Buying/Renting out my parents house?
Rental Property Investor · Salt Lake City, UT · Member since 2016 · 53 posts · 24 votes
Hello, One and All.
Here goes my idea or should I say my biggest opportunity to get into the real estate/ landlord business.
My parents are moving to a condo where they can retire. That leaves the house, which is all paid of, so they own it out right and has three bedrooms, 1 full and 2 half baths, 2 spacious living rooms, and open concept kitchen and a long basement. New siding, new roof, its gonna have new half bathrooms, new paint job, appliances are no more than five years old.
My questions are as follows:
What do you all recommend on how I do this. What paperwork do I get. Who do I talk to as in brokers, bankers, lenders. Do I need an appraisal on how much I could rent it out for. Do I need to get an inspector. How would I set it up where the tenants are responsible for the yard work, snowblowing, all the seasonal items.
I would like to set it up as me being the landlord and renting out the house.
THANK YOU.
I think you're making this more difficult than it needs to be. If you are wanting to buy the house from your parents, see if they will do seller financing for you and then transfer title over to you. If they want to keep the house and you are just going to manage it/be the landlord, you will need to make sure you are legally able to do so in Wisconsin. In Ohio, managing property for others needs a license, so just check to make sure you're good to go there. I feel like we need a little more info on your end game here to help more.
I think you're making this more difficult than it needs to be. If you are wanting to buy the house from your parents, see if they will do seller financing for you and then transfer title over to you. If they want to keep the house and you are just going to manage it/be the landlord, you will need to make sure you are legally able to do so in Wisconsin. In Ohio, managing property for others needs a license, so just check to make sure you're good to go there. I feel like we need a little more info on your end game here to help more.
I agree with Matt, seller fiance would be a large plus if they are fiscally able and willing to do so.
If they aren't intending on listing the property with a retail agent.. but cannot finance the house to you.. You will have to take out a mortgage just like any other property. As for an appraisal and rent cost, it would come down to whatever you and your parents decide on being a fair price. (zillow.com is a good place to start to find out what the house is estimated at, as well as seeing what other similar properties in the area are selling for) And you should determine the rent based on the cap rate you intend to achieve. An inspector is always a good idea, however in this case, they may just be telling you what you or your parents already know about the house. Living in a property for an extended period of time will tell you much more about it than a couple hour walk through.. Finally, in regards to having your perspective tenants being responsible for yard care.. this is all taken care of in the lease agreement. At that point, you would just have to decide if you would be supplying the equipment for them to do so or not. (Coming from the perspective of having rented homes where I was responsible for yard care) having to go out and physically buying a lawn mower, or snow blower to do something mandated in the lease is a huge turn off. Having the equipment provided is more of a compromise, however be prepared then to take care of the maintenance of the tractor and snow blower, or replacing them if necessary. (would recommend screening tenants at this point, making sure that they are competent in using things of that nature.)
Hope this helps! Best of luck to you.
@Alex Hively, check on Zillow, Craigslist, and Rent-O-Meter for properties similar to your parent's home that are currently being rented in your area to determine market rent. You can either require the tenant take care of landscaping by providing the equipment and writing it in your lease agreement or build that cost into the monthly rent.
Whether you buy the house from your parents or if they decide to add you to the title so you can manage it, crunch the numbers first. Notate all the expenses of the property (taxes, insurance, utilities, maintenance, vacancy, cap expenses, etc) and have a complete inspection done and complete repairs that should be done before putting it on the market. If you are able to manage it yourself, become familiar with the landlord-tenant laws in your state.
Good luck to you!
As @Nic Badertscher stated, you can take care of the lawn care and snow removal items in the rental agreement. You can also provide for fees, your actual cost to complete the tasks, and reimbursement for possible municipal fines in the event the tenants neglect to take care of it. I recommend putting this in a separate document entitled NONSTANDARD RENTAL PROVISIONS (you will then need to go over each desired provision with the tenants and have them initial by that provision). This would allow you to deduct the fees, costs, and fines from your tenants' security deposits (otherwise you would have to return the deposit and may have to pursue the money in a legal action). Check out the Nonstandard Rental Provisions form page at rezental.com for more information.
Best,
Atty Gregg Willich, Willich Law Office, LLC
Author of free Wisconsin rental forms at rezental.com.
This is provided as general information only, and should not be construed as legal advice. Please contact an attorney for your specific legal needs.
@Alex Hively In terms of management you need to hold a real estate license in Wisconsin in order to manage a rental property you do not own. I would assume this house is in your parents name so I'm guessing that applies. Otherwise you could move the property into the possession of an LLC where you are part owner and get around the requirement that way? You'd need to run that by a lawyer as I'm not sure if that would work.
In terms of sales it comes down to how creative you want to be with it. If your parents were planning on selling it anyways you can do seller financing and have a lawyer review the documents to make sure they are good. This avoids a lot of closing costs related to inspections, agent fees etc. Otherwise if they were planning on leaving the house to you if you wanted to lessen/avoid taxes on the sale you could get creative with their trust (IANAL).
@Matt Motil
Thank you for all the help. I'll have to look up what seller financing is and how it applies to my situation. As well as if I need a license for landlording.
Does is make a difference on whether or not the house is paid off. They have no debt on the house. Would I still have to get a mortgage if I chose that route?
@Nic Badertscher, thank you for the information about buying the equipment and putting it in the lease. Very helpful.
@Penny Clark, which part of this website would I beable to crunch the numbers.
Well. My first action is then to obtain a real estate license.
Thank you for those who helped.
I agree with Matt, seller fiance would be a large plus if they are fiscally able and willing to do so.
If they aren't intending on listing the property with a retail agent.. but cannot finance the house to you.. You will have to take out a mortgage just like any other property. As for an appraisal and rent cost, it would come down to whatever you and your parents decide on being a fair price. (zillow.com is a good place to start to find out what the house is estimated at, as well as seeing what other similar properties in the area are selling for) And you should determine the rent based on the cap rate you intend to achieve. An inspector is always a good idea, however in this case, they may just be telling you what you or your parents already know about the house. Living in a property for an extended period of time will tell you much more about it than a couple hour walk through.. Finally, in regards to having your perspective tenants being responsible for yard care.. this is all taken care of in the lease agreement. At that point, you would just have to decide if you would be supplying the equipment for them to do so or not. (Coming from the perspective of having rented homes where I was responsible for yard care) having to go out and physically buying a lawn mower, or snow blower to do something mandated in the lease is a huge turn off. Having the equipment provided is more of a compromise, however be prepared then to take care of the maintenance of the tractor and snow blower, or replacing them if necessary. (would recommend screening tenants at this point, making sure that they are competent in using things of that nature.)
Hope this helps! Best of luck to you.
When it comes to the Snow Blower and Lawn mower, NEVER supply one, you become Liable it they get hurt using your equipment, if they get hurt with there equipment its not your fault, Im not a Lawyer, and this is not legal advice, but what my insurance agent advised.
@Scott Schultz I had actually not thought about that, but that brings up a valid point.
@Alex Hively, is the drive big enough to the point where it would not make sense to just have the tenants shovel? Also, regardless, how much of an inconvenience would it be for you to take care of yard maintenance yourself? I know that many investors do not prefer this route, however just starting out, it may be a better option.. You would be able to charge more a month for the service, and I am assuming that your parents already own the equipment necessary, and may be willing to give it to you, or sell it at a reduced cost.