I rent my home to my brother and his family below the market rate. I want to sell, but they don’t want to move. What should I do?

Fast forward a few years: I have remarried, and my husband and I have bought a single-family home to live in. My kids are grown and have graduated from college.

I have been renting the other home to my brother and his family, who have been paying moderate rent in exchange for some upkeep. There is also a second tenant who pays rent that, until lately, was on par with city rates.

The problem is that taxes have risen along with home values, on top of the cost of maintenance and major repairs, such as the roof and boiler. The collective rent barely covers the mortgage and maintenance expenses.

My plan is to sell the home since my children are done with school and use the money to help them with their loans if they don’t want to live in the home. My kids say it’s impossible to live there, but my brother and his family don’t seem to have any plans to leave. I did let the family know of my intention to sell the home last spring, ahead of when my kids finished school.

What should I do now? Should I just raise the rent dramatically, or should I sell the home? 

I really don’t want to have to unhouse either my family or the tenant. But the expenses are affecting my stress and my financial choices throughout the year. I worry all the time, and I’m concerned that I just want to sell it to unburden myself. I’m aware that my kids and spouse will lose out on generational wealth.

Do I sell? Or not sell?

Stressed Out

‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage. Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at [email protected].

Dear Stressed,

Your dilemma here is whether to keep the rental property in order to pass it on to your spouse and kids, or to sell it and use the money to help them pay for their education.

Before you decide, you need to go through your expenses with a fine-toothed comb and ask yourself two questions.

Question 1: Does it make sense to keep renting the house if it doesn’t make a profit? Factor in higher taxes, maintenance, the mortgage, insurance and other expenses, and see if you are making money, breaking even or losing money. 

Question 2: Are you having problems with the tenants, or are you having issues with being a landlord? Those are two separate issues.

If you hired a management company and charged market rent, would that help you to decide to keep the property? Once you have sold it, you cannot go back. If the stress created by renting to family members is one major factor in your decision, you could be throwing the baby out with the bathwater.

If you’re breaking even, you have time to consider what you want to do next. And if you are renting to tenants with whom you do not have a relationship, it will give you more insight into whether this is an issue about (a) dealing with family as tenants who don’t pay market rates or (b) you not being able to deal with the day-to-day business of being a landlord.

If you are losing money, you may want to explore the option of selling. Contact realtors in your area and see how much you could sell the home for. Given that relatively few homeowners are selling at the moment — according to Redfin
RDFN,
+6.26%,
new listings of homes for sale fell over 20% at the end of April, as compared with the year before — so you might be able to get a good price if you sell. Just keep in mind that house prices generally go up over time, so if you sell now, you will lose out on any increase in value.

If you do decide to see, you can use the proceeds to help pay off your kids’ student loans, or you can reinvest by purchasing an apartment or some other type of property that could be more useful to them immediately or in the near term. After all, you said you only kept the home in case one of your kids needed the income one day.

If you keep the rental, you will be able to pass it on to your spouse or children one day. The home will be an asset they can tap into if they need money. They will also have a big leg up in a time when homeownership is becoming ever more expensive.

But if you keep it, remember that you have to be a landlord first and a sibling second. You need to raise rents in order to turn a profit. Tell your brother and the other tenants that the rent is falling short of expenses and that you’re losing money. If they refuse to pay more, you may need to “unhouse” them. But you cannot be held hostage to other people’s demands. This is the problem that can arise when you do someone a favor by renting below the market rate — and when you mix business and family.

Eviction is not the same in every city. It’s hard to determine whether that will be an easy or convenient option for you. In some big cities like San Francisco, a landlord must have just cause to pursue an eviction. That can range from tenants not paying rent to the need to move tenants out in order to demolish the housing unit.

If you’re in a city without such protections for tenants, and if your tenant is on a month-to-month lease, you could terminate the rental agreement and sell, according to Daniel Bornstein, a San Francisco-based real-estate attorney who represents property owners in landlord-tenant issues. But doing so may damage your relationship with your brother and add more stress and worry.

Weigh both options. Talk to your kids and see if they could use the money now that they’ve graduated college and are starting their careers, or if they would rather inherit the home down the line. 

Ultimately, this is a decision you have to make for yourself. Whatever you decide, make sure you do it for the right reasons.

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