.e. mediating offer negotiations and drafting some paperwork) will be done in exchange for ~ $3,400 - $3,750 we would pay them. I in no way want to come off as disparaging real estate agents who manage a traditional property sale since I know that takes a lot of work, but in this case the seller would have already been identified and in Iowa a lawyer is required to review the paperwork associated with a real estate sale, so my perception is the real estate agent would not really be doing much for such a high commission. Is this correct?
My wife and I expected there might be some sort of finders fee or mediation fee, but not as high as 3%. We are debating about reaching out to the renters directly to negotiate the price and sale as FSBO with a lawyer facilitating the mediation. It appears the lawyer would run ~ $1,000 including closing costs and abstract preparation. We do have a potential concern that if we go around the property management company and negotiations fall through that the company may not continue to provide the excellent service they have in the past.
So should we contact the renters directly? Should we try to negotiate the real estate agent's fee? Is the real estate agent actually doing more work that we perceive? To make matters a bit worse, when the real estate agent contacted us about the fee, they mentioned that there was another unit for sale (did not see realize there are actually 2 on the market) and gave us a low value estimate (much lower than even the interior unit that was sold this past summer).
We appreciate any advice our fellow mustachians are willing to provide us on this matter.
