Hi, wondering if anyone can give me a few pros and cons regarding the renting or selling of a home based on the following scenario:
My parents are moving south to retire and are looking to sell our family house (which is paid off). However, i’d like to keep the house in the family as I grew up there and perhaps one day I would return to it (if not sell it). They have agreed to sell me the house for half its current value 200k (so that they can buy their new home). That’s still twice what they paid for it, so its amicable. (They also own another smaller house in the next town which they will rent out and I will eventually inherit, but don’t want to live in).
For me to afford this mortgage while saving for my own home, I would have to rent this property out. The location is terrific (rural, on the water) so I know that even if I decided to sell it down the road I will double if not triple my investment.
Here’s the catch:
-The house is in Ma. but I live in California.
-I am a year or two away from being able to purchase my own home (which will probably be at least 3x the amount of my parent’s home).
-I have no experience as a landlord and would not likely be able to travel back and forth more than 3-4 per year.
Given this and any other challenges i’m overlooking I’m trying to decide how much of a headache it is going to be to try and rent this out and keep it occupied and reasonably maintained. I’m not looking for it to be without hassle, however, not knowing all the variables in renting out property, I don’t want to find out that its not realistic. It has been suggested that I look into property management firms, but I’m not certain how trusted this alternative is. My parents were skeptical but I’m trying to find a good argument for doing it.
I’ve used a property manager even for a home that was within driving distance from my primary residence. To me… it was worth every penny, more so if the home had been out of state.
For one set rate a good property manager will advertise, screen the renters, collect deposits, collect rent, send the handyman in for repairs, monitor the exterior with drive-bys and do the legal-work for evictions and charge it against the renter’s deposit. Don’t settle for any property manager that hasn’t got all these services included in their contract with you.
With a good PM you could realistically only visit your property maybe once a year, if that, since you can’t enter the property except for repairs when it’s being occupied. Just be careful about PM’s who push heavily for Section 8 housing subsidized renters. With the Govt. paying most or all of the rent it’s almost a sure bet the people living in it will not take much ownership in caring for your home. The PM will say it’s a guaranteed check each month, which it is. But unless you get a Section 8 Renter whose appreciative they have a roof over their head… bet on their unemployed and recently paroled relatives coming to crash at your rented out crib.
Stick with pre-screened, background-checked renters who have good credit and steady employment, good referrals and the PM option should work out just find for you until you’re ready to take possession or sell the property.
Thank you so much, this is very inspiring. One interesting note is that they (my parents) are renting the smaller house via section 8 and they are having better luck with this (collecting timely rent, repairs, etc) than when they rented to general public (although they didn’t use a PM), but I would agree that this is probably the exception…
One other question - is there a way to research how the market is for home rentals in a certain area. Obviously, the biggest concern would be keeping the place occupied at a competative rate.
Where in Mass is the house located?
I am in metrowest and have had good luck so far with sec 8 tenants.
Depending on the number of bedrooms and location you can expect to get anywhere between 1,200 and 2,000 a month. The going rate for a sec 8 four bedroom is $1,800.
I agree with enrico (except sect 8 as I have no expereince) as I also use a PM for some homes within driving distance. A good PM should be able to tell you right off the bat how much they can get in rent as they should know the market.
There are two other issues that come to mind. First, what is your goal? I realize that parting with the house you grew up in a bit difficult (my parents just sold last year after 38 yr.), but you need to keep focused on doing this for investment motivations. You shoudl realize that if you rent it out for an extended period of time, it will definately be rough around the edges if and when you might ever move back. Second, the fact that your parents sold (or will sell) the house to your for roughly 50% of FMV has tax implications. Technically the other 50% is taxable as a gift (minus the $11k/per. exclusion). You might be better off to do an installment sale or have them carry a note and then fogive $22k/yr. You should consult an enrolled agent (EA) or other tax professional.
MB in Calif.
P.S. An EA is licensed tax professional analogus to an accountant being a CPA.
As to finding out the “going rate” for your neighborhood… ask around with your friends if any of them is a real estate agent. They can pull up the MLS listings for Active Leases in that neighborhood and give you an average rental rate for that area.