Ricechex it sounds like alot of disclosure work to do if you do sell…If you are gonna do it, cut the price to the bone… make sure you disclose EVERY single last thing that you have done to the home, permitted, unpermitted and otherwise. Make sure you tell any potential seller about the water issue next store…just be sure to disclose EVERY last thing. Talk to your cpa about the tax implications of the sale. Since this is/has been a rental then you will have to cope with all of the recaptured depreciation, which will change the cost basis which will end up with you paying a bigger tax based on the gain from the sale. Also when you sell there will be 3 1/3% of the sale witholding that is applied for state taxes.
If you could convince your friend to just sit tight for a good many years I would do that and just keep it as a rental. Otherwise if that is a nogo then dump it as soon as you can, the longer you wait, the less you will get unless you batten down the hatches to ride out the storm.
Also because the home is in your name you will suffer the tax burden of the sale so I advise you to make sure you talk to your cpa about it. After you show your friend how much (or how little) there will be after it is all said and done she may not be to happy…
