My girlfreind’s mother died several months ago, and left her a house, or at least equity in one, and we’re trying to figure out what to do with it. Neither one of us has ever owned a house before, so we’re both a bit at sea. She has asked me to do the research, and I’m coming here to get some general guidance and advice.
The pertinent facts:
[ul]
[li]The house is worth about $129K. [/li][li]We presently have $66K equity in it. Mortgage is about $540 a month. 3 Bed, 2 bath, detached house in a quiet neighborhood.[/li][li]The area its in is, AFAIK, growing modestly, was unaffected by the crash and has very low property taxes (38555 zip code). [/li][li]We have about $100K in outstanding debt, mostly student loans, at an average interest of about 4%.[/li][li]Without even putting the house on the market yet, there have been inquiries, and one offer to rent it.[/li][li]We live 10 hours away, and have no real interest in living in that area.[/li][/ul]
To me, it’s a no-brainer – we sell the house for the first fair offer, and put it towards the student loans. IMO, if we don’t, we are effectively borrowing money at 4% to invest in real estate 10 hours away.
But the girlfriend is interested by the possibility of renting it out at a profit. Looking at the rental listings in area, it seems likely we could rent it out for about $100 a month over the mortgage. But we’d have to hire a local management company, and of course we’re on the hook for property taxes and repairs. Girlfreind counters that we’d get a tax deduction for the mortgage, and the house is likely to appreciate.
And she says that there are probably a lot of benefits and expenses and considerations involved with owning a house that we aren’t even thinking of, and that I should do the research on it, and come back with the answer to the question “what rental price would we have to get to make this worthwhile?”
The problem that I have is that I agree with both of you. The way you describe the the house then it does sound like a decent investment opportunity. On the other hand, running rental properties can quickly turn into a nightmare.
I think probably the fairest way to handle this would be to tell your GF that if she wants to keep it then it’s her baby. If it’s going well then she keeps the rental income but when it goes badly then it’s her headache and you’ll just sit back, point and laugh. Of course being fair isn’t necessarily the best way to keep a GF. If you’re comfortable in your current situation then let her make the call and just be as supportive as you deem appropriate.
What do houses rent for in that area? You have to show a clear profit.
You probably are too far away to maintain it yourself. If it is in good condition that would not be an immediate problem, so you could rent it for a couple years, hoping the price will go up. But you get more than just a break on taxes. Any expenses are deductible. Your travel back and forth, any expenses in rental and many more.
Houses in my depressed area rent for over 1000 a month. you will make a lot more than 100 a month.
That way, if she marries the boyfriend and they divorce later then he doesn’t get a cent from the property because it is an asset she inherited before marriage.
A third option would be to sell it, and use that money as the down payment on a house where you are now living. How good an option that is depends on what rent you are paying now, how much houses cost in your area, and how long you are likely to live in that area.
Perhaps legally “within a year” that will be true. Morally, not necessarily. Even after marriage you can’t be forced to accept any responsibility or obligation on this house. Your GF inherited the house, not you. If you decide to wash your hands of the whole subject then that’s within your rights.
I’m not claiming that it’s smart or nice but it is an option.
Think of it this way: if she hadn’t inherited a house, but had inherited cash equal to the current equity, would she have chosen to use that money to buy an old house 10 hours away and become an absentee landlord?
It’s difficult to be a landlord when you live down the street and can keep an eye on your house; from 10 hours away, I think your girlfriend would regret trying to keep it and be an absentee landlord. If you’re sure that you’ll never, ever want to move to where the house is, I’d sell it.
ETA: If you decide to sell it, I’d also advise to go there and spend a week or two doing a lipstick and rouge renovation on it before you put it on the market - a thousand dollars worth of paint and updating fixtures on a dated but solid house can get you tens of thousands more on the sale price.
It’s not just a financial decision. Is there a sentimental attachment to the house? Is your girlfriend or members of her family going to be upset if the house is sold to somebody outside of the family?
For practical purposes, there is no other family; my GF is the only child of a single mother. And yeah, I think much of it is emotional; selling the house is going to be a major step in letting go of her mom. Deep down, I think she knows it makes fiscal sense, but she wants/needs me to prove it to her. But I’m not informed enough to do it, hence my looking for help identifying some things about homeownership we haven’t considered.
What condition is the house in? Like Cat Whisperer said, to sell it you’ll probably want to paint the inside, steam-clean the carpets, and mow the lawn. To rent it out, you might have to do more: Update appliances, replace countertops, landscape, replace carpet. If any aspects of the house are not up to code, you may have to fix them before a renter moves in.
May I ask what state the house is in? Someone here might be able to tell whether it is tenant-friendly or landlord-friendly.
It sounds as though you may be assuming that you can just assume the mother’s mortgage, but I think that it is unusual for a bank to allow such an action. Most likely your girlfriend (or you and your girlfriend) would have to take out a mortgage of her/your own and repay what her mother owed to her bank. I suggest that you look into this aspect of the situation; you may need to assess your ability to qualify for a mortgage as a part of your analysis as to whether or not to sell. Also, the rate currently available on a mortgage may be different than your girlfriend’s mother had; the different rate and potentially different term of the new loan would change the monthly payment, thereby changing the amount of rent necessary to make a profit.
We’re in a similar situation, except I inherited my childhood home lock, stock, and barrel (i.e., no mortgage). We’re living here. However, the house is in dire need of cosmetic work as well as a new roof in the not-too-distant future. The property taxes are killing us, but considering that one payment equals to the average month’s rent in our area, we’re in no position to consider moving.
I want to sell, no question – sell and move to a less expensive area. Husband thinks we should move (on what money, I don’t know) and rent out the house. We’ve been in a stalemate about this. I just hope the OP and his gf can come to a quicker decision than us!
