Selling my California SF Bay Area home this July: capital gains; eviction?

[FINate]

I believe you are allowed to withhold unpaid rent from their deposit. They may be aware of this after consulting with the tenant rights legal aid group, which is perhaps why they are asking explicitly for forgiveness of rent. Don't tell them your plans.

I would not respond to the request for rent forgiveness. My instinct would be to do exactly nothing right now.

I would specifically avoid discussing their job situation and/or unpaid rent. Not sure what the local regulations are, but at the state level the eviction moratorium is specifically for unpaid rent due to COVID19 hardship. If you start discussing this with them they may try to make a case that they are covered under the moratorium.

Have your attorney re-issue the notice and verify privately with him that you can indeed withhold unpaid rent from the deposit after they vacate. Otherwise, do nothing unless directed/approved by legal counsel.

[FINate]

Of course, you could forgive their back rent if you want to, which would be very kind and generous. But I would wait until after they are out before doing this, don't commit yourself to anything now.

[waltworks]

IMO in general letting the deposit be used for anything but damages is a bad idea.

That said, I have (for super good tenants/friends in a tight spot) done it myself and it was fine. I was renting a *trashed* grad student condo, though - not a nice place I planned to sell for $3/4 million. In your shoes you should hold that deposit until you can verify that you don't need it for damage you don't know about yet.

If they are truly in financial distress they would have probably contacted you before this, so I'd just say stick with the terms of the lease. At this point you probably don't want to make under the table deals no matter what, since they have already escalated to legal nitpicking.

I think this is also a great lesson for all of us - think before you write a letter citing the law. It's going to come across as an attack almost no matter what. Call and discuss first, or better yet, meet face to face over a beer (I literally threw my tenants a BBQ last summer to discuss us selling the house they lived in part of).

Results will vary but it's often a great way to make things go smoothly. You can always lawyer up later.

-W

[PMJL34]

Hello Bayareasaver,

Thanks for keeping us up to date. I think you've gotten really great advice. I wanted to add a few points.

1. IMO, the tenants did exact what they were supposed to do. They are both jobless (but almost certainly collecting unemployment) due to a pandemic and wanted legal advice/second opinion on their options. Please keep in mind, in the bay area, there are flyers on every corner with free tenant rights attorneys that are posted by the city/county/you name it. If I were in their shoes, I absolutely would have called as well. I don't personally consider this "lawyering up" (it was just a free 10 minutes phone call). The non-profit organization they consulted with also will not be taking this case because Bayareasaver is doing the right thing and the letter implies that. The letter was also very fair IMO considering the circumstances. Keep in mind, the bay area is crazy right now with "don't pay rent" and they are most certainly influenced by that non-sense. I would also throw it out there that my guess is that if the tenants refused to pay the last 6 weeks of rent, with everything going on, you would have no recourse (with you being on another continent and all the other non-payments this would take forever and tons of $$ + too much hassle).

2. Regarding their request of 6 weeks forgiveness. I wouldn't commit to it, at least not in writing. I like the previous poster's idea of 100% plus X% deposit refund if they leave the home in great condition by the agreed upon date. In the bay area, I also wouldn't risk holding their deposit for unpaid rent, especially with COVID going on. I agree with Walt too that any back door deal would be risky just because you don't have a personal relationship with the tenants. I would personally keep handling this the way you are doing, professionally and with a lawyer, and then once they are out decide on how much to "reward" them or not. For reference, my landlord friend went through a similar scenario as you (had to ask the tenants to leave during May) and he offered one month free rent.

3. For what it's worth, the tenants still sound like decent people and good tenants. I would include in the letter how you value them and how you would give them a good recommendation to their next landlord (assuming they hold their end of the bargain). 

4. 24k sounds very high for carrying costs and paint job. Exterior paint shouldn't be more than 2-4k unless you have some really bad siding and extra work is needed for prep and/or just overall difficult painting obstacles due to layout of exterior. With that said, do paint :)

Best of luck!

[Dicey]

Hello Bayareasaver,

Thanks for keeping us up to date. I think you've gotten really great advice. I wanted to add a few points.

1. IMO, the tenants did exact what they were supposed to do. They are both jobless (but almost certainly collecting unemployment) due to a pandemic and wanted legal advice/second opinion on their options. Please keep in mind, in the bay area, there are flyers on every corner with free tenant rights attorneys that are posted by the city/county/you name it. If I were in their shoes, I absolutely would have called as well. I don't personally consider this "lawyering up" (it was just a free 10 minutes phone call). The non-profit organization they consulted with also will not be taking this case because Bayareasaver is doing the right thing and the letter implies that. The letter was also very fair IMO considering the circumstances. Keep in mind, the bay area is crazy right now with "don't pay rent" and they are most certainly influenced by that non-sense. I would also throw it out there that my guess is that if the tenants refused to pay the last 6 weeks of rent, with everything going on, you would have no recourse (with you being on another continent and all the other non-payments this would take forever and tons of $$ + too much hassle).

2. Regarding their request of 6 weeks forgiveness. I wouldn't commit to it, at least not in writing. I like the previous poster's idea of 100% plus X% deposit refund if they leave the home in great condition by the agreed upon date. In the bay area, I also wouldn't risk holding their deposit for unpaid rent, especially with COVID going on. I agree with Walt too that any back door deal would be risky just because you don't have a personal relationship with the tenants. I would personally keep handling this the way you are doing, professionally and with a lawyer, and then once they are out decide on how much to "reward" them or not. For reference, my landlord friend went through a similar scenario as you (had to ask the tenants to leave during May) and he offered one month free rent.

3. For what it's worth, the tenants still sound like decent people and good tenants. I would include in the letter how you value them and how you would give them a good recommendation to their next landlord (assuming they hold their end of the bargain). 

4. 24k sounds very high for carrying costs and paint job. Exterior paint shouldn't be more than 2-4k unless you have some really bad siding and extra work is needed for prep and/or just overall difficult painting obstacles due to layout of exterior. With that said, do paint :)

Best of luck!

HAHAHA! Good luck getting a decent paint job for that price for a whole house in the Bay Area. Pretty sure the OP is going to need to do the inside, as well. My guess is six grand, unless the prop. manager has an ongoing relationship with someone. Other than that chuckle, your post was chock full of fine advice, @lilbenny34!

[bayareasaver]

Thanks so much for your feedback, everyone. Here's another update:

Unfortunately, I didn't realize/know there was a Page 2 to replies to this post, so I didn't see all of your words of caution before I went back to my lawyer, had her draw up the same thing again to deliver after June 1 (costing me another $500 to meet the tenants' demands that it include more crap), and I had sent a note through my property manager telling them I had also lost my job due to COVID and I'd be willing to and would go ahead and take their rent out of their deposit.

The good news is they haven't taken further legal action and claim they will be out on July 14th when their lease ends.

The bad news is there's now a whole heap of trash in my property's front yard they claim they're taking to the dump (it's like plywood and old windows and stuff - I have no idea why they would have that stuff in the house as it was 100% empty when I left) so of course I'm terrified the $1440 of their deposit that remains won't cover whatever damage they've decided to do inside.

I did ask my property manager to give me a sense of the condition of the house before I used the deposit towards rent and she said "We'll deliver this notice 1st and see how that goes." (I also told her pictures would suffice).

Perhaps needless to say I have no idea why property investing is supposed to be such a good path to FIRE. What a nightmare!!! I know this was never supposed to be an investment property but the variance between what you can earn between index funds and property value increases/sweat equity investment/getting lucky does not seem worth the stress.

I can't wait until this is over and I can finally be closer to my FIRE goals without these headaches (hopefully)!

And @Dicey , you were exactly right, $6k is the current estimate I have for painting the outside of the house, but of course that's from the property manager's son and I don't exactly love my property manager (based on lack of willingness to do her job above).

[FINate]

The good news is they haven't taken further legal action and claim they will be out on July 14th when their lease ends.

The bad news is there's now a whole heap of trash in my property's front yard they claim they're taking to the dump (it's like plywood and old windows and stuff - I have no idea why they would have that stuff in the house as it was 100% empty when I left) so of course I'm terrified the $1440 of their deposit that remains won't cover whatever damage they've decided to do inside.

I did ask my property manager to give me a sense of the condition of the house before I used the deposit towards rent and she said "We'll deliver this notice 1st and see how that goes." (I also told her pictures would suffice).

Perhaps needless to say I have no idea why property investing is supposed to be such a good path to FIRE. What a nightmare!!! I know this was never supposed to be an investment property but the variance between what you can earn between index funds and property value increases/sweat equity investment/getting lucky does not seem worth the stress.

Sorry, hang in there, you'll get through this. The most important thing is that they are out by July 14. If they vacate on time yet you're out of pocket a few thousand dollars... well, that's not bad as these things go.

The heap of trash may be any number of things. Renters are known for cheap yard projects with free/recycled scrap. Which totally makes sense since it's not like they can take it with them. I've seen decks made from pallets and scrap plywood, greenhouses from old windows and other assorted bits, and so on. Hopefully that explains it.

Property investing *can* be a good path to FIRE, but this almost entirely depends on making a good initial purchase. There's almost no way to recover from a poor investment property after the fact, at least not in ways within one's control (e.g. buying a bad investment property in an area that happens to gentrify may work out). This is why, when the question of "sell or rent" arises on this forum, I almost always recommend selling. A primary residence usually isn't evaluated as an investment property at time of purchase. The numbers may make sense in some cases, but almost always it's better to take the 2/5 capital gains exemption and avoid the headache of becoming an accidental landlord.

In CA/SF Bay Area there were deals to be had in the wake of the Great Recession, but those days are a good 5+ years behind us. Add to this California's instinct to "solve" the affordability crisis on the backs of landlords and, as you're finding out, being a landlord is not worth the hassle or the risk. This genuinely makes me sad for renters. In my city many long-time rental houses are being quickly rehabbed and sold, almost always to become owner occupied, and my social media feed is a steady stream of renters desperately looking for housing, any housing, as small time mom-and-pop operators get out of the business.

[Dicey]

Hey @bayareasaver, check your inbox. I sent you a PM.

[Dicey]

Well this is kind of frustrating. I've done some background work for @bayareasaver. I sent a PM and got crickets. I posted the note above almost two weeks ago and still...crickets.
Maybe the OP is out playing cricket?

[bayareasaver]

Hi @Dicey thank you for all of your help and for your awesome DMs! I totally screwed up and thought I had replied to your most recent messages but I hadn't, I had replied to the ones before, I'm so sorry about that. I just sent you a DM now and hopefully we can reconnect. Apologies again.

By the way if anyone reading this knows where I can go to learn more about selling a home in California, being a US Citizen, but living in New Zealand, and has suggestions for where I should put the money (move it to NZ immediately or wait or do it over time?), I would hugely appreciate it. I'm woefully under-prepared for this expat lifestyle which is much more financially complicated than it seems. Thanks.

[Faramir]

Whilst I don't have any knowledge on the US citizen/living in NZ particulars I can give suggestions and options for moving money if you want (transferwise) and investing in NZ from a Kiwi point of view.  From another thread I know you are in Kiwisaver so you have probably researched that already.

I guess you really need the American in NZ point of view regarding taxes and it probably also depends on how long you expect to stay in NZ as to whether to bring your money over to NZ.  It seems investing from the US has lower expenses than NZ investing options, but I don't know how taxation works in that scenario.

It may be that you are best off by investing in the US and moving money to NZ as needed when you retire (assuming you stay in NZ).

My English partner & I sold a house in UK last year and moved all the proceeds to NZ in one go via transferwise and were impressed by the currency conversion rate and speed.  I'm so glad we aren't landlords from the other side of the world anymore.

[PMJL34]

@ Dicey - You were spot on with the paint estimate. In my defense, this is the one and only estimate from the realtor's son (I also paint myself, and if I couldn't, I would hire a handyman as opposed to a painting company for something so easy). Also, I said 2-4K was outside only for what it's worth :) Now that I think about it, interior and exterior for 6K may be reasonable (but on the high side).

@ Bayareasaver - Sorry I have no knowledge on handling the post sale funds. It must be stressful handling this situation from the other side of the world, but it will soon be over! Once the tenants are out, you are over the hill. You've got this!

[bayareasaver]

@Faramir Thank you so much, it's awesome to know someone has been in a similar situation and survived (although of course UK to NZ not US to NZ)! And that's an interesting point about the fact that there might be lower fees in the US than in NZ in terms of investing; I do know the taxing on dividends and so forth is different so that's something I'll need to understand. I do believe that now is a very good time in terms of the exchange rate to bring USD into NZ so that's another variable to consider as well. Ugh! For a detail oriented person like myself who also wants to make the right financial decision this all feels hard. Thanks for your support and insights; for now I guess I will just focus on getting the $$$ from selling the place!

@lilbenny34 Yes, it is hard, which is part of why I'm selling, thanks for your kind words. Cross your fingers the tenants move out and the place is in one piece when they're gone in a few days!

[anni]

[edit] Please ignore my request for an update, I missed the 2nd page of posts!

I can understand you wanting to sell but do not really understand the urgency if you are breaking even. You stand to make hundreds of thousands in profits off the sale and lose relatively little by comparison. I think, reading the letter, your tenants were just disappointed at having to move after only a year and at having to spend time and seriously risk personal safety to go find a new place. Plus the unexpected $100s of dollars it will cost them to move while they're unemployed. I can absolutely understand them seeking to find whatever legal rights they can get as renters.

[PMJL34]

any great updates bayareasaver?

[bacchi]

Pinging @bayareasaver

[bayareasaver]

Hi @lilbenny34 and @bacchi thanks for pinging me and sorry for the delay - I'm still figuring out my email settings for this site and welcome suggestions to get them right!

Yes, updates are available here on my journal (scroll down to update #4): https://forum.mrmoneymustache.com/journals/us-to-nz-single-lady-saver-improving-health-wealth-one-day-at-a-time-(ooni)/ - I've sold the house and I'm overdue for another monthly update but I haven't made much progress since last month so I'm a bit embarrassed about that!

Thank you for helping to keep me accountable and being patient with me as I learn this site!