Author Topic: Myself as landlord/myself as tenant  (Read 1542 times)

calimom

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Myself as landlord/myself as tenant
« on: December 26, 2015, 08:01:10 PM »
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.



electriceagle

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Re: Myself as landlord/myself as tenant
« Reply #1 on: December 26, 2015, 10:12:31 PM »
The simplest approach would be to depreciate your portion of the building.

Charging your own business rent may require that you follow rules about what represents "reasonable" rent. In some jurisdictions, you may have to pay commercial rent tax.

zephyr911

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Re: Myself as landlord/myself as tenant
« Reply #2 on: December 28, 2015, 02:27:34 PM »
What kind of rate can you get if you finance it? And how long till you plan on retiring?
I'm leveraging all my real estate... too easy to make money with money, no point paying off debt at an APR that amounts to 0-1% after inflation. Enough equity to get the best rate and avoid PMI is all you need, and park the other $75-80K in stocks.
I am not a cog. I am an organizational lubricant.

calimom

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Re: Myself as landlord/myself as tenant
« Reply #3 on: February 06, 2016, 08:28:50 PM »
Update

I ended up purchasing this unit for $94.000. Wiping out my money market, checking account, flip money and CDs, I paid cash.  Nice not to have a mortgage.  My business will "pay" me $900.00 per month which will cover the $74 per month HOA and taxes.  At the moment I have no cash reserves, but will build that up over  the next few months and then will be deposited into a taxable account, which I'm working on transferring my Morningstar over to a Vanguard.

The inspection revealed a new coating on the roof was needed, which the seller has agreed to take care of. (we are having a rainy winter!) And he fixed the electrical panel and painted the unit before I took occupancy.

The move was today!  My part time employee and her husband helped with the move from my garage to the new place.  Several friends showed up with a truck and put up shelving units and we set up the office area.  Just when I was ready to order a couple of pizzas for the hardworking help, my aunt arrived with a platter of sandwiches and a jug of iced tea.  I'm tired but happy tonight.

And it's funny, the business is rising to the occasion of the new expense needed.  I have  a home staging client set up for the next week; two very qualified appointment for new accounts for the main company as well.  The location of this place works really well for the rest of my life.  It's situated between my kids' schools, I can pick up DD, she can do homework and play while DS is in swim practice.  And I'm kind of embracing the idea of "going to work", and the garage at home can be the garage again.

zephyr911

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Re: Myself as landlord/myself as tenant
« Reply #4 on: February 07, 2016, 05:41:45 PM »
Sounds great! Congrats!
I am not a cog. I am an organizational lubricant.

Bearded Man

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Re: Myself as landlord/myself as tenant
« Reply #5 on: February 08, 2016, 07:34:43 AM »
Ugh, will be glad to sell my house in the HOA when the time comes. Glad I canceled the contract for another Hoa home.