Advice Needed: Mother In Law Housing Venture

Buying & Selling Real Estate
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Advice Needed: Mother In Law Housing Venture

Eric R. Dehner
Rental Property Investor · San Diego, CA · Member since 2017 · 31 posts · 16 votes

Hi guys, 

My wife and I recently moved back to San Diego California.  We are looking for at homes in this red hot market and realize we are getting priced out of the coastal cities.  My mother in law lives in Point Loma (Coastal) with her partner and has her original home (now a rental) in North Park.  This home has appreciated in value and she is now $400K positive.  

She would like to sell this home a roll that money into a joint housing venture with my wife and I. We would look for a property that has an existing ADU or the potential to build an ADU so she can still have rental income during retirement from the ADU.

What important points should we discuss when talking through this venture?  Has anyone structured an agreement like this?  Things that come to mind....

- 1031 exchange (rental vs. primary residence)

- Future sales agreement 

Any help would be much appreciated
Eric

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
5y
Originally posted by @Eric R. Dehner:

Hi guys, 

My wife and I recently moved back to San Diego California.  We are looking for at homes in this red hot market and realize we are getting priced out of the coastal cities.  My mother in law lives in Point Loma (Coastal) with her partner and has her original home (now a rental) in North Park.  This home has appreciated in value and she is now $400K positive.  

She would like to sell this home a roll that money into a joint housing venture with my wife and I. We would look for a property that has an existing ADU or the potential to build an ADU so she can still have rental income during retirement from the ADU.

What important points should we discuss when talking through this venture?  Has anyone structured an agreement like this?  Things that come to mind....

- 1031 exchange (rental vs. primary residence)

- Future sales agreement 

Any help would be much appreciated
Eric

 I wanted to point out something just in case you had not considered it.   Due to Prop 13, a property that has appreciated $400k has a property tax basis far below what the property would have if purchased today.  On this type of appreciation, the property tax saving could be $4k/year on $333/month.  This should be factored into any decision to sell. 

Another option to consider could be a refinance of the property or a HELOC (difficult to find on rentals right now).

With the current laws, giving up prop13 prop tax savings should be part of any selling decision.  

Good luck

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y
    Originally posted by @Eric R. Dehner:

    Hi guys, 

    My wife and I recently moved back to San Diego California.  We are looking for at homes in this red hot market and realize we are getting priced out of the coastal cities.  My mother in law lives in Point Loma (Coastal) with her partner and has her original home (now a rental) in North Park.  This home has appreciated in value and she is now $400K positive.  

    She would like to sell this home a roll that money into a joint housing venture with my wife and I. We would look for a property that has an existing ADU or the potential to build an ADU so she can still have rental income during retirement from the ADU.

    What important points should we discuss when talking through this venture?  Has anyone structured an agreement like this?  Things that come to mind....

    - 1031 exchange (rental vs. primary residence)

    - Future sales agreement 

    Any help would be much appreciated
    Eric

     I wanted to point out something just in case you had not considered it.   Due to Prop 13, a property that has appreciated $400k has a property tax basis far below what the property would have if purchased today.  On this type of appreciation, the property tax saving could be $4k/year on $333/month.  This should be factored into any decision to sell. 

    Another option to consider could be a refinance of the property or a HELOC (difficult to find on rentals right now).

    With the current laws, giving up prop13 prop tax savings should be part of any selling decision.  

    Good luck

    2Reply
  • Eric R. Dehner
    OP
    Rental Property Investor · San Diego, CA · Member since 2017 · 31 posts · 16 votes
    5y

    @Dan Heuschele

    Thanks Dan. Just read a long forum post regarding HELOCs. Looks like PenFed is still helping people pull out money on rental properties. I'd love to see my mother in law keep this property in North Park and be able to help us buy a house. A HELOC may allow that.

    0Reply
  • Maxwell Ventura
    Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
    5y

    @Eric R. Dehner

    We're seeing about 15% appreciation year over year numbers right now. Insane. Point Loma & North Park are two great areas own real estate right now.

    As Dan suggested, a Heloc or Cash out Refi could be a great alternative to selling to take advantage of the low property taxes your mother in law is most likely experiencing right now.

    On the flip side, this is as good of a market to sell than any San Diego has ever seen. All depends. 

    If you need a 1031 Exchange Accommodator I have a great referral for you. 

    Same w/ a great ADU contractor. They can potentially be a 1 stop shop from: Financing, Designing, Permitting, Building, Leasing, to Property Management.

    Hope this helps

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    5y

    @Eric R. Dehner I’ve worked with investors who have done something somewhat similar but purchased multifamily property together. House In front with couple units in the back. Depending on what you all want out if it exactly it could be as easy as taking title as tenants in common or having a business structure/agreement may not be a bad idea to set up with an attorney.

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