i'm curious if anyone has turned their home into a rental property? Is it a pain? Is it worth it financially with capital gains tax?
Hubby is looking for a new job and we are hoping to leave Chicago. Our town is currently moving to a strong buyers market, and we most likely would get around what we paid for our place 10 years ago. We've put a good 60k into this place, so we are trying to decide if we want to cut our losses or just hang on to the house. We have a super cheap interest rate, and we should be able to rent our house for total cost plus 300-400 extra for upkeep. Depending on where we move-I'm hoping Michigan- we can afford a 20% downpayment on another house while keeping our current one. If we move to Oregon -where hubby wants to go-it would take a few years before we could buy with a 20% downpayment. Ideally, we buy some land and build our dream home, so I'd be fine with renting for a few years. And even if we go to Michigan, we will rent for at least a year to give us a sense of where we might like to buy.
FYI, a neighbor has his own property management company, and I'd hire him to look over things. My brother and father are in the area, so I could ask them to look out for things. I already know I'd have a landscape company take care of my gardens-I spent a lot on my gardens, and I'd like to keep them up for resale at a later time. I could also ask my mom to do some gardening for me. They will be downsizing soon -I'm going to try to convince them to rent our place- and she may like to have a yard to dig in.
I wouldn't want to have that over my head. If I moved, I would not want to have ANY ties to my old place. It is just a hassle.
Do you own it outright?
If so, I'd say try it for a year. WITH the knowledge that any renters likely will not care for it the same way you do. And knowing that, plan for MORE money out the door to return it to normal when you do decide to sell.
Otherwise, if you're going to carry a mortgage on it AND buy another home? NO. Bad idea. Especially if you can't pay off that mortgage very aggressively.
Rental properties with a profit of a few hundred dollars per month=disaster when something goes wrong. And something always goes wrong.
Unless you have a PILE of liquid money (which I would assume you don't based on the comments about having a 20% down payment) I would not attempt wrangling two mortgages with such small profit margin and high expectations of maintaining the property in pristine condition.
AND you can't base your decision on 100% occupancy every year. People come and people go. Every month the house is empty will skinny that margin further. Oh and don't forget property taxes, etc.
Your mom? Honestly, if you can't afford to allow her to live there rent free? Bad idea. Never a good idea to do business with family.
You might have to accept and swallow the fact that you've o erimproved your home.
When we moved from Colorado to Pennsylvania, we kept our CO house and rented it out. Every year we said "Is THIS the year to sell?" And every year we decided to keep it "just a bit longer". It's been over 6 years and we STILL own it and rent it out. The Denver rental market is a bit insane right now. We're making so much on the property each month, we can hardly believe it. To say it's been a great financial decision to keep it is a total understatement.
So while it can be a pain to find the right tenants and maintain a property so far away, it's been worth it. We have a realtor that we use to find tenants and we pay a neighbor to keep an eye out on the property for us. Tenants know they can go to him with any questions, etc. My husband has become an expert rent/lease negotiator. We also have a list of handymen, etc that we can call for our tenants if they need anything. At this point, we've been doing it for so long, the place is practically running itself.
We've decided never to sell. In fact, once the kids are all done with school here in PA, we'll probably move back. When we do, we'll keep the PA house and rent it out.
When you rent your home, you would have to claim the rent as income. But you would be able to deduct upkeep items as expenses as well as the current mortgage and taxes. Unless you make a lot of income from rent, there would be no capital gains tax. You might consider talking to an accountant just to get an idea how to handle it.
My brother rents his house to a friend and it's the best situation I have ever seen. I think his friend takes better care than my brother did! But I wouldn't want to do it, especially if I wasn't local. I have seen what other renters have done - no thanks!
We did this with our first home.
We live about 4 hrs away from it so we have a property manager take care of it and the renters.
Our mortgage was paid off on it years ago (we only have a mortgage on our 2nd house) so renting it out helps pay our current mortgage, property taxes, and maintenance.
If you rent just make sure you do a background check on the potential renters and make sure they have a good credit history. I know of people that have gotten bad renters that don't pay and it takes months to evict them.
It is funny your area is becoming a buyers market. For the first time in awhile my area finally seems to be a sellers market and houses that were on and off the market (owners not being able to sell back in 2012 or 2013) are now flying off the market.
I think you made a good point about selling for the same price as 10 years ago though (2005). I have a feeling these house are selling at 2002 or 2003 prices.
I would rent it for a year or 2 and see how you feel. It could be a great home sell for retirement or it could be more hassle than it is worth.
If you can rent to your mom and it would be equitable then I'd hope for you to have that as your options. What an awesome thing for both of you!
If you have that much family around and they are WILLING to drop everything for a renter who calls in the middle of the night that a pipe broke and their things are getting wet...then that can be an option. I would much rather pay a family member to do the managing and take that responsibility that to pay someone else and have my family do the stuff for free or a payment.
It sounds like you have a really nice home and want to keep it nice. You do know renters don't treat a home like you would treat it though and that's just a sad fact of life.
We had a home once that was lease purchase. The man had been a city inspector and when he'd find a home that had good bones but was condemable he'd bid on it and buy them when he did the highest bid. He had over 50 homes in our town and this was his retirement plan.
He would go in and rehab them and fix all the issues with them. Rebuild support walls, trusses, basement walls,etc....he was a very talented carpenter.
Anyway. When we paid our down payment we signed a contract lease for deed or something like that.
We agreed on that contract to pay $XXX.xx per month for 20 years. Period. No ups, no downs. No interest rates or anything. Our signatures were all notarized and he filed the papers at the courthouse and our names were on the deed with a lien against the home for the purchase price.
IF IF IF the house burned down or a tornado hit what ever the insurance paid went to him first to pay the amount owed then we got the rest to pay towards rebuilding. He also carried his own personal insurance on all the homes he owned just in case the owners were lax in their own insurance.
Yes, we paid a lot more than the amount of the home if it was for sale next door. If you buy a home you might buy it for $500K but after 20, 25, or 30 years you can add it up to what you really paid and it's a lot more.
Here's how it went.
We paid $1000 down payment then $500 per month for 20 years. $6000 per year for 20 years or $120K.
The house next to this one sold for $75K. I don't know how much it would it would cost them after making $575 monthly payments for 25 years. But I imagine it wouldn't be a lot different, they'd pay more with all the interest and fees too.
We always had the option to buy the house at market value too. We didn't qualify for that at that time though.
So if you wanted to be out from under it a lease option is an option. IF IF IF you get it all researched and understand any pitfalls. If they want out they simply move out. Then house goes back to you and you take their name off. Simple.
Isn't capital gains only applicable when you sell it?
You have to account for the rent as income on taxes, I don't know what you are asking about Capital Gaines tax?
~We moved across country & got renters in our home, it's been great! They are paying our mortgage for us! It's a great house in a great neighborhood, I'm not ready to sell. Thankfully we haven't had much issues...I mean stuff brakes & we have to fix it but it's our house & our investment. It's worth it to us. Do what feels best to you & yours!
