How should I buy my aunts house?

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1130Super
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How should I buy my aunts house?

Post by 1130Super »

Current situation, I’m 27 years old 65k income
My home is worth $270k-$280k Current mortgage 130k at 2.75% 12 years left PITI $1380
15k ER fund, 31k in Roth IRA, at 62/yo $900 per month pension so far (increases $190 per year of service)
No other debts
I live In Minneapolis, 2 hours away from girlfriend, so we only see each other on weekends but want to live together.

My aunt is selling her house on 30 acres. It’s worth about 170k and in a rural area. It’s close to a lot of my family, GF and, her family. She would be selling it sometime in the next year.

Option 1—I could refinance into a 30 Year loan and pull out $85k put my house up for rent for $1700-$1800, I’d about break even on rental. I’d use 85k to put down on aunts house

Option 2— sell current house use proceeds to put down on aunts house I’d probably net 110k from sale.

GF is living in an apartment paying $600 for rent and utilities, so she can afford to pitch in $600 month plus other shared expenses

I am also about to get 32k from sale of another piece of property I own, I close in about 2 weeks
Last edited by 1130Super on Wed Dec 04, 2019 8:58 am, edited 4 times in total.
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Nate79
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Re: How should I buy my aunts house?

Post by Nate79 »

Definately option 2. Option 1 sounds like a horrible idea.
Dottie57
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Re: How should I buy my aunts house?

Post by Dottie57 »

How would the move affect your job and commute to job? If you work remotely, how is internet service at Aunt’s house?

If you go ahead and buy, take option 2.
NotWhoYouThink
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Re: How should I buy my aunts house?

Post by NotWhoYouThink »

Option 3:
Move to a house near your girlfriend that does not come with 30 acres to take care of.

Why buy your aunt's house at all? Is there something special about it that you value and can't otherwise get? Is she willing to sell it to you for 25% off to keep it in the family?
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

20 of the 30 acres are currently leased to Neighbor to grow corn plus use of poll barn for $4000 a year, it’s family land I would be 5th generation, I wouldn’t say 25% off market value, but I’d get it 10-15% lower than market value
Last edited by 1130Super on Wed Dec 04, 2019 8:59 am, edited 4 times in total.
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FlyAF
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Re: How should I buy my aunts house?

Post by FlyAF »

Another vote for option 3.
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JoeRetire
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Re: How should I buy my aunts house?

Post by JoeRetire »

1130Super wrote: Tue Dec 03, 2019 4:49 pm My home is worth $270k-$280k Current mortgage 130k at 2.75% 12 years left PITI $1380

My aunt is selling her house on 30 acres. It’s worth about 170k

Option 1—I could refinance into a 30 Year loan and pull out $85k put my house up for rent for $1700-$1800, I’d about break even on rental. I’d use 85k to put down on aunts house

Option 2— sell current house use proceeds to put down on aunts house I’d probably net 110k from sale.

GF is living in an apartment paying $600 for rent and utilities, so she can afford to pitch in $600 month plus other shared expenses
Option 2 is the best way, assuming you could get an affordable mortgage without depending on any money from your girlfriend.
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Katietsu
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Re: How should I buy my aunts house?

Post by Katietsu »

From a cost perspective, you are actually proposing lowering your housing cost. So, the answer to your question seems to be related to variables not discusses in the post. Job, commute, desired lifestyle, relationship.... It seems like these are the considerations you should be focused on.
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CAsage
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Re: How should I buy my aunts house?

Post by CAsage »

Future work options for you are key consideration as well. Think hard about whether you would ever want to move back to big city current house. If there is any chance of that .... I'm not opposed to option 1. Yes, there are issues being a landlord, but depending on price appreciation, it might keep your future options open. As well as the future issues of Girlfriend 6.0 being promoted to Wife 1.0 and then having little apps running around - schools etc? I'm only tossing that in because any 27 y.o. who has already predicted a pension is clearly thinking long term! :sharebeer
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

Nate79 wrote: Tue Dec 03, 2019 5:00 pm Definately option 2. Option 1 sounds like a horrible idea.
I think horrible is kind of harsh, my new primary mortgage would be like 60k, the idea would be in a few years to have a paid off primary and a rental that pays for it self
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

CAsage wrote: Tue Dec 03, 2019 5:20 pm Future work options for you are key consideration as well. Think hard about whether you would ever want to move back to big city current house. If there is any chance of that .... I'm not opposed to option 1. Yes, there are issues being a landlord, but depending on price appreciation, it might keep your future options open. As well as the future issues of Girlfriend 6.0 being promoted to Wife 1.0 and then having little apps running around - schools etc? I'm only tossing that in because any 27 y.o. who has already predicted a pension is clearly thinking long term! :sharebeer

That’s funny that you say that because she is my 6th girlfriend 😂 She’s the best women I’ve ever met, just want to live together for a year before we tie the knot and have kiddos
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Re: How should I buy my aunts house?

Post by a_movable_life »

CAsage wrote: Tue Dec 03, 2019 5:20 pm As well as the future issues of Girlfriend 6.0 being promoted to Wife 1.0 and then having little apps running around
Wow have not thought of that joke in years. I don't think that would fly in today's environment.

To the OP: We get a few of these posts every year. So the search function can help get you some insights from people wiser than I.

1. How are the feelings about the sale with Aunt's Children (direct descendants), any of her siblings, other family members, Aunt's boyfriend who expects to keep living there, etc. who were "Counting on" or "Entitled to" a slice of that property when Auntie passed or it was sold.
2. See #1 in regards to distribution of assets in a will. Especially if one of the Aunt's or if childless one of your siblings or another 1st degree cousin has a substance abuse or spending problem. Your 10% off can be misconstrued as a "Sweetheart deal" by another jealous family member.
3. Is the property well maintained? Especially Septic (could be 20-30K expense), furnace, roof, etc.
4. Are their "Expectations" that you cannot sell the property without "Family approval?" Or giving certain people like Auntie's direct descendants get first right of refusal. Formally or informally. Think of that farmer wants to buy the 20 acres, or a developer wants 35 of them.
5. That Aunties kids or other people have "Rights" to move in, stay for a few months while they "Get back on their feet..." This can happen more with vacation properties like a summer house.
6. That you have to maintain certain traditions like hosting a giant Thanksgiving, Christmas.
7. If you and your Wife divorce and the house is sold as part of the division of assets. I hope it does not happen.
8. If you or she gets a job offer that you can't refuse. Like a FAANG calls you. Then what? See #4.

Best of luck
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

a_movable_life wrote: Tue Dec 03, 2019 5:50 pm
CAsage wrote: Tue Dec 03, 2019 5:20 pm As well as the future issues of Girlfriend 6.0 being promoted to Wife 1.0 and then having little apps running around
Wow have not thought of that joke in years. I don't think that would fly in today's environment.

To the OP: We get a few of these posts every year. So the search function can help get you some insights from people wiser than I.

1. How are the feelings about the sale with Aunt's Children (direct descendants), any of her siblings, other family members, Aunt's boyfriend who expects to keep living there, etc. who were "Counting on" or "Entitled to" a slice of that property when Auntie passed or it was sold.
2. See #1 in regards to distribution of assets in a will. Especially if one of the Aunt's or if childless one of your siblings or another 1st degree cousin has a substance abuse or spending problem. Your 10% off can be misconstrued as a "Sweetheart deal" by another jealous family member.
3. Is the property well maintained? Especially Septic (could be 20-30K expense), furnace, roof, etc.
4. Are their "Expectations" that you cannot sell the property without "Family approval?" Or giving certain people like Auntie's direct descendants get first right of refusal. Formally or informally. Think of that farmer wants to buy the 20 acres, or a developer wants 35 of them.
5. That Aunties kids or other people have "Rights" to move in, stay for a few months while they "Get back on their feet..." This can happen more with vacation properties like a summer house.
6. That you have to maintain certain traditions like hosting a giant Thanksgiving, Christmas.
7. If you and your Wife divorce and the house is sold as part of the division of assets. I hope it does not happen.
8. If you or she gets a job offer that you can't refuse. Like a FAANG calls you. Then what? See #4.

Best of luck
10%-15% isn’t really that sweetheart of a deal if you think of all the costs and fees and work and time to sell a house. My aunt found out of my Future plans to move in this area at a thanksgiving party and came forward with the idea to sell me her house, Both her kids (my cousins) are in no position or interest to buy it. We are all really close and they love the idea, my aunt is moving to husbands house 1/2 mile down road. I would love to host thanksgiving and Christmas so no issues with that.

As for #4 this would be my forever home, but if I ever had to sell I’d have to sell to family or I wouldn’t feel right
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Re: How should I buy my aunts house?

Post by a_movable_life »

That is why I said "Misconstrued." I don't know your family. I do know mine, and the one my Sister married into, and a couple of my friends who have been moderately successful. There sometimes is the family member who "Keeps score." Who gives how much at the weddings, etc. Who got what when so and so died. Gossips.

Even if you are paying 10% under market someone may say "Well he got a deal since Auntie did not need to pay the 6% to the broker..." or "They coulda gotta 40-50K more for that. That's cause he's Benny's Boy and Auntie always played favorites..." Again it does not matter that you have three honest arms length appraisals, etc. It's something to be aware of I hope you don't go through it. Families get weird when their is money involved.

The good news is nobody is asking you to split ownership 2,3,or more ways.

"if I ever had to sell I’d have to sell to family or I wouldn’t feel right" Which right there means you are going to own something you can never unload easily. Again I wish you two the best of luck, and if you get divorced a Judge can force the sale of that home on the open market. She is not going to be waiting 6 months maybe if your cousin can get the down-payment and clean up his credit up.

Also I'm 40 now, I thought at 27 I was going to be in the same spot forever, then things changed. I thought at 35-36 I would be in the same spot forever and things changed. It sounds like you have deep roots where you are going to buy, but things change.

Would you buy this house and land as a clean arms length deal with a solid exit strategy? You already stated you were considering renting your existing property break even so that is concerning about your knowledge of how the rental math works in practice.

Again I wish you best of luck.
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Re: How should I buy my aunts house?

Post by Broken Man 1999 »

Always do business with your head, not your heart!

Always! Always! Always!

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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

I think this topic has veered off course I didn’t intend for this to be About if I should buy my aunts house, I am buying it my question is about the best way to do that.
It’s more tax efficient to finance as much as a rental as possible since interest is tax deductible (even if I take standard deduction).

Refinace current loan of 130k into new loan 215k-225k pull out let’s say 85k
Use 85k+30k to put down and get tiny mortgage of 55k
Sell house use proceeds of 115k-120k + 30k to have 25k-30k mortgage (I don’t even know if that’s possible to get a mortgage that small) Probably be better to get a first position home-equity loan

Option one PITI on rental would be about $1300 tack on $330 a month of home for maintenance and repairs. (1.5% of home value a year) I end up with about a $1630 cost to own. I could probably rent for $1800 and set aside $170 a month for taxes

Both options I would be staying with current company and just transferring to another location

I like the idea of not having any mortgage or debt in a few years, but then again I also like the idea of a paid off rental someday being one peg of my retirement chair
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Re: How should I buy my aunts house?

Post by LittleMaggieMae »

Why not keep the current mortgage on your house (no refi). Get a mortgage for your Aunt's house (maybe put down 20% -- use the money you mentioned you would have from the sale of another property as the down payment). Then rent out your old house for $1700 or $1800.

Your old house pays for itself and you have a new lower mortgage payment on your new house.
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

LittleMaggieMae wrote: Wed Dec 04, 2019 1:34 am Why not keep the current mortgage on your house (no refi). Get a mortgage for your Aunt's house (maybe put down 20% -- use the money you mentioned you would have from the sale of another property as the down payment). Then rent out your old house for $1700 or $1800.

Your old house pays for itself and you have a new lower mortgage payment on your new house.
I’ve thought about that and ran the numbers It would be more tax efficient to refi, I’m currently 3 1/2 years in on a 15 year loan if I refinanced in a 30 year and pulled the money out my payment would be about the same, also I would feel more comfortable with the combined payments being lower if I went that route
Goal33
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Re: How should I buy my aunts house?

Post by Goal33 »

Will your house sell quick? You might want the cash out AND to try and sell it.
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Re: How should I buy my aunts house?

Post by JupiterJones »

1130Super wrote: Wed Dec 04, 2019 1:22 am I think this topic has veered off course I didn’t intend for this to be About if I should buy my aunts house, I am buying it my question is about the best way to do that.
Ha! Yeah, welcome to Bogleheads. We can usually be relied on to answer the "question behind the question" rather than the one that's actually being asked.

So first, I will annoyingly do the same thing. If this exact same house were on the market for the exact same price, but it was not your aunt's house, would you still be keen on buying it? It does seem to me that you might be making a huge financial decision based solely on the coincidence that your aunt is selling her house, and no so much on any particular independent need to buy a house of that size, in that location, at that price, at this point in your life.

I could be wrong, naturally. But I think many of us here are in agreement that you should really make super-sure that I am wrong before you go forward with this.

Okay, with that out of the way... I would not recommend becoming a landlord "by accident". That is, simply because you used to own the place but now don't, so you're sort of renting it because, well, gee, why not? Ideally you would get into rental real estate "on purpose", because you've decided that's a business you want to get into, and you buy property intentionally, for that very reason. (But even then, I wouldn't own a rental property that was two hours away. Ugh.)

Lastly, there's another option you might not have considered that you could throw into your decision matrix: I wonder if your aunt would let you rent from her? Or rent with an option to buy or something? That commits you a lot less to the situation and gives you more future flexibility.
Stay on target...
daheld
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Re: How should I buy my aunts house?

Post by daheld »

I'm from a rural area and understand why you'd want to do this. A lot of folks telling you this is a terrible idea probably have no idea how much land 30 acres is. Add to that the fact that 2/3 of the land is generating some income for you and you don't even have to take care of it, and you're down to actually managing 10 acres, which is not bad. I'm guessing you'd only regularly mow a small part while bush hogging the majority.

Nobody on this forum can tell you whether you're able to take care of a piece of ground, so disregard that nonsense.

Financially, go for option 2. I had a very similar dilemma and am so glad I decided to just buy a house instead of buying a house and being a landlord while starting a family.
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Re: How should I buy my aunts house?

Post by junior »

What's the point of breaking even on a rental? Surely you're taking the risk the tenant will smash the house or not pay rent and you won't break even, right?
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Re: How should I buy my aunts house?

Post by TheDDC »

Option 1. I also wouldn't enter into financial/living agreements with anyone else until married. Don't base your decision on this. Lots of things happen until that point.

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Re: How should I buy my aunts house?

Post by JediMisty »

1130Super wrote: Wed Dec 04, 2019 1:43 am
LittleMaggieMae wrote: Wed Dec 04, 2019 1:34 am Why not keep the current mortgage on your house (no refi). Get a mortgage for your Aunt's house (maybe put down 20% -- use the money you mentioned you would have from the sale of another property as the down payment). Then rent out your old house for $1700 or $1800.

Your old house pays for itself and you have a new lower mortgage payment on your new house.
I’ve thought about that and ran the numbers It would be more tax efficient to refi, I’m currently 3 1/2 years in on a 15 year loan if I refinanced in a 30 year and pulled the money out my payment would be about the same, also I would feel more comfortable with the combined payments being lower if I went that route
The larger mortgage payment on the rental (if you decide to go that route) would make more sense from a tax perspective. You'd be able to deduct all of the interest of that mortgage payment against rental income and still use the standard deduction on your lower mortgage payment for your principal residence. Also, this keeps less equity in the home that would have to be split in the unlikely event of a divorce down the road. If the property you
are about to sell was a rental, I guess you already know what a PIA it is to have a rental and how it can be trashed to the tune of WAY more than any security deposit you've collected. I'm guessing you're level headed enough to get a pre-nup in regards to the rental property (and whatever portion of the family home your state allows) and your aunt's home (if you decide to buy it). When I bought a house with my now ex-fiance, I was going to use the proceeds from the sale of my house to pay up my 1/2 share of the house. It was pointed out that with both names on the deed, I would essentially be "gifting" him one-half of my equity. It didn't work out and I'm so glad I didn't put those proceeds into "our" house. Notice I am not telling you what to do, just giving you my history as an example.
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

junior wrote: Wed Dec 04, 2019 12:10 pm What's the point of breaking even on a rental? Surely you're taking the risk the tenant will smash the house or not pay rent and you won't break even, right?
I mean you’re breaking even cash flow wise, but with Appreciation and the fact that your principles getting paid down by the tenant you come out ahead like 15K a year, the housing market gone up like 4%-7% a year in the 7 years I’ve lived there
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Nate79
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Re: How should I buy my aunts house?

Post by Nate79 »

1130Super wrote: Wed Dec 04, 2019 5:01 pm
junior wrote: Wed Dec 04, 2019 12:10 pm What's the point of breaking even on a rental? Surely you're taking the risk the tenant will smash the house or not pay rent and you won't break even, right?
I mean you’re breaking even cash flow wise, but with Appreciation and the fact that your principles getting paid down by the tenant you come out ahead like 15K a year, the housing market gone up like 4%-7% a year in the 7 years I’ve lived there
How many rental properties have you owned? How experienced are you with good financial analysis and evaluating risk for rental properties?
ExitStageLeft
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Re: How should I buy my aunts house?

Post by ExitStageLeft »

How many tractors come with the aunt's place?
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Re: How should I buy my aunts house?

Post by mnnice »

ExitStageLeft wrote: Wed Dec 04, 2019 6:39 pm How many tractors come with the aunt's place?
I actually think that’s pretty relevant. You are going to need one for the driveway. A decent “acreage” tractor is more than a new car.
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

mnnice wrote: Wed Dec 04, 2019 8:52 pm
ExitStageLeft wrote: Wed Dec 04, 2019 6:39 pm How many tractors come with the aunt's place?
I actually think that’s pretty relevant. You are going to need one for the driveway. A decent “acreage” tractor is more than a new car.
Why would I need one for driveway? anone can plow a driveway in winter with an ATV and a plow Attachment
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

mnnice wrote: Wed Dec 04, 2019 8:52 pm
ExitStageLeft wrote: Wed Dec 04, 2019 6:39 pm How many tractors come with the aunt's place?
I actually think that’s pretty relevant. You are going to need one for the driveway. A decent “acreage” tractor is more than a new car.
Why would I need one for driveway? anone can plow a driveway in winter with an ATV and a plow Attachment
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Re: How should I buy my aunts house?

Post by MJS »

1130Super wrote: Tue Dec 03, 2019 4:49 pm ... GF is living in an apartment paying $600 for rent and utilities, so she can afford to pitch in $600 month plus other shared expenses. ...
Ah. No need to answer these intrusive questions, but have you and GF discussed this in detail already, or is this an assumption based on your knowledge of her?
Does she want to help you buy a house? Would she like to have her own house near her family instead? Does she like her apartment -- location, friends, privacy? Will it be a good commute to her job from this house? (A miserable commute is very hard on relationships.) At this point in her life, does she actually want to be in close proximity to, perhaps, nosy/concerned/needy relatives?

Good luck!
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

Yes we have talked about all these things, she doesn’t really have any liquid assets it’s all tied up in her 401(k)
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Re: How should I buy my aunts house?

Post by mnnice »

1130Super wrote: Wed Dec 04, 2019 11:52 pm
mnnice wrote: Wed Dec 04, 2019 8:52 pm
ExitStageLeft wrote: Wed Dec 04, 2019 6:39 pm How many tractors come with the aunt's place?
I actually think that’s pretty relevant. You are going to need one for the driveway. A decent “acreage” tractor is more than a new car.
Why would I need one for driveway? anone can plow a driveway in winter with an ATV and a plow Attachment
Really, I had a twisty, hilly 0.4 mile long driveway. It was windswept and prone to drifting (even with snow fence). I am sure it could have been done with an ATV but it would have taken forever.
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Re: How should I buy my aunts house?

Post by AlphaLess »

Broken Man 1999 wrote: Tue Dec 03, 2019 7:13 pm Always do business with your head, not your heart!

Always! Always! Always!

Broken Man 1999
And never do business with family.

There are so many other options.

Such as: help g/f find a job closer to where you live.

It's not your job, per se, to keep the aunt's farm in your family.
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

AlphaLess wrote: Sun Dec 15, 2019 9:46 pm
Broken Man 1999 wrote: Tue Dec 03, 2019 7:13 pm Always do business with your head, not your heart!

Always! Always! Always!

Broken Man 1999
And never do business with family.

There are so many other options.

Such as: help g/f find a job closer to where you live.

It's not your job, per se, to keep the aunt's farm in your family.
Recap I guess the point of this post was again not to try and talk me out of doing this, just to think about the best way of doing it.
I got the refi in motion and appraisal came in a little higher than expected 290k. $228,xxx 30 year fixed at 3.625% estimated PITI $1320. Going to try and rent it out in a year
Talked over aunt with everything her plan is to move next fall. In the meantime I’ll soon be holding almost $150k in MM account. Any Thoughts on holding off on 401k and Ira for 1 year so by then I’ll have enough to possibly not need a mortgage at all?
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Re: How should I buy my aunts house?

Post by Shallowpockets »

I would not do it.
What's the point? You have run the numbers, but so what? You are not simplifying your life at all, nor simplifying your finances. This was just an offer that appeared and because it was your aunt your reaction to it was to consider it.
If a stranger had made the offer, would you be thinking this way?

You state you want to be talked out of it. That's is a big reluctance right there. And, most replies here have not been of the kind to push you in that direction.

Let it go. Live your life. You don't need a farm. It is one of those dream ideas we all have when we are young.
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Re: How should I buy my aunts house?

Post by Dottie57 »

Sell your cuurent home and use the fu ds to buy your Aunts house. Becoming a landlord is a real responsibility. It isn’t just collecting the rent. Property taxes will go up since it won’t be homesteaded. Likely need more expensive insurance given it is being rented. More wear and tear.

Sell it.
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1130Super
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Re: How should I buy my aunts house?

Post by 1130Super »

Shallowpockets wrote: Mon Dec 16, 2019 9:15 am I would not do it.
What's the point? You have run the numbers, but so what? You are not simplifying your life at all, nor simplifying your finances. This was just an offer that appeared and because it was your aunt your reaction to it was to consider it.
If a stranger had made the offer, would you be thinking this way?

You state you want to be talked out of it. That's is a big reluctance right there. And, most replies here have not been of the kind to push you in that direction.

Let it go. Live your life. You don't need a farm. It is one of those dream ideas we all have when we are young.
The point is I’m moving regardless, if my aunt didn’t make an offer I’d be making offers on other homes in the area for same cost anyway, multiple times I said this post wasn’t about changing my mind about buying the house the only thing I was questioning was the hassle of renting my current home. It’s not like I can’t still sell my current house in a year with the only downside being the wasted closing costs on the refi.
I know a rental can be a headache sometimes and not for everyone, but it can be well worth it in the long run when home prices and rent go up year after year. I feel like I can manage the risk because my expenses go down massively by doing this.
NotWhoYouThink
Posts: 3174
Joined: Fri Dec 26, 2014 4:19 pm

Re: How should I buy my aunts house?

Post by NotWhoYouThink »

Good luck, sounds like you have made up your mind.
deikel
Posts: 1131
Joined: Sat Jan 25, 2014 7:13 pm

Re: How should I buy my aunts house?

Post by deikel »

a) be aware that if you don't live in your property anymore, the original mortgage might not be valid anymore (see if there is a clause that you have to live in the property) - you might have to refinance to a commercial loan if you plan this to become a rental property and this might skew the numbers

b) The math does not add up to me, in both option 1 and option 2, you make more money on the sale or the refi then you would need to get to 20% down ? Why do more ? That might tell you something about what you prefer/like...

c) if you think long term, then sure, leveraging the maximum out of property one to buy property two (and invest the rest in to the market) would be a good idea. Inflation should likely go up in the next 30 years and as long as you can reasonably see it rented out, even in an economic downturn and you like landlording 2h away, this is the way to go. Try to find numbers of what it would cost to have the property completely managed by someone else, would the number still work out ?

d) you statement of closing on yet another property makes me think you don't like to be a landlord ? Or what motivated that sale ? That might tell you something useful ?

e) Option 2 is certainly the simpler and cleaner model with less dependencies involved and more robust for a potential economic downturn. I would most certainly pick that one, but that's just me.
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