Author Topic: Newbie landlording questions / case study  (Read 1106 times)

ditheca

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Newbie landlording questions / case study
« on: March 11, 2016, 12:15:55 PM »
I spent the last hour reading about landlord-ing, but I still don't have a good feel for my own situation.

I have a nice (old) $100k house, and am moving 14 hours away.  My father in-law (single) has been living with us, and would like to continue to live in the house, and possibly invite his parents to stay there too.  I feel like I have a good property and a stable tenant/buyer, and should look into landlording instead of selling the house and kicking family out on the curb.  I don't have much interest in becoming a full time landlord and building an empire as some of you have done. If he ever moves on, I'd put the place up for sale in a heartbeat.

He'd like to buy it from us, but doesn't have enough money for a down payment (without plundering the last of his 401k, which I've advised him not to do) and has questionable credit after a medical-related bankruptcy.  I don't have the cash flow to sell it to him with owner financing.  His budget can handle payments of up to $700/month, and he's had a steady job for 20+ years.

I have 28% equity and pay $810 a month in mortage, property tax, and insurance.  As a landlord, my property tax would increase by $50/month, and my insurance would probably cost more too.  I anticipate my total monthly cost of ownership would be about $155 interest + 250 tax + 50 insurance = $450 before maintenance, and the opportunity cost of not investing my equity in Vanguard.

  • Do I need to inform my mortgage company that I no longer reside in the home?  Will that raise my rates or force me to refinance the home?
  • Am I in a good position to rent the house to him?  It seems like $650-700/mo would cover my costs, but not leave enough left over for him to work towards owning the property.
  • Could a rental agreement make him responsible for maintenance? Can I employ him as the property manager while he lives there? He already does all of our home maintenance now, while we're living together.
  • Do any of the answers above change if we have a rent-to-own contract?

Thanks!

leighb

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Re: Newbie landlording questions / case study
« Reply #1 on: March 13, 2016, 10:37:05 AM »
I understand that you want to do what's right by your family. That's good of you. However, I think you would be wise not to mix family with business. At least not as it was described.

First, your monthly expenses are more than what he can pay in rent. Therefore, you would have negative cash flow. That's not anyone's fault. It's more a matter of this house not making a good first rental.

As for using him as maintenance. If you are decreasing rent owed by doing this, you will still need to claim the original rent as income.

Also as you pointed out there's not a lot of room for him to work towards ownership either, so is this really going to set him up to succeed?

Lastly, this will wear on your relationship and complicate matters when things go wrong. And things will go wrong.  It's hard enough evicting a tenant or feeling like your landlord is cheating you without tossing family into the mix. 

Good Luck.