JFSinIL Posted October 21, 2015 Share Posted October 21, 2015 Here is the deal - and it is a nice problem to (finally) have - tomorrow, unless I just jinked myself, our huge checks from our insurance company (not any pain and suffering formula, just equal to our medical bills after last years car crash, thanks to our rider in case we got hit by an unisured driver) will clear our bank. Hubby will put the max he can in an IRA for me this year (I have never had one) etc. since we have little retirement. Anyway, I was thinking, why not use part of it to purchase another house and rent it to our dd (22 next month, works full-time) and a friend or two of hers. They'd pay less than they do for a tiny apartment and get far more space. We'd use the rent money to pay the taxes, have a house maintenance fund, for repairs (all the houses around here are at least 80 years old) and insurance. There might even be some profit. Down the road, maybe move our disabled adult son and another disabled adult into it and call it a group home. Anyway, looking for input. I will NEVER have this kind of money available again to invest in anything. My dad's long-time girlfriend has bought several houses and rented them out. I will ask her opinion, too. Note, we are talking small houses like a Cape Cod with 2 -3 bedrooms, 1 or 1.5 baths, for little over $120,000. We could do this and pay off our current house, but I was thinking more of selliin it "as-is" in a few years once youngest is out of college. It is from 1906 and will need plaster repair, new siding, probably having the driveway removed, basement wll repaired, land regraded and driveway repoured, etc. and would cost more than I think we'd get back to do that. It is two stories plus basement - and with my leg pain (hardware can not be removed, I asked) I want to live in a one-story within a few years. We have had to refinance a couple times get equity loans, so still, after 20 years, owe a lot on it. It is probably worth a bit less than we paid for it, in this market. 1 Quote Link to comment Share on other sites More sharing options...
Jann in TX Posted October 21, 2015 Share Posted October 21, 2015 We did this exact same thing a few years ago (a settlement from insurance after an accident). Our older dd's were renting a tiny apartment near oldest dd's employer and middle dd's university. We purchased a new garden home and the payment is half of what their rent was. Great deal for them and a good investment for us. Both will probably move on next year and we will most likely rent it out. 3 Quote Link to comment Share on other sites More sharing options...
creekland Posted October 21, 2015 Share Posted October 21, 2015 I'd do it - esp since you know the tenant. I like our rental properties as investments, but they'd be even better if we had worry free tenants as the only time we've had issues have been the two times we've gotten bad ones in (one far worse than the other). 4 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 21, 2015 Author Share Posted October 21, 2015 Was hoping you folks would like the idea. I want to find any flaws and address them before telling hubby my idea. I have my eye on one house close by, but it is a short sale and I do not think it may work out. I hear short sales can drag on a long time. Sigh. The owners paid $200,000 for it in 2004 - it is worth less now, far less, and they have it on the market for $135,000. I think it is worth $120,000. It is far smaller than our full two-story five bedroom two-bath house, with itself is worth about $135!!! PS - yes, I would know the tenant ;-) but I also know she is a SLOB of the highest order. We would have to lay down the law that she would have to maintain some semblance of cleanliness...and pay any exterminator bills if it came to that. We had initially talked about having dd qualify for a mortgage (she makes more than we do!!! since hubby lost his job a couple years ago) and we'd gift a decent down payment to make the mortgage small enough to equal, with taxes, $700 a month. But now I am thinking, why pay interest when you have the cash to flat out BUY something? 1 Quote Link to comment Share on other sites More sharing options...
nevergiveup Posted October 21, 2015 Share Posted October 21, 2015 If you are considering it as investment, you might not make as much as you think once ongoing upkeep and repairs, market conditions, etc, are considered. You could save it and add to your retirement every year. 3 Quote Link to comment Share on other sites More sharing options...
Guest Posted October 21, 2015 Share Posted October 21, 2015 I would talk to a tax person first. My parents were going to pay cash for this new house but their tax guy told them that their investments are doing better than the 4% they would be paying in interest on the house. If they paid for it outright, they'd lose that income. So it made sense to get a mortgage and reinvest the extra (which they could take out anytime). I don't know if that applicable to you, just throwing it out there:) Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 21, 2015 Author Share Posted October 21, 2015 I would talk to a tax person first. My parents were going to pay cash for this new house but their tax guy told them that their investments are doing better than the 4% they would be paying in interest on the house. If they paid for it outright, they'd lose that income. So it made sense to get a mortgage and reinvest the extra (which they could take out anytime). I don't know if that applicable to you, just throwing it out there:) [/quote Good information, thanks! Quote Link to comment Share on other sites More sharing options...
zoobie Posted October 21, 2015 Share Posted October 21, 2015 I would talk to a tax person first. My parents were going to pay cash for this new house but their tax guy told them that their investments are doing better than the 4% they would be paying in interest on the house. If they paid for it outright, they'd lose that income. So it made sense to get a mortgage and reinvest the extra (which they could take out anytime). I don't know if that applicable to you, just throwing it out there:) You might be able to incorporate and have the business buy the house, you invest capital in the business... CPA (good CPA) time! And maybe savvy real estate person. If you won't always be renting to children (and sometimes even then), it's good to reduce personal liability when you can. Not just that but it can maximize profits. Our taxes are less being incorporated than they would be if we weren't. (Not in real estate!) 1 Quote Link to comment Share on other sites More sharing options...
plansrme Posted October 21, 2015 Share Posted October 21, 2015 Is your health insurer not going to claim part of the settlement from the automobile insurance? I hope not and that it's all free and clear. But, in the meantime, if you want to rent out a house, I would strongly recommend finding one with two bathrooms. Around here, there is a huge difference in rental price between a 2 BR/2 BA and a 2 BR/1 BA. I've seen that even on VRBO when looking for condos or cabins for vacation. That second bathroom really ups the rentability. 7 Quote Link to comment Share on other sites More sharing options...
Jaz Posted October 21, 2015 Share Posted October 21, 2015 I'd be tempted to save the money to pay cash for a new house for myself when I was ready to move. If your daughter is a slob and you're thinking of exterminators then she isn't a good tenant for a rental. 5 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 21, 2015 Author Share Posted October 21, 2015 Is your health insurer not going to claim part of the settlement from the automobile insurance? I hope not and that it's all free and clear. But, in the meantime, if you want to rent out a house, I would strongly recommend finding one with two bathrooms. Around here, there is a huge difference in rental price between a 2 BR/2 BA and a 2 BR/1 BA. I've seen that even on VRBO when looking for condos or cabins for vacation. That second bathroom really ups the rentability. Oh, they tried that. Hubby has over 20 years experience in health law etc. and is one of the two most knowledgeable attorneys in this state on it. Blue Cross had to remove their lien and we got our money. 5 Quote Link to comment Share on other sites More sharing options...
milovany Posted October 21, 2015 Share Posted October 21, 2015 We love owning a small rental and it's a big part of our retirement plan (once it's paid off, we'll snowball its former mortgage payment into paying off our family home). Ours is in a fantastic location given the dynamics of our town. We have a state university here and the house is in a pretty, quiet neighborhood two blocks south of campus. The house has two units; the 2-bedroom main house and an attached studio apartment (no shared space between the two; completely separate units). The studio tended to turn over more than the house and I really got tired of going through the app. process over and over. Then we stayed at an airbnb unit in Portland last time we were there and when our last tenant bailed unexpectedly, I said to my husband, "Let's go for it!" We fixed it up, furnished it with nice but basic furnishings and listed it on the website. We've been SO busy and so far have made two to three times the amount we made with the regular monthly rent. So that's my suggestion, too: Post-daughter, consider using it as an airbnb unit if you're in a decent location with people coming to town for various reasons. You can look on the airbnb website to see what other properties are listed in your area. Enjoy! 3 Quote Link to comment Share on other sites More sharing options...
creekland Posted October 21, 2015 Share Posted October 21, 2015 I'd be tempted to save the money to pay cash for a new house for myself when I was ready to move. If your daughter is a slob and you're thinking of exterminators then she isn't a good tenant for a rental. I don't think I'd want to rent to a slob - esp Hoarder style slob - even if they were a relative. I'd rather they have their own money invested even if they pay a mortgage. Let them figure out they're losing their own money when they don't keep something up. They won't care if they lose your money. 1 Quote Link to comment Share on other sites More sharing options...
Guest Posted October 21, 2015 Share Posted October 21, 2015 I'm wondering if you/DH are handy at all? If not, repairs can really eat away at potential profit. Overall, though, I don't think it is a bad plan. I have been thinking about buying a house to reno and rent out to DD and some college roomies, which would later be a straight rental. I would be highly concerned about your description of DD as a slob. When "slobs" can rent somewhere, they generally remain slobs. This could cause bigger issues than you may realize. Suppose you *do* have vermin? What happens if the roommates say, "We're not paying for extermination! It's only because of Slobby Girl that this problem exists!" But Slobby Girl says, "Well, *I* shouldn't have to foot this whole bill myself. We're each a third invested and so you two need to put up a third!" 2 Quote Link to comment Share on other sites More sharing options...
Annie G Posted October 21, 2015 Share Posted October 21, 2015 I would buy it and rent it at close to fair market value to dd and her roommates. Then you can take the tax deductions on it as rental property. If you rent it too far below market value, it could complicate things tax wise. I wouldn't have her get a mortgage unless you want her to own the house, but it seems you don't want that. If you put money in for a down payment and she gets the mortgage, it really complicates things for both of you. What if she wants to move? What if you want to sell the house? Plus you wouldn't get the tax benefits of a rental house if she was on the mortgage. We live in an old house and we were landlords when we bought rental property that was old. I'd do it again if it meant helping out a kid who needed it but I wouldn't do it just to get a return on an investment. I'd rather take that cash and invest it, and pay tax on the capital gains. A decent financial advisor can help you choose investments that will minimize your tax liability. I'm so glad to hear that at least you made progress on part of the settlement! Did you have to pay those medical expenses out of your pocket? Yikes!!! 1 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 21, 2015 Author Share Posted October 21, 2015 Blue Cross (eventually) paid our medical expenses. Problem was, the accident happened on a rural road and we ended up in ERs and hospitals NOT in network, and then when hubby successfully contested Blue refusing to pay, they said they only had to pay what Medicaid would - mere pennies on the dollar. So all the hospitals and doctors etc. put liens on our settlement (from our own car insurance, remember we had gotten that uninsured motorist rider thank goodness). Then hubby got Blue Cross to agree that, yes, they did have to actually pay the out-of-network bills at in-network rates since, duh, people bleeding out while being airlifted to a trauma center can't exactly shop around for an in-network provider. Anyway, Blue Cross paid all the bills in full...then turned around and slapped their own lien on our settlement. Which as I noted hubby got them to remove and the actual physical checks were deposited by moi in the credit union almost a week ago. Our own car insurance covered out out-of-pocket medical etc. (my replacement trifocals, my replacement digital camera, etc.) What I want to be able to do, besides stick money in an IRA and whatever else there is, is use some of it to help each kid out a bit. While hubby and I were out of commission, those young adults took over everything, caring for their autistic brother (he was also in the crash, but in the back seat and went home same day merely shaken up, no injuries!!!!). Our oldest dd, who had a full-time job, postponed moving out to an apartment to be more available to help, and took over handling insurance etc. and arranging hospital beds etc. at home so hubby could return home. She had to take a lot of time off work, and as an hourly worker it cost her to do that. She had to grow up fast, they all did. So now while we will continue to help the two other non-autistic (I have four kids) with college, this dd, who is only taking cc classes part time to get a certificate in pastry making (off all things), she I'd like to help get into a small house one way or another since we will never be paying any real tuition for her. It would only take a little more than a fifth of our settlement, leaving ample to stick in investments. We'd get all or most of it back someday if we sold the little house (assuming we buy it ourselves instead of just giving her a down payment). 3 Quote Link to comment Share on other sites More sharing options...
mamakelly Posted October 21, 2015 Share Posted October 21, 2015 I'd buy the second house but rent it at market to a tenant. No way would I rent to a kid of mine who was a slob. Quote Link to comment Share on other sites More sharing options...
Catwoman Posted October 21, 2015 Share Posted October 21, 2015 My biggest concern is that it sounds like real estate values may not be going up in your area, so you could end up losing money on the house in the long run. Honestly, I know you want to help your kids, but it doesn't sound like the settlement is for a huge amount of money, so I think you should save it in a low-risk investment rather than spend it. If you said you had gotten a multi-million dollar settlement, I would be more encouraging, but in this case, the money you are getting doesn't sound like it will be enough to ensure your long term financial security, so I think you should be very cautious about spending it on a second home. If you really want to spend the money, can you sell your current home and use the settlement money to buy a new home (for you to live in, not your dd and her roommates) in cash? That would seem like a far better option than continuing to live in an old house that needs major repairs and buying a second home that may not appreciate in value. But again, if real estate values are declining in your area, I wouldn't purchase anything. 1 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 21, 2015 Author Share Posted October 21, 2015 Being practical is not my strong suite, nor is it fun ;-) maybe we can buy a second, smaller ranch house, rent to kids/students for a few years, then downsize into it once the youngest is out of college and we only have our adult son with autism with us. Right now this house is too full of adult kids, their stuff, the stuff we got stuck with when my in-laws passed, etc. etc (even down to hubby and I have BOXES of our college papers in the basement, like we will ever read decades old term papers again! Plus his collection of well-worn MAD magazine paperbacks, my 8mm silent film collection no one will ever want, etc.) and we are just not up to downsizing and tossing stuff yet. Hubby will always want to stay in this area as not only does he fear that the Cubs might win the Series w/o him if he left Illinois but also he is trying so hard to build up the dinky family law practice he took over when his dad died, I know he will never close it.* Plus son with autism is in a local day program, moving elsewhere means going back on a waitlist for a slot somewhere, so might as well stay in our current area. *His almost 90-year-old dad died just hours after discussing a brief with hubby in his hospital room. Family joked they should have buried him with a legal brief in his hands. I believe hubby will work to the end, too. I appreciate folks here helping me "think out loud" (type out loud?) about all this. 1 Quote Link to comment Share on other sites More sharing options...
Annie G Posted October 21, 2015 Share Posted October 21, 2015 After what you've been through it makes perfect sense to want to do something more fun than just tossing the money into an investment account. Love the idea of buying a ranch and then downsizing to that later. Or I guess you could go ahead and move into the ranch and leave your adult kids in the original house.g Totally understand not wanting to move your autistic son out of the area. But I think donkeys are going to fly before the Cubs win a World Series. Boy, I sure had hope this year, though! 1 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 22, 2015 Author Share Posted October 22, 2015 At least they took out the Cardinals! 1 Quote Link to comment Share on other sites More sharing options...
Annie G Posted October 22, 2015 Share Posted October 22, 2015 At least they took out the Cardinals! Oh my gosh! I know, right? Why are there so many Cardinals fans over here where I live???? Quote Link to comment Share on other sites More sharing options...
Scarlett Posted October 22, 2015 Share Posted October 22, 2015 I would do it. Quote Link to comment Share on other sites More sharing options...
Catwoman Posted October 22, 2015 Share Posted October 22, 2015 Being practical is not my strong suite, nor is it fun ;-) maybe we can buy a second, smaller ranch house, rent to kids/students for a few years, then downsize into it once the youngest is out of college and we only have our adult son with autism with us. Right now this house is too full of adult kids, their stuff, the stuff we got stuck with when my in-laws passed, etc. etc (even down to hubby and I have BOXES of our college papers in the basement, like we will ever read decades old term papers again! Plus his collection of well-worn MAD magazine paperbacks, my 8mm silent film collection no one will ever want, etc.) and we are just not up to downsizing and tossing stuff yet. Hubby will always want to stay in this area as not only does he fear that the Cubs might win the Series w/o him if he left Illinois but also he is trying so hard to build up the dinky family law practice he took over when his dad died, I know he will never close it.* Plus son with autism is in a local day program, moving elsewhere means going back on a waitlist for a slot somewhere, so might as well stay in our current area. *His almost 90-year-old dad died just hours after discussing a brief with hubby in his hospital room. Family joked they should have buried him with a legal brief in his hands. I believe hubby will work to the end, too. I appreciate folks here helping me "think out loud" (type out loud?) about all this. I'm having a bit of trouble understanding why you feel the need to spend this money. If nothing else, why not hold on to it for at least 6 months before you make a big decision like buying another house? I'm sorry to be such a nag, but we own a CPA firm and have seen several clients do exactly what you are thinking of doing -- spending a large lump sum of money because it seemed like they finally had a Big Chance to Do Something Great, and let's just say it hasn't always worked out as planned. More often than not, they ended up needing the money for something more important within a few years and ended up wishing they had saved it for a rainy day ( like an unexpected illness, sudden inability to work, etc.) instead of having spent it. If you already had a nice nest egg or were absolutely certain that the new house would appreciate substantially in value within a few years, I would feel a lot better about this. Renting a home to college kids is not a day at the beach. Will you be able to afford it if they don't pay their rent, yet refuse to move out? How about when they are calling you at 3:00am to tell you the toilet has stopped up yet again? What if they trash the place to a point well beyond what their security deposit will cover and you have to do a major remodel just to get it into decent enough condition to rent it out again? What about when the roof leaks or the furnace breaks -- will you be able to afford to immediately replace them? There are so many risks, and I am worried that you might be seeing the situation through rose-colored glasses. I do understand how you feel. I know my posts are no fun. But this is a big chunk of money and you are such a nice person that I don't want to see you jumping into a major purchase like a second home without really thinking it through and looking at all of the potential pitfalls. Okay, I'll stop nagging you now! :D 6 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 22, 2015 Author Share Posted October 22, 2015 Catwoman, you are the voice of reason I do need to hear! Nag away, please! Hubby is so busy seven days a week trying to deal with clients etc. that he has no time to discuss any of this (plus Cubs just broke his heart - again!) Thank-you! Note - I DID splurge and, using a coupon, went and got four nice new bath towels for us from Kohls! High living here! Guess I will hold off on the house for now ;-) 2 Quote Link to comment Share on other sites More sharing options...
Scarlett Posted October 22, 2015 Share Posted October 22, 2015 I would listen to cat. 3 Quote Link to comment Share on other sites More sharing options...
PrairieSong Posted October 22, 2015 Share Posted October 22, 2015 I would wait, too. We are long time landlords and it's not just a walk in the park. Also, I would really not want to rent to family or friends for numerous reasons. I would rather have your daughter and her friends rent from someone else. We don't rent to people we know. I would sit on that money and consider various options. 3 Quote Link to comment Share on other sites More sharing options...
Scarlett Posted October 22, 2015 Share Posted October 22, 2015 I would listen to cat. And yes obviously I just rapidly changed my tune....but see I have a problem being too conservative. I think I was projecting my desire to take a risk onto you. Waiting 6 months is great advise. 2 Quote Link to comment Share on other sites More sharing options...
Spryte Posted October 22, 2015 Share Posted October 22, 2015 I would not do it. Listen to catwoman. 1 Quote Link to comment Share on other sites More sharing options...
zoobie Posted October 22, 2015 Share Posted October 22, 2015 Catwoman, you are the voice of reason I do need to hear! Nag away, please! Hubby is so busy seven days a week trying to deal with clients etc. that he has no time to discuss any of this (plus Cubs just broke his heart - again!) Thank-you! Note - I DID splurge and, using a coupon, went and got four nice new bath towels for us from Kohls! High living here! Guess I will hold off on the house for now ;-) Cat is wise! We encourage people 1) not to tell ANYONE about the settlement and 2) wait 6 mos to make big decisions. Very rarely does anyone listen. ;) If you think this could be an option, I would spend the time researching and setting up the business side for your project. Then you can wait for the perfect property without having to scramble on the back end. :) P.S. Enjoy your towels! :lol: 2 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 22, 2015 Author Share Posted October 22, 2015 Last question - if we pay off dd's car (35% interest rate - she had her boss help her look for cars, we had no idea until she showed up that she had bought one, and at such a high interest rate!!!) for $7,000, then she no longer has an almost $300 per month car payment, and can afford more mortgage in a few months, right? Is this a good idea? Then we gift her a down payment, and she can buy her own small house. Quote Link to comment Share on other sites More sharing options...
kitten18 Posted October 22, 2015 Share Posted October 22, 2015 Last question - if we pay off dd's car (35% interest rate - she had her boss help her look for cars, we had no idea until she showed up that she had bought one, and at such a high interest rate!!!) for $7,000, then she no longer has an almost $300 per month car payment, and can afford more mortgage in a few months, right? Is this a good idea? Then we gift her a down payment, and she can buy her own small house.Has she tried refinancing the car? We got a loan on a used car through our bank and I think it's around 3.25% 1 Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 22, 2015 Author Share Posted October 22, 2015 Since this was her first real debt (no credit history at all) she had to take that high rate. I do not know if she can significantly reduce it, although she has made payments over a year now. I will ask her to look into it. 1 Quote Link to comment Share on other sites More sharing options...
trulycrabby Posted October 22, 2015 Share Posted October 22, 2015 We own commercial property, and I agree with cat. Keep that money for at least six months, maybe even a few years. Don't be in any rush to invest in anything. 1 Quote Link to comment Share on other sites More sharing options...
Annie G Posted October 22, 2015 Share Posted October 22, 2015 Last question - if we pay off dd's car (35% interest rate - she had her boss help her look for cars, we had no idea until she showed up that she had bought one, and at such a high interest rate!!!) for $7,000, then she no longer has an almost $300 per month car payment, and can afford more mortgage in a few months, right? Is this a good idea? Then we gift her a down payment, and she can buy her own small house. I would definitely pay off that car for her, or at least loan her the money interest free. That's a crazy interest rate. If she's considering a mortgage, I'd urge her to create a credit karma account. The FICO score they estimate isn't perfect but our experience has been it's pretty close. It also helps her find ways to improve her credit rating. If her only credit is this car loan for a year, it might mean she doesn't have enough credit history to get a decent mortgage rate. Quote Link to comment Share on other sites More sharing options...
JFSinIL Posted October 22, 2015 Author Share Posted October 22, 2015 See, I do not want to pay off the car loan if it will mess up her getting a mortgage herself. She paid her rent at the first apartment on time for the past year, too. So she should have some sort of credit history by now, plus been at her job almost two years. Quote Link to comment Share on other sites More sharing options...
Catwoman Posted October 22, 2015 Share Posted October 22, 2015 See, I do not want to pay off the car loan if it will mess up her getting a mortgage herself. She paid her rent at the first apartment on time for the past year, too. So she should have some sort of credit history by now, plus been at her job almost two years. Has she checked her FICO score? Her credit may already be good enough to qualify for a mortgage. That auto loan rate is INSANE! I would definitely help her pay it off. Quote Link to comment Share on other sites More sharing options...
Annie G Posted October 22, 2015 Share Posted October 22, 2015 35% interest rate is too high to be paying just to build credit, though. Pay off the high rate loan and she can look for a credit union or other institution that won't gouge her. Even a small loan- pay off the car but have her take a small loan out on it. She could find a secured credit card that reports to the three agencies and build credit that way, too. Pay everything with the prepaid card. She probably has enough history to get an unsecured card, and that would be even better since she won't have to tie up her own funds. Paying it in full every month means no interest fees so it doesn't matter what the rate is on the card. I just can't stomach the thought of a kid paying 35% interest for a couple more years. Quote Link to comment Share on other sites More sharing options...
Catwoman Posted October 22, 2015 Share Posted October 22, 2015 Catwoman, you are the voice of reason I do need to hear! Nag away, please! Hubby is so busy seven days a week trying to deal with clients etc. that he has no time to discuss any of this (plus Cubs just broke his heart - again!) Thank-you! Note - I DID splurge and, using a coupon, went and got four nice new bath towels for us from Kohls! High living here! Guess I will hold off on the house for now ;-) Now I want new towels, too!!! :D 1 Quote Link to comment Share on other sites More sharing options...
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