The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: wooden_spoon on July 15, 2013, 08:13:56 PM
-
Hi everyone first poster here. I have another buy/sell dilemma although this is a little different than most.
My parents have a condo property that they are going to eventually give to me and my brother, so we need to decide what to do with it. It's worth about $800k in the DC suburbs, and mortgage-free!
Monthly costs (hate those condo fees!) are about $1500 total
Rent would come in at $4000, making a net $2500/ month.
$2500 on $800k is only 3.75% ROI, so seems like a no-brainer, right? But the kicker is that if we advised them to sell it, the money probably wouldn't come to us until inheritance time. Maybe we could convince them to pass through gifts here and there, but by and large we wouldn't get any and not sure we would be able to reliably tell them what to invest it in.
So, rent now and invest the cash (or pay down my current mortgage), or sell and try for better ROI (but not see it until 10-20 years down the road)? We are also interested in learning how to be landlords, so this could be an easy step into the market.
Thanks for the thoughts!
-
Unclear how they would convey the property title to you. If inherited, you get to use the stepped up basis to calculate the net income of the property when you sell which is a huge advantage. If they give it to you now, the basis would be the price they paid. If you buy it now, the basis would be your purchase price.
The 3.75% isn't the ROI, as you aren't including depreciation, maintenance, vacancy, nor capital appreciation.
edited to add a "what would I do" answer: Advise your parents to sell it. I think its a good time to sell in DC area. Invest proceeds in mutual funds. If they are eager to gift you money, or you need it, they can gift you each 14000 in 2013, and it is tax free to them. Consult a tax pro, but I think each parent could give a gift, each excluded from gift tax of up to 14K this year.