What should I do with my mom's house?

Question

Hi Everyone,

I've been lurking here for several months, reading posts, watching videos, and trying to learn as much as I can about REI.

My elderly mother has seen her health begin to flag, and I am at a loss as to what to do with her house.  I had her house inspected last summer in anticipation of having to eventually sell it and have her move in with me until we find a place she would like to live.  She lives in a 4 bedroom home in an exurban area between Cleveland and Akron.  The house is in good structural shape, but will require some work to get it to either selling or renting condition.  She has had a number of pets over the years, and has also been something of a hoarder as well.  Due to this, the house will require new flooring throughout the entire house.  Apart from that, the kitchen is dated and could use an update.  The house is old (1968), 2400 square feet, two car garage, roof, ac, and heating are all in good shape.  The main bath could use an update.  It's really a great house to raise a family, in a wonderful neighborhood in a great town (where I grew up) with fantastic schools.  She has a mortgage and owes just under $200k on it.  Comparable houses in the neighborhood (turn key) are going for anywhere from 270-300k.  There are not a lot of rental comps for this type of house, but from what I can find 2300-2500 would be appropriate, though I am very unsure.

So what should I do folks?  I can try to rehab it and rent it out, and it would be my first rental property.  I did previously attempt to rent out a condo my wife and I owned during the 2008 crash, and that was a debacle, but I'm ready to try again if need be.  I don't think it cash flows very well though, if my calculations are correct.  I know I could sell it in a matter of days if that's the way it goes, but I don't believe we would make much money on it due to the need for flooring and updating the kitchen.

It's really a great house.  I would live in it myself and rehab it, but I live in Massachusetts and I have no real interest in moving back home.

Thank you anyone and everyone for your commentary.  I would appreciate candor, and will answer any questions you have in order to give me good advice.

James Wise · Answer

Price to rent ratios on $300k SFR in the Cleveland market don't make any sense from an investment perspective. Selling it would probably be your best bet. Given your location, inexperience in construction and the cost of renovations as well as real estate right now (both are way up) selling it AS-IS with no repairs is likely the best course of action.

Greg Scott · Answer

First of all, I would make the decision from a zero basis.  Assuming it wasn't your mom's house, would you buy this house and turn it into a rental?

From what you have indicated, it sounds like it might be in the kind of area that would make for a good rental.  I'd also be surprised if it doesn't cashflow given the value and potential rent you stated.  I'd run the numbers in greater detail.

Probably the harder part would be getting it rehabbed remotely, but you are going to have to do that whether you sell or rent it out.

Joe Splitrock · Answer

@Richard Shara you mentioned that your mother is in failing health. If she ends up in a long term care situation and you want Medicaid to pay the bill, that only happens when certain requirements are met. It is income and asset based, but there is also a look-back period. That means even if you sold the house today, there is a period of time that the government can claim that money towards expenses. You mentioned she may be living with you and I believe there is a partial exemption if she lives with you for two years and you are her care giver. This all gets a little complicated, so do some research and maybe even seek out a planner to help. Of course it depends on her other assets and income and if you planned to pay for her care long term.

What you want to be careful of is a situation where you put you take possession of the property and put your own money into the property. The government could come after you for the money.

Personally, I would list the property as-is. Don't put a penny into it so you minimize the gains. Sell it now so the clock starts on the look back period. Look into the care giver rules and see how much money she can transfer to you as a care giver to avoid the look back rules.

Jaron Walling · Answer

Sounds like a nice property but it also sounds like a nightmare to renovate due to the size. Like James said huge houses don't rent well and it's probably harder to find tenants. Not only that you're taking on the responsibly of OOS land lording and management. Unless that was your plan already I'd clean it up, do some painting/minor repairs, and get it listed ASAP.

"Don't miss the opportunity to view this fixer-upper's dream! This 4 bedroom build in the late 60s is full of charm..."

Spence Kal · Answer

Hey Richard, I’m an agent in that area and things are crazy now, people are even buying houses that need updated because there’s such little inventory. So I second James Wise about selling as is, he definitely knows the rental market here. From my limited rental knowledge (only have one rental ATM) it seems like 2500-3000 is a tough sell unless its near great schools and jobs. It’s also hard to find decent labor now because contractors are slammed, and nobody wants to work, plus lumber costs.  All that on top of you not wanting to move, there are other investments I’d choose personally that would be a path of lower resistance. But that’s just my opinion, it could definitely be done!

Jeff Ronningen · Answer

@Richard Shara.  If your mother is elderly and her health is waning, I’m surprised she owes $200K on a house that’s not worth much more than that as is.  Does she have income to make payments even if she lives with you? Does she have a will, living will, POA, and healthcare POA?

My opinion, don’t consider this for your first rental. The cash flow is marginal, it needs improvements to be rent ready, and you would be an inexperienced long distance landlord. That’s a formula for a nightmare. Hard pass.

Focus on caring for your mother.  Consult a real estate agent to determine prospects to sell as is versus with improvements. If the difference is small sell as is ASAP.

If you want to pursue REI, develop a strategy that fits your goals and resources and stick to it. Don’t fall into it and have a property choose you. You decide.

Best of luck. I hope your mother enjoys many more quality years.

James Wise · Answer

Well the only market I'd consider myself an expert in is the Cleveland, Ohio market. If that's the kind of market you are interested in I recommend reviewing The Ultimate Guide to Grading Cleveland Neighborhoods as a starting point to familiarize yourself with it.

Jason Regan · Answer

@James Wise I am looking into some new markets to invest in.  What markets do you think is good to move into?

Alecia Loveless · Answer

@Richard Shara My thought is this, if it hasn’t already been refinanced at the current low interest rates now is the time to do so if at all possible then it should cash flow just fine.

My non owner occupied mortgage which would have a higher rate than you would get for a little under $200,000 has a payment of $775. So if you could refinance your mom’s mortgage for around 3% the payment would be only a little over $800.

If you could rent it for $2300 once you pay taxes and insurance and other costs, you’d have to use the BP Calculator, I think you’d have a nice cash flow to help with your mother’s expenses.

Of course you’d have an upfront cost to get it rent ready but Home Depot and Lowe’s have inexpensive good quality laminate plank flooring that’s easy to maintain and lasts so much longer than carpet. There’s even a special version for wet places like bathrooms, laundry rooms, etc.

Once you remove the existing flooring if there’s pet smells ask here on the forum but I believe you want something like oil based Kilz paint to paint the sub floor with to encapsulate the smells. Be sure to ask though I might have the wrong product or there might be a better one.

Best of luck!

What should I do with my mom's house?

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