If I understand the situation, you are obligated to provide the house to your tenant for the remainder of the 2 year time period specified in your lease.

First question: When is the last time you did a home inspection?

Oh, excuse me, "Leak check, monitor check and filter change"?

If it has been a while, go there soon. Check under the sinks and behind the toilets. Check in the basement. Check the CO and smoke detectors. Change the furnace filter. Make sure the return air location is clear. That will give you a chance to make sure all is OK in the home.

Next, suck it up and let the lease run out. When does it end? Unless you are in an unusual market, the best time to list a home is in about February or March. Check with a local real estate agent to be sure. Give them notice so that they move out and give you enough time to fix anything needing fixing, paint, and clean up or replace the flooring. Make sure the place has a really awesome cleaning.

It sounds like you had no purchase agreement, only hoped they would end up buying it. But you do have a rental agreement (in writing I hope), so that is what is enforceable. It sounds like you are losing money the way that you set the rent, but you must honor your agreement until it ends. If they want to leave early, THEY pay YOU a fee to break the lease.

Merle,

By the tone of your post you seem like a nice person. That has now come back at you like a knife in your back.

In property management, good deeds often lead to punishment.

Since you were generous and did not charge full price it sounds like they could not afford this from the start. Deadbeat University: Less than perfect applicants learn to push the landlord greed button by convincing the LL they want to buy the house.

Was there a reason for a 2 year lease? Again Imsusoect they were trying to get you excited to take them and gloss over their problems.

Check your state law. In MY state I can end a lease with a proper notice.

Yes, go check the interior IMMEDIATEY. In such cases off stubbornness you might be in for a big surprise.

I highly suspect they know they cannot qualify for another home or want to sit tight to keep their low priced rent.

High probability one or both has lost a job and their income is low. Pull their application and verify employment.

Call the utilities to verify they are on. Broke people let their utilities slide.

This is an interesting one. Keep us posted.

BRAD

Several of my friends got a job transfer during a down real estate market. Their homes were under water, worth less than they paid. They had no idea how to manage a property from "long distance". So this is where I came in. For a fee, I managed their property, collected rents, did repairs and so on. I am a California Licensed Contractor, property manager, investor and owner of dozens of rentals (homes, apartments and commercial).

For years my "friends" gave me trouble. They did not like that I was spending money keeping their homes is "great" condition. I explained that at any moment we could loose a tenant and needed to be able to re-rent it at a drop of a hat. An when the values returned, sell it quickly because it was turn key.

I also told my friends that since they had lost equity in their property and only could have sold it at a loss, think of it now at a "retirement vehicle" -- in 20 years of so the mortgage will be paid off and the property will triple. Rents also -- a nice monthly next egg.

So because my friends held on to their unwanted rental property, below find a few examples of their new found wealth.

a) women friend with a small home in Venice. She paid around $110,000 back in 1985. Sold it in 2006 for just under a million dollars....

b) couple with a home in the Valley. Couldn't sell it in 1996 for $ 185,000. Sold it in 2004 for $440,000.

c) One client couldn't stand owning property long distance and had to sell. I purchased the property for $250,000, what she had it listed on the market. Sold it 8 years later for $800,000.

When we do tenants favors, we often find (a) that we do them more favors than intended, and (b) that they are often proportionately ungrateful. :) We don't do it for the gratitude; we do it because we're human beings--- but it's still irritating when something that was supposed to be a win-win situation doesn't work out the way it did in our imagination. :)

One lesson you seemed to have discovered is, either sell it, or rent it, but don't rent it to people just because they expressed interest in buying. You want to sell it to people who can get a mortgage (or pay cash), and walk away with the money, and never think of the place again. Some people can do rent-to-own or owner-finance or any other number of things, and can do it very successfully--- but the cleanest way to be rid of a thing is to sell it traditionally.

Another lesson you seem to have discovered is, rent should cover the costs of taxes, insurance, flood insurance, and mortgage, plus a nice cushion for any repairs or the unexpected. :) When you cut it close, and expenses come up, you know where they need to come from if it doesn't come (indirectly) from the tenant.

That being said, these people, if they were truly interested in buying it, wouldn't have done a 2-year lease. (How did that number come up? How did you benefit by agreeing to it?) If I want to buy a car or a farm or a house, I'm not going to "test" it for two years and then purchase it. I'm going to pin it down as mine ASAP and get on with my life. Don't think of your tenants as potential buyers. They made it clear that they're not. Don't try to entice them with lower prices or with bargaining or anything like that. If they didn't jump at being given $2k to move out early, it looks like they're pretty well settled-in, although not settled-in enough to buy the place.

I presume the rent is locked in at $x for 2 years? Let time pass, because it will. Pay another year's worth of flood insurance. Pay your property taxes. Pay down the mortgage for another year. Give your tenants notice of either (a) a significant rent increase at the proper time, or (b) notice that their residency will be terminated at the end of the lease period.

pickup the phone and call them... ask a few questions, get some feedback, work together for a solution. Understand where they are coming from in terms of the agreement. And set a date to make a change.

AS SOON as you are off the phone, put everything in writing and mail them a copy. Then be prepared to exercise your legal rights.

You were nice, now it's business. Now you are changing the rules, you may or may not be able to do that. So working with them may be the best. If you have a two year contract for lease, read it carefully before you make that phone call and have it in front of you and only ask for what the contact says you can ask for... if you want something else and they are not corroborative, you may be stuck until the end of the contract.

Good advise above to go to the house and change the furnace filter and check for leaks. Just get inside and walk thru. Any thing that is not kept up or damaged start billing and fixing and perhaps you can use that to get them out.