Need help with a financial decision...sell house we inherited, buy out others, rent?

[ktgrok]

Thanks everyone, you convinced him! We will sell ASAP

 

Here is the situation: My husband's mother died last year. Her house is paid off, and currently worth about 100,000. The way it works is my husband's aunt owns 50%, dh owns 25%, and his brother owns 25%. The initial plan has been to sell it, everyone gets their share. We would invest that money towards college education for our kids.

 

The other options are:

 

1. We take out a mortgage for 75,000 and buy out the brother and aunt. We then rent the property out for about $1,500 a month and pay a management company to handle things. Taxes/homeowners insurance/HOA dues total about $500. We would put money in escrow to handle repair bills. We rent for a few years then sell.

 

2. We don't sell it or buy it. We hire a management company to rent it out, and any proceeds are split amongst the 3 parties involved.

 

3. something else?

 

I'm nervous about taking on more debt, we already owe on our own house more than it is worth. The only reason I'm considering it is that if we bought it, then sold it tomorrow we would make $25,000 in it, the same amount we make if we don't buy it.

 

any thoughts?

Edited March 5, 2012 by ktgrok

[sassenach]

Renting out is a huge roll of the dice. Unless you want to keep the home in the family forever, I would sell now. You'll be saving yourself a lot of stress.

[ktgrok]

Renting out is a huge roll of the dice. Unless you want to keep the home in the family forever, I would sell now. You'll be saving yourself a lot of stress.

 

That is my original response. But...if we buy it, rent it, and sell it in 5 years we might double our return...IF prices go back up. My husband thinks it would be worth more like $150,000 in 5 years or so.

[elegantlion]

Renting out is a huge roll of the dice. Unless you want to keep the home in the family forever, I would sell now. You'll be saving yourself a lot of stress.

 

:iagree: I would not get into a 3 way rent splitting situation, that just sounds like a disaster waiting to happen.

[sbgrace]

I'd sell. I would not take on debt to purchase it in this housing/economic environment.

[MindyD]

When family and money mix together, things can go badly. I think the best thing would be to go ahead and sell the house now and get it over with. If you're already upside down on your house that you have now, can you even get a mortgage?

[ktgrok]

When family and money mix together, things can go badly. I think the best thing would be to go ahead and sell the house now and get it over with. If you're already upside down on your house that you have now, can you even get a mortgage?

 

Dh thinks yes, because the mortgage would be for $75,000 and the house is worth at least $100,000.

[coffeefreak]

I'd sell it and put the money towards your current mortgage. Especially if you're currently upside down.

 

OR, you could sell your current house, and roll the difference into a mortgage for your MIL's house. It sounds like it would still be a smaller mortgage, and would help you get out from under your current house.

 

OR, sell both houses, break even and rent until you save up to buy a house you're not underwater on.

 

I wasn't much help, was I?:tongue_smilie:

[ktgrok]

I'd sell it and put the money towards your current mortgage. Especially if you're currently upside down.

 

OR, you could sell your current house, and roll the difference into a mortgage for your MIL's house. It sounds like it would still be a smaller mortgage, and would help you get out from under your current house.

 

OR, sell both houses, break even and rent until you save up to buy a house you're not underwater on.

 

I wasn't much help, was I?:tongue_smilie:

 

We wouldn't live in that neighborhood. it is an hour away from dh's work, and in the neighborhood he grew up on which has very bad memories for him. And at that point the gain is no different than taking the $25 K and putting it towards our house. We like our house, and are still fixing it up, which should help bring up the value. Our mortgage is much less than if we rented someplace, so that isn't an option. We actually bought a house well within our means, that was a foreclosure and needed tons of work, which we have been doing on our own. The timing was just bad....the market crashed right afterwards. I'm in florida and honestly less underwater than almost anyone I know.

[Dana]

My folks rented their house for a while. I believe they used a management company.

 

The teenage son left a candle burning and the house burned. (couple rooms, not to the ground)

Then the parents tried to sue to be able to get back in the house after the repairs were done.

 

Sell.

[Carol in Cal.]

It's pretty easy to have a rental. You need to assess the rental market there, though, and the housing market as well. I'm not sure where you're talking about, but out here in CA there are areas that are still dropping and may never recover, areas that are going up again, and areas that are probably turning around but have not done so yet.

 

Look at the trends. See if you can be reasonably sure to rent this house out and for what rate. See if you really have reason to think it will go up in value.

 

Also, what is the capital gains situation if you sell now vs. later? Be sure that you have that straight. It is an area of evolving case law, and so it's easy to make a mistake.

 

Personally, I wouldn't hire a management firm for a place only an hour away. It's a big expense, and you're better off managing it yourself. There is an excellent book called the Landlord Law Book from Nolo Press that I recommend highly.

 

Re. the fire, a good landlord protector insurance policy would cover repairs and loss of rent during the repair period. It's a hassle, but not one to really worry about too much.

[Harriet Vane]

I would sell it now.

 

A three-way rental situation is just asking for misunderstandings and unhappiness. I would not do that, especially not with family.

 

I would not plan on getting a significantly better return in 5 years. I think the market will never be what it was, ever, and that it will take longer to recover. It's not worth the headaches of dealing with a rental situation. Also, plan for the house to get beat up in the process--it's just the nature of renting.

[Mary in VA]

What kind or interest rate can you get for a mortgage on rental property? I believe it is not the same for investment property as a primary residence. You mentioned the taxes/insurance/HOA, but didn't mention how much the mortgage payment would be. That would be a BIG factor to me in whether or not it is financially feasible to turn it into a rental property. You also have the fees for a management company and maintenance on the house.

 

If it were me I want to sell the house now and be done with it. We were landlords once for 3 years and it was too stressful. Never again!

 

Mary

[Denisemomof4]

Renting out is a huge roll of the dice. Unless you want to keep the home in the family forever, I would sell now. You'll be saving yourself a lot of stress.

 

:iagree: We were landlords for over 15 years. The money wasn't worth the headache or stress.

 

The economy is bad. We couldn't find renters for mil's home. It has been vacant for over a year now, no renters, no prospective buyers. Dh and I investednmore than 5k and put a TON of work into that place.:glare:

[Carol in Cal.]

We have one rental. We manage it ourselves. We have had positive cash flow from it for quite a few years, and this was key to my being able to stay home when DD was younger. It usually goes vacant only about every 4 years or so, and we screen tenants very hard.

 

We are not sentimentally attached to it, which is good because rentals get a little beat up. But if the economy tanked worse we could move into it and have much lower bills.

 

We sacrificed living well for this--we don't have a very nice home ourselves, and it's largely because we have never concentrated our capital in just the home that we live in. It's been a reasonable trade off though, for the income and the diversification.

 

I don't know whether you should rent out that house or sell it, but being a landlord over just one house is really not that difficult or time consuming.

 

One thing I would NEVER do, though, it rent out a home with a group. It's just too hard to make decisions, especially about repair costs and when to sell. Bad, bad, bad idea.

[black_midori]

Sell. As quick as you can.

 

A house is only "worth 100k" if you can SELL IT FAST for 100k. Otherwise, it is worth much less. Before making a decision, I would go look very closely at the market in that area - what has sold, how long it has taken, whether the neighborhood is getting better or worse, who ends up deciding just to rent instead of sell (often because it has been waiting to get sold a long time). Also, keep in mind all of the "extras" involved in renting; you will undoubtedly have to invest money in the house to get it sold, possibly even to get it rented. How much money will that be? A realistic amount, not an "oh, we can do xyz whenever ourselves" amount. When you rent, even if the renters are decent, you will likely also have to put money into the house at the end of that period to get it ready to sell (carpets, appliances, etc). How much will the mortgage cost? That could be several thousand dollars right there.

 

It may be that the housing market will pick up - if so, yay! However, I am starting to side with the financial analysts that say the market is going to get way worse before it ever gets better. That just makes sense - the government bail-out is the only reason it isn't "that bad" right now, and that sort of government debt just is not sustainable...

[bookfiend]

I would seriously consider the potential of creating lingering issues within the family if you continued to profit from the estate, or profited in greater measure at a later date.

[coffeefreak]

We wouldn't live in that neighborhood. it is an hour away from dh's work, and in the neighborhood he grew up on which has very bad memories for him. And at that point the gain is no different than taking the $25 K and putting it towards our house. We like our house, and are still fixing it up, which should help bring up the value. Our mortgage is much less than if we rented someplace, so that isn't an option. We actually bought a house well within our means, that was a foreclosure and needed tons of work, which we have been doing on our own. The timing was just bad....the market crashed right afterwards. I'm in florida and honestly less underwater than almost anyone I know.

 

Then I would sell. I agree with everyone who has said you do not want to be landlords with your family members. How would you handle repairs? What if no one is living in the house? How will you pay the utilities and advertising? Are you going to split the rent 3 ways or 50/25/25? Is that how you're going to divide the responsibilities too? how do you determine who is responsible for what? It's too much of a headache and not worth the relationships.

Blessings!

Dorinda

[SweetMissMagnolia]

I'd be with the "sell now" mindset....

[Mimmy]

I vote sell.

[Cindyg]

Sell.

 

The 3-way ownership thing needs to be undone as soon as possible -- before the first thing breaks and has to be repaired at 50/25/25.

[chepyl]

Sell it. Renting.g one house is not worth the headache.

[kewb]

A bird in the hand is worth 2 in the bush is what comes to my mind while reading this. I would sell it now rather than rolling the dice on the chance it will be worth more. Family & Money rarely ends pretty. Get out while you can and do something with the money.

[ktgrok]

Thanks all, you convinced him! (he usually listens to me, but wanted me to ask the hive, lol)

[alpidarkomama]

If you did not have the inheritance, would you go out and borrow $75,000 to invest in real estate? Probably not, so I wouldn't do it here either.

 

I too would sell it and stash away the proceeds.

[Catwoman]

I would sell it now.

 

A three-way rental situation is just asking for misunderstandings and unhappiness. I would not do that, especially not with family.

 

I would not plan on getting a significantly better return in 5 years. I think the market will never be what it was, ever, and that it will take longer to recover. It's not worth the headaches of dealing with a rental situation. Also, plan for the house to get beat up in the process--it's just the nature of renting.

 

:iagree:

 

Unless your area is very highly sought-after, I think your husband is mistaken in his assessment that the value of the house will go from $100K to $150K within the next 5-10 years. That is a massive increase, percentage-wise, and I truly don't see that happening in most areas of the country. In many areas, prices are still dropping, and there is no indication that things will suddenly turn around and we'll ever go back to the prices we were seeing five years ago.

 

I would sell the house and be done with it. It's enough of a nightmare to be a landlord on your own, but when other family members are involved, every little repair and expense can lead to a disagreement. Additionally, you won't make much money per month, anyway, after the management company is paid, repairs and maintenance are done on the property, and you have to split the remaining proceeds with the relatives.

 

Edited to add: I just read all of the responses, and noticed that you decided to sell the house -- good for you! I think you're making the right decision. :)