Backstory
I live in a rural suburban community of about 100 houses on mostly 2.5 acre lots. Some are on 5 acre lots. There is a 9 hole golf course and clubhouse, which has been home to 4 different restaurants since we've lived here. There is an HOA, with minimal dues, and minimal benefit. For several years, I've run a small business from my house. I have about 40 clients, and 2 part time employees.
This past summer, a neighbor started making noise and showing up at HOA meetings about a number of businesses operating from our community. He recently retired and took note of comings and goings of what turned out to be 7 small businesses. I wasn't at the top of his shit-list, but up there, with the 2 employees coming and going, a large truck making weekly deliveries, and regular UPS and FedEx drop-offs. Buried deep in the CC&Rs is a clause about operating a commercial enterprise in our HOA. Bad me, I get it, I own it. The other business owners and I did appeal to the Board, but were given basically a 6 month timeframe to cease and desist doing business from our homes.
Ironically, it comes at a time when I was outgrowing the garage I operate my interior plantscape firm out of. In addition to that business, I've also been delving into some home-staging projects, and have collected some inventory for that, and would like to expand that new business as well, as I see opportunity there. It would be nice to actually use the garage for other things, like occasionally parking my car there in inclement weather, and having the ping pong table used for games and tournaments. So I'm trying to approach this with solution based thinking.
Life Situation
Widowed mom, late 30s, 3 kids.
Basic financials are:
$117,000 SEP IRA
$4600 ROTH (this is new-ish)
$153,000 Morningstar fund (primarily proceeds from late husband's life insurance. Moving to Vanguard after first of year)
$12,000 Ameriprise CDs
$14,000 Apple stock (former employer of late husband)
$44,000 in Money Market at Credit Union
My house, according to Zillow is worth around $313,000, with $187,00 still owed. It's my only debt.
In addition, I own outright half of a duplex currently valued at $240,000. My cousin and her husband and I are partners in this. I realize $700 a month after expenses. We have recently completed our second flip of a condo and my share of the proceeds will be about $30.000. We had been considering buying and improving a 4 plex before my current situation arose.
In looking at options I thought seriously about a more rural property on 8 acres that was listed for $550,000. There was a main house of 1700 SF, a rental property on it which could have brought in about $900 per month. There was a swimming pool and orchard. Attractively, there was a Quonset hut where my business could have run from and of course no HOA. But, the place needed work, it was about 10 miles further out, and my youngest child would have had to chance schools. Plus the thought of a residential move was exhausting.
I considered several rental commercial properties, but most didn't work due to location, size, or price.
Which leads me to:
The Potential Purchase
One of the businesses being forced to move (a custom furniture builder) is purchasing a commercial condo unit. There are 3 other units for sale in the 6 unit property. Each is 900 SF which works for me, not too big, not too small. Asking price per unit is $99,500. I'm not yet sure of taxes, and am collecting data about heating/cooling and the condo HOA which is being formed. The seller is retaining a unit and my furniture building neighbors another. The seller bought the 1980s era complex 5 years ago for $400,000, so is realizing a profit for sure, but he seems like a nice guy and a smart businessman. This really seems like my best option.
Some Questions
1)What I'd like to do, is offer $95,000 and pay cash for the unit. I would use my liquid capital, the gains from our flip and most likely cash out the Ameriprise CDs. I would prefer no mortgage. Does this make sense?
2)Tax-wise, what's more prudent? To charge myself rent of, say $850 per month and declare it as income? My business could afford that, in lieu of the raise to myself that is due to happen in any case. Or, simply keep it as a static real estate investment?
I appreciate anyone's thoughts and feedback on this, if you've read this far! While I can handle comments like "Jesus, you seem like a financial idiot, Calimom", more constructive commentary is probably the most welcome.
