To sell or rent the family home

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poppy42
Posts: 19
Joined: Mon Nov 11, 2019 11:30 am

To sell or rent the family home

Post by poppy42 »

My dad is a widower and owns the home I grew up in - a modest (2000 sqft) house less than a mile from the beach in New England. He wants to downsize as he is close to 80 and the house is a lot of upkeep. He wants to move to a condo in the same area and have some money left to travel. He has a pension that covers his expenses and a fair amount of cash saved (around $500k). The house is long paid off.

He doesn’t know what to do with the house. It’s worth about $700k. He loves it - he built it and it’s his dream home - and he says he would like to keep it and rent it out. In the summer rentals in his area go for about $3k-$5k a week. It’s sleepy in the winter but he could probably get a renter or Airbnb in those months for less. But he is worried about the expense of hiring a property manager, paying for damage, basically the hassles of being a landlord even if he has someone managing everything. He’s never rented a place before.

As his child I’d love to keep the house in the family as a future vacation home, but it’s his house, not mine, and his decision.

Is his best option just to sell and take the cash? He’s asking for my input and I’m not sure what to tell him. Thanks I’m advance for any guidance. I’ve never been a landlord either so I have no experience here.
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LiveSimple
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Re: To sell or rent the family home

Post by LiveSimple »

Help you dad in managing the home, if you grew up in the house you will have memories that you ove to cherish. He asked your help so help him.
Invest when you have the money, sell when you need the money, for real life expenses...
sharp1aarohead
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Joined: Tue Feb 03, 2015 9:33 am

Re: To sell or rent the family home

Post by sharp1aarohead »

If he's interested in keeping it and passing it down as generational wealth, then he should keep it. It sounds like it's got sentimental value which is a factor to consider. It sounds like he doesn't need the proceeds, so there's no point in selling. If he did need money for some reason, he could always do a HELOC or refinance to take out 100k or so at a later date. I received some advise a couple of years back that I'm holding onto..."never sell anything".
J295
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Re: To sell or rent the family home

Post by J295 »

Our family has personal experience with similar matters.

We chose not to keep real estate that would require active management, principally because none of the children had experience or interest in serving as a landlord and neither children nor parents had emotional attachment to those properties. In these instances hiring a management company was not a reasonable option.

There is farmland in another state that is rented out, to which dad does have an emotional attachment, and despite his poor health we are keeping it and all children have agreed that following his death one of us will buy it from the other so that we will keep it in the family as that is his wish (he told us he wants us to keep it in the family).

So, I suppose I’d say if you were willing to carry the laboring oar and serve as the landlord, or hire out landlord work and you and your dad just understand the value of keeping the property is more important than the financial return. His attachment to the home as well as yours leads me in this direction.

Also, if you have siblings you might find it valuable to make sure they are all on board. I have two siblings, and we all get along marvelously, and we visit with each other almost daily about a variety of things involving mom and dad.

Good luck.
dknightd
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Re: To sell or rent the family home

Post by dknightd »

poppy42 wrote: Wed Sep 22, 2021 1:44 am
As his child I’d love to keep the house in the family as a future vacation home, but it’s his house, not mine, and his decision.

Is his best option just to sell and take the cash? He’s asking for my input and I’m not sure what to tell him. Thanks I’m advance for any guidance. I’ve never been a landlord either so I have no experience here.
I think your Dad might be asking you what would you like to do with the house.

If you want to keep it in the family, then he could rent it out in the mean time.

If you were just going to sell it when it became yours, then he might as well sell it now.

Your siblings, if any, and spouse, if any, should definitely be part of this decision.


My $.03
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
FamilyMan
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Joined: Sat Nov 29, 2008 12:09 pm

Re: To sell or rent the family home

Post by FamilyMan »

If it was my family, I think I would try renting it out for at least a year. Maybe hire a property management group to handle repairs, cleaning, etc. It’s not like a second home with a big mortgage that you HAVE to find renters every week. Maybe enough to cover taxes and maintenance.

Then, if he didn’t enjoy being a short term landlord, sell the place. Unless the economy tanks, the value of a beach house shouldn’t drop significantly in a year or two.

I also think this would be a good transition for you (and any siblings) to ownership of the family vacation house.
phxjcc
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Re: To sell or rent the family home

Post by phxjcc »

It is part of your family history.
AND
You want to maximize the amount of value it retains.

Rent it out and wait to dispose of it (if ever) until the property has as little capital gains exposure as possible by increasing the cost basis of the owners (though inheritance).

Hire a property manager and rent it out.

10, 15, 20, 25%?
Just pay it and be good with it.
Yes, it IS a lot of money.
Good PM's are worth it.
Interview at least two.
I hired the second largest in my area.

"You won't care after the checks start coming in."
I was told this and did not believe it.
I now believe it.

Your part is having the asset, their part is doing the work to make that asset an profitable income producing one.

Marketing, Client Screening, Operations, Minor Maintenance (light Bulbs, furnace filters, faucet aerator cleaning), Maintenance Coordination, Cleaning, Toiletries, Paper Products, Licensing and Taxes, Collections, Code Compliance, Shipping and Receiving, Concierge Check-in and Check-out, and tourist information, that is their work.

Your guests will be happy and they will tell their friends.

It is not just "the toilet is backed up" stuff.

Spreadsheet it out--it will probably produce something close to VWINX (Wellesley Income) performance, even with a PM.

Make your life easier:
Get STVR insurance, it is a special type of insurance--This is important.
Use legal zoom, et al, to form an LLC and get a registered agent.
Consider incorporating in a state with inexpensive business licenses--NV is cheap.
Most trash companies have "carry out service" for trash containers; some cities require it for rentals.
Get a Nest thermostat
Get a ring doorbell (make sure it DOES NOT face the street)
Get an alarm (a real one, with a real company)
Get an internet enabled/electronic door lock (I like Schlage)
Get an internet/enabled garage door opener
Get a pushbutton lock(s) on the gate(s) to the back yard (NOT electronic)

I hear from my PM:
--upon confirmation of a reservation
--monthly notice of a pending deposit of rental income
--less than once a month for some minor thing
--once a year for my tax statement.

I have a web portal that I can check the rental calendar, get monthly statements, YTD statement and make reservations for my friends and relatives.

You will hear horror stories.

It will NOT as bad as you will be lead to believe.

BUT, make no mistake--your renters are NOT your friends nor your family.
You are dealing with the public and neither their income nor their financial position will be an indicator of their behavior.

(Scissors?/ Really? Cheryl S. just spent $7500 for a month's rent and stole the scissors? Ok . What, it happened again? Two renters in a row? Does it say in the lease that 'complimentary scissors come with the rental'? No, it does NOT. Ok, fine; tell the PM to buy scissors at the 99 Cent store).

Cheryl also gave me a five star review and promised to return, so for $0.99--I guess I am not going to raise a stink--just shake me head.
delamer
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Re: To sell or rent the family home

Post by delamer »

Keep in mind that if your father keeps it as a rental and thrn decides to sell down-the-line, he could up having to pay capital gains tax.

He really needs to understand the ins-and-outs, including knowing his cost basis: https://www.nerdwallet.com/article/taxe ... -gains-tax
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Lee_WSP
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Location: Arizona

Re: To sell or rent the family home

Post by Lee_WSP »

You could either buy it yourself at appraised value or hold an internal family auction for it. He would realize capital gains, but it could be a note sale so as to spread it out. This is just to say there are other options.
Mr. Rumples
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Joined: Sun Aug 25, 2019 7:16 am

Re: To sell or rent the family home

Post by Mr. Rumples »

As noted above, understand all the tax consequences first.

When my brother and I go the house we grew up in, it's clear it has no meaning or memories for his kids (my father designed the house; I remember when we would go almost daily to check on it). Unless its lived in by the family on an ongoing basis, it's just a piece of property. As rental property, it will start to have less and less personal value. At some point, even historic houses require work, usually substantial; at some point this house will also need it, so unless it has historic significance, updating it will erase more and more memories over time if kept.

As a vacation house a mile from the beach, it will need work and more work and of course the worry about storms. Unless someone wants to manager rental property, sell it with the good memories it still holds in place.
Last edited by Mr. Rumples on Wed Sep 22, 2021 11:27 am, edited 1 time in total.
"History is the memory of time, the life of the dead and the happiness of the living." Captain John Smith 1580-1631
Carefreeap
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Location: SF Bay Area

Re: To sell or rent the family home

Post by Carefreeap »

We turned my FIL's home into a vacation rental. It wasn't a "family" home but it is a cute place in the So. CA mountains and we both grew up in So. CA. We went in with eyes wide open and didn't expect to turn a profit; just an opportunity to be able to stay there from time to time. Over the nearly 20 years we've had it in service we've had five property managers. The current one has been the best but we are also very generous with a 40% split of rents. Most rental agencies will charge you 25% and then nickle and dime you for every little thing. Our manager just takes care of things. BTW we have netted more money than ever under this management.

Over the nearly 20 years the worst thing that happened was some idiot used a decorator pillow against our indor gas fireplace and scorched it. They 'fessed up and we charged them $25. I was grateful they didn't set the place on fire!

Here are some questions for you;

How far away are you from the family home?
How many sibs do you have?
Do you get along? I ask because I have no shame in saying that I would never, ever, ever co-own a piece of property with my bro. He is selfish, a slob and a financial trainwreck. He turns 59 next month and his personality isn't going to change.
Could anyone afford to buy out the others now?
Every day I can hike is a good day.
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Watty
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Re: To sell or rent the family home

Post by Watty »

Here is my recollection of two similar situations people have posted about.

1) Someone inherited the family home that she was raised in and she keep it as a rental property. Financially she did fine and while there were the frequent issues that you have with maintaining any property and dealing with tenants but she got lucky and she never had one of the tenants from hell that you sometimes hear about. I remember one comment from her post which was something like, "I regret keeping the house as a rental since all my fond memories of being raised there have been replaced by the memories of dealing with it as a rental property."

2) There have been several post by people inherited something like a lake house or farmland with several siblings and they kept it for sentimental reasons. That may have even worked out OK at first but the complications came in when the next generation started inheriting it. Many of the original owners grandkids had moved away and had no interest in the property and different feelings about if the house should be sold, who should pay property taxes, and who should pay the maintenance costs for things like a new roof. There were also issues since the names on the title were out of date since when someone died and his estate was settled his three kids names were not put on the title.

There were also people involved like the widow of someone who had owned a slice of the title so some of the ownership had passed outside the family.

Some people did not even know that they had any claim to the property.

In one post someone had a dozen or more grandkids(or great-grandkids?) that all owned a partial interest in the property. They wanted to sell the place but to do that they needed to get everyone to sign off on the sale but it was not a real close family and they were having difficulting in tracking down all the people involved since some of them were younger and moved frequently. The problem though was that one of the partial owners was sort of estranged from the family and the last anyone had heard he was doing something like backpacking in Thailand. I never heard how that was resolved.

Anyway if your dad wants to make this into some sort of family home for future generations then it would be good to talk to a lawyer to set this up, probably in some sort of trust or LLC so that it will not become a mess a couple of generations down the line.

If you have siblings that live out of the area then they may rarely or never use it as a vacation house to spend a week there.
poppy42 wrote: Wed Sep 22, 2021 1:44 am Is his best option just to sell and take the cash?
Financially probably.

If it is kept as an investment property then he will be running a business that is worth the better part of a million dollars. If he is going to do that then he should have professional tax advice and a multi year business plan including several possible exit strategies. If he(or you) are not able or willing to treat it like a business then it should be sold.

Selling it now may also have a lot of tax advantages.

It may vary with the state laws and how the house was titled but he likely got a step up in cost basis when your mom died and if he sells it now it would likely also qualify for the homeowners capital gains exemption. I suspect that he will not need to pay many if any capital gains taxes if he sell it now but it would be good to check on that.

If he keeps the house and it goes to his estate someday then it would get a stepped up cost basis and the capital gains taxes may never need to be paid. A risk with that is that the tax laws could always change and the step up in cost basis is controversial, but we cannot talk about politics or possible tax law changes because of the forum rules.

One other risk is that he could keep it as a rental but then need to sell it while he is still alive if he had to goes into a nursing home for a long time, like with Alzheimer's. If that happens he could have a large capital gains tax bill.

One huge advantage of selling now is that most real estate markets are hot and it will likely be easy to sell the property even if it has some issues. In a recession or real estate slump it can be very difficult to sell vacation property.

It was also not clear how your dad would afford to buy the condo if he does not sell it.

There could be sentimental reasons that would outweigh the financial reasons but it would be good to understand what the tradeoffs are.
Fat Tails
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Location: New Mexico

Re: To sell or rent the family home

Post by Fat Tails »

How will you both feel repairing damage to his dream house caused by tenants?

It will be some work to rent. Do you live in the area to assist him? Now is a good time to sell real estate market-wise, and it may be easier to sell now rather than after a few years as a rental due to the condition of the home.

If he was ok with selling, I’d recommend selling. If he really, really, really wants to keep it, I would help him keep it.

How’s that for some wishy-washy advice?

Cheers,
“Doing well with money has little to do with how smart you are and a lot to do with how you behave.” - Morgan Housel
123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: To sell or rent the family home

Post by 123 »

If no family member is going to be immediately living in the house it is time to sell it.

Why spend any time dealing with house issues (either positive or negative) when you could just be spending that time with your dad and other family members. The former family home will become a distraction.
The closest helping hand is at the end of your own arm.
pindevil
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Joined: Thu Apr 03, 2014 11:04 am

Re: To sell or rent the family home

Post by pindevil »

Rent the house for a year or two and decide after that if it's worth continuing. If you and your father don't try you'll never know if it would have worked out. It certainly can't hurt.
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Sandtrap
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Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: To sell or rent the family home

Post by Sandtrap »

poppy42 wrote: Wed Sep 22, 2021 1:44 am My dad is a widower and owns the home I grew up in - a modest (2000 sqft) house less than a mile from the beach in New England. He wants to downsize as he is close to 80 and the house is a lot of upkeep. He wants to move to a condo in the same area and have some money left to travel. He has a pension that covers his expenses and a fair amount of cash saved (around $500k). The house is long paid off.

He doesn’t know what to do with the house. It’s worth about $700k. He loves it - he built it and it’s his dream home - and he says he would like to keep it and rent it out. In the summer rentals in his area go for about $3k-$5k a week. It’s sleepy in the winter but he could probably get a renter or Airbnb in those months for less. But he is worried about the expense of hiring a property manager, paying for damage, basically the hassles of being a landlord even if he has someone managing everything. He’s never rented a place before.

As his child I’d love to keep the house in the family as a future vacation home, but it’s his house, not mine, and his decision.

Is his best option just to sell and take the cash? He’s asking for my input and I’m not sure what to tell him. Thanks I’m advance for any guidance. I’ve never been a landlord either so I have no experience here.
Yes. This is often what happens.
He might not be happy with what will happen to the interior of the home after it has had several inconsiderate renters, especially, especially, with short term renting such as VRBO and AirBnB, etc.

As mentioned earlier on this thread.
A middle road option (middle road options are great), would be to try a short term rental situation on a short term contract with a licensed professional reputable property management agency or agent. Try it. Then decide to sell or remain at that status.

It does not have to a an all or nothing irrevocable decision made all at once.
It is not just a financial decision by the numbers.
j :D
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