Hello All,
First time poster - Long time lurker.
I have an interesting decision to make. This decision has long term financial repercussions that my brain is too small to figure out.
Situation: I just bought a $1.1m house with a large separate 2 and 1 granny unit. Essentially two houses on one large property. My mortgage balance is roughly $465k. My monthly PITI is about $3750/month. The rental income brings in $1800/month.
I have two options.
Option 1. Live in the main house, and continue to rent the granny. Over time and as I fix it up it will continue to rise in rental value. I can see with considerable upgrades it renting for $2,500 within 5 years, and continue to go up in the years beyond. Everything I have is basically in this house and with my retirement situation I will heavily depend on this being a money maker that gives me max payback.
Pros and cons for option 1. Pros: Rental value goes up, my monthly cost goes down. Over time my rental will do more and more work in paying off my mortgage, and my monthly out of pocket will go down. Cons. I will have to take care of the granny unit and be a landlord.
Option 2. More complicated. My parents have decided they want to move to california and live near me. They are retired and can not afford the rent of granny now. Their current house is paid off and they are considering selling it and using the cash to pay down my mortgage considerably (possible pay down $300k) until the new monthly PITI matches my current out of pocket after my rental income.
Pros and cons for option 2. Pros: Parents pay down mortgage, less interest expense over life of the loan. $185k saved in interest, by my rough math. Parents make improvements and maintain the property. Free childcare. Cons: I can never charge them rent as long as they live there, thus my out of pocket will be the same for 30 years. Until the loan is paid off or they move into a home or something. Other con is I will be responsible for their home situation. Essentially, if they sell their house and put their money into my house then they put themsleves in a vulnerable situation. For example if I get a divorce. Or realize I need to sell. They would not have enough cash to buy another house in the area.
Overall, I am not sure what is best for all of us. The primary goal is for them to be able to move to the most expensive state in the world. But I want this property to work for me and become increasingly more affordable for to live in and eventual make money for me. All thoughts are welcomed. Thanks