A few people weren’t so much giving advice as they were talking down to the OP and stirring chum into the water.
Except the OP didn’t even say that.
I went through a similar situation with my then-boyfriend-now-husband years ago. He was the only child of a single mom, too; she left him the (aging) single-wide trailer on a gorgeous piece of land, a couple of acres, where they’d lived since he was 10 or so. At first we lived a 6-hour drive away, then later 2000 miles away. He rented it out for almost a decade – the first five years went well, with a renter he and his mom had known personally for years and trusted. When that guy moved out, the trouble really started, even though all the renters were friends of friends.
I wish I had done then what I’ll suggest you do now: REALLY crunch the numbers. In excruciating detail. Make a spreadsheet, a pretty one with color-coding and clearly labeled columns and all that. This spreadsheet will not only show the numbers, but also help represent the level of hassle each choice entails. It’ll be a complicated mofo, but IMHO worth it.
Find out about the mortgage – whether you can assume it or need a new one – and make note of all the fees and points and all that.
Get advice from an investment person (not necessarily a real estate person) about what reasonable expectations for appreciation would be, and a frank assessment of risk.
Find out about the taxes. (To go the extra mile, see if you can find out what the political climate re property taxes is like in the house’s area – are they likely to go up? down? do folks around there often get their properties re-assessed to lower their taxes? etc.)
Find out about the available rental management companies: what they charge, what they do and don’t do, what you would have to do if they wouldn’t handle something.
Consider suggesting your GF get a house inspection done to find out more about potential lurking maintenance and repair headaches. Find out what one would cost.
Figure out what the true tax deduction benefit (or cost) would be for owning, renting, or selling.
Figure in insurance. Get quotes for owning and renting.
Find out about the legal requirements of landlording in that area. How quickly do various repairs have to be done? What conditions are considered unacceptable? (In one area where I lived, landlords are required to paint all walls after every renter – in another, they have to replace any and all carpeting – in another, any problem with the heat or water must be fixed within 24 hours of notice to the landlord – etc.)
Find out what a landlord would have to do if something went badly wrong between renters and landlord. What would it cost, minimum, to get an attorney’s advice if a renter got pissy and made a claim? What if they don’t pay rent on time, or at all? What if they damage the place and won’t pay to fix it?
Maybe you can think of other numbers to add in. More might come up while you’re assembling these.
Don’t forget to figure in the interest rate on the student loans, and the probable rate (or range of rates) on investments of any money left over from a sale after paying down the loans.
When you have all the numbers, crunch 'em – the money numbers *and *the time numbers. $100 a month above all costs (not just the mortgage) looks a lot less smart if you find out you’ll probably have to put in at least 20 hours a month as a landlord, plus risk wiping that out with a single plumbing problem.
====
None of which touches on the emotional content here. (I have to say that I think it hurt my husband more to see what a series of lousy renters did to his mom’s place, his childhood home, than it would have to sell it when it was still in relatively good shape, no matter what the financial cost either way.) But in assembling the numbers, you give her facts that will help her start to think about the emotional costs – help her imagine, in realistic detail, what it could be like – without telling her how she’ll feel.
Good luck!
No, it did not. Please take the time to read the OP carefully. It says “we” had debt. As noted, 80% of it is hers.
emmaliminal, thanks for a lot of really good advice. This is exactly what I needed.
That’s exactly what it said. I did read the OP carefully. “We” means you and me. Meaning you were proposing to pay her debt and your debt with her inheritance. The fact that the debt is 80% hers wasn’t dealt with until your (much later) second post, but in any event, I still don’t think is appropriate to pay any part of your debt with her inheritance.
If that’s not you meant, it’s because your OP isn’t clear, not because I didn’t read it.
In any event, I wouldn’t hold on to the house. Being a landlord is a hassle, and being an absentee landlord is worse. I’d sell it and put the money towards your girlfriend’s debt.
Your ideas about what they should or shouldn’t do with the money after the house is sold or rented is totally irrelevant, and inappropriate in and of itself.
You’re entitled to your opinion, and I’m entitled to mine.
My father agreed to take care of the rental property of a couple friends who moved to CA. After 2 years of doing this “little favour” of organizing maintenance and dealing with tenants he was almost insane. I completely agree with the advice to sell.
And if you sell I would advise not using all of the money to pay down debt. I recommend using at least a small portion on something that reminds her of her mother. A visit to a place they both wanted to see, or a painting or picture of something that means a lot to them. It’s good to choose something that would be personal to both of them.
No shit. You mean discussions on the SDMB involve differing opinions? :rolleyes:
This is an untrue statement, purporting to claim knowledge of my thought processes, which you emphatically do not have.
If you rent it, and that is not hard to do, you will collect rent for a few years. Then if the housing market recovers, you can sell it for more than you can today. But during that time, you will get a lot of money and tax breaks.
Selling is a pain. Nowadays you will get a lot of people trying to get it for cheap. You will be pissed off .It might sit for a long time to get sold. So you should immediately rent it.
I haven’t purported to claim any knowledge of your thought processes. That seems to be what you want the people reading this thread to do.
I took what you said in your OP to be, you know, what you meant. When you said “We owe $100,000, mostly in student loans, and I think we should sell the house and put the money towards the student loans”, I took it to mean exactly that. I can’t read your mind. If you actually meant something else, you should have said something else.
If you wanted to eventually live in the house it might be worth renting until you’re ready to do that but otherwise I don’t see $100 profit a month as nearly enough considering the amount of loan that’s left.
How old are the furnace, roof and air? A new furnace will wipe out three years of profit, the roof could be 4 years and air conditioning two years. Plus you’re looking at replacing those things approximately every 20 years. Carpet replacement would eliminate one year of profit and rarely do renters treat carpet with the same care as owners.
Professional carpet cleaning between tenants would be a few hundred and painting the same. Newspaper ad to find new renters could be one or two hundred dollars.
Are you willing to spend weekends vacation time to take care of things yourself to save money?
I wouldn’t consider $100/ month enough profit to make it worthwhile if you lived close and could take care of the simple stuff yourself. If your girlfriend isn’t motivated enough to look into all of this she’s probably not motivated enough to deal with the work of renting a house and you’ll end up doing a lot of it.
If you get a new mortgage for 30 years and keep the equity in the house, then the payments should go way down and it might be worth it.
SELL SELL SELL. It makes financial sense to sell things that you don’t want and don’t need. You will NOT make a profit. Even if you did, it wouldn’t be worth it. The headache of absentee landlording is not worth $1200 a year.
It’s true that she’ll get a tax break on money spent on mortgage interest, but she’ll also get taxed on rental income. So it’s no benefit unless she plans on cheating Uncle Sam.
Emotionally, if she’s attached to the house and can’t bear selling it, then she DEFINITELy doesn’t want to keep it. Renters don’t treat houses very well. It might hurt to sell, but it will hurt worse when they see renters staining her carpets, putting holes in walls, and all the other things they do to wreck a place. At least selling only hurts once.
People keep saying you get a tax break for mortgage interest but I thought that was only true for your primary residence?
Is there a tax break for mortgages on rental property?
Don’t forget insurance on the home which could possibly be at least $500 per year.
It’s impossible to get a mortgage these days. If someone gave me a house I’d find a way to hang onto it. It’s almost paid for and if you refinance you can get the first time homebuyers break. Last year it was 1,000 for every 10,000 up to 100,000. My son just got his check with his tax refund. Sweet deal. Pay it off and sell it and buy your dream house.
The first time home buyer tax credit is over, there needed to be an accepted offer by 4/30/10. Even if it was still in affect it had to be for owner occupied housing and was only up to $8,000. Not really enough to buy a house if you don’t want to anyway.
A lot of people are saying it makes financial sense to sell - and while in the cold hard light of financial analysis it probably does, I don’t think you are paying enough attention to the psychological side of the equation.
- Personally I think “sacrifices” to hold on to a property are a lot easier to make than sacrifices that help you to save money towards a future deposit on a house
- You have a nestegg come investment sitting there - you sell it, pay down student loans and will still be (a smaller amount) in debt - and the nest egg is gone. To get it back is going to require MORE and HARDER sacrifices than what is made to pay down the debt via other means.
- It is an appreciating asset - so provided you avoid being totally screwed and the house only costs you a few hundreds of dollars (even in bad case scenario) per month you are gaining the appreciating money. Fair enough the appreciation may not be enough to cover the student loan interest at the present time, but do remember that the house will be going up exponetially while the student loan interest is going down (as you pay down the loan)…
- Working on figures pulled out of my arse, the house may be valued at $140 k in two years time, and be appreciating at 6% per annum…in the meantime you student loans will have gone done. But if you sell now, you will miss out on this benefit
- The historical rate of appreciation for property over the long term is pretty stable - and especially emerging from a market crash you can probably expect pretty decent growth in the short term…
I would strongly advocate holding onto the property, you are young, you sell and pay down the loans its something you will have to be super disciplined to get back…its equally likely that 8-10 years down the loan you will feel like the inheritance disappeared into smoke.
On the other hand if you hold onto the property, in 8-10 years the mortgage will be virtually zero, adn there is a pretty reasonable chance the house will be worth $200k+. Over that time period, even if you only break even on the maintenance costs and mortgage interest yill will have gained around $7k per year @ 200k (future value) - $120k (current value) divided by 10 years (which is going be way way more than the interest you save on your loans)
Mortgage interest expense is a fully deductible expense on Form 1040 Schedule E rental income/loss. Real estate taxes are also fully deductible. In fact, there are a lot more deductions available for rentals than for residences. Things like insurance, repairs, utilities and depreciation are deductions for rentals that aren’t deductible for personal residences.