Here's my situation. I have a 3BR 2B single family rental built in 1976 with the same tenants for 11 years. The property is in need of upgrades ( windows, siding, concrete repairs). The interior is very dated and needs TLC. The tenants ( two guys) are the usual slobs but pay their rent on time every time without fail. I currently have about 140 K in equity in the property in it's present condition with about $630 positive cash flow per month. I discount the rent to the tenants because of the condition of the property. The going rate for a like property in good condition is about $1700 per month and I charge them $1500.
I'm 66 years old and am trying to at least semi retire at this point. My wife is 11 years younger so she will be working another 6 years before she draws S.S. We are open to any kind of creative way to maximize profit and minimize tax burden.
Here is another monkey wrench to throw into the mix. My 24 year old daughter has been trying to qualify to buy anything here in Denver/Metro and everything is too expensive. She is renting an apartment with her boyfriend for $1550 per month.
Sell my home, get rid of tenants, live in rental for two years and repair it, sell.
Rent to my daughter( I have seen this scenario get ugly), get them to help me repair it...possibly sell to them.
1031 it to a nicer house that I might retire to in the future, rent to my daughter until I retire.
Sell the rental as is, eat the taxes.
Fix the property (20-30K), raise the rent ( probably lose current tenants), cash flow would remain about the same.
Fix and update everything (30-50K) sell, eat taxes, some increase in end profit depending on how much work I do. I am an interior trim contractor.
Hey @Scott Tumath , a couple thoughts for you.
1. I wouldn't sell. Over a decade of on-time rent? That's phenomenal, and $600+ in cash flow is excellent, plus you have tenants that probably won't want to move out anytime soon because anywhere else will be more expensive. As far as I'm concerned, that is a golden rental, and I wouldn't mess with it. If the tenants ever move out, it would be a good time to freshen the place up, hopefully you've been socking away money every month for that - and your cash flow will thank you afterward.
2. I would not rent to your daughter if I were you. I've got a daughter and I get it, but no.
3. If your concern going into retirement is managing the property, hire a quality property management company.
I think that going into retirement is the time when you need to be hanging onto your cash flow more than ever. I believe that if you were to sell now, you'd probably regret it down the line, because I think that $600-$800 in cash flow every month from a single property would be a pretty killer bonus on top of your SS.
Just my personal thoughts.
@Scott Tumath I think if I'm in your shoes I stick with the devil I know. Namely the slobs that pay on time! From what you're saying it's not as though the tenants are abusive to the property so their sloppiness can't "make it worse" if I'm understanding you correctly. My perspective would be that you're not at the point where you have to do anything yet. Let the thing just keep spitting out cash until you need to make a major repair and/or the tenants leave. Then you can figure out if it's time to sell. If you want to sell without updating, if you want to update and sell, etc. I have no idea if that would happen in 2 weeks or 2 years. I just wouldn't be too quick to pull the trigger and change (what looks to be) a "very good" situation in the hopes of a "great" one.
Family and Business never seems to workout well
I would keep those tenants, on time rent for that time period is golden..
I would only rent to family, especially son or daughter if I don't depend on the rental income.
Renting to family or friends typically starts with good intentions and ends up being ugly..
Think about investing in a side by side duplex,, keep the rental it's great income and current tenants are golden goose they lay you a great egg every month. Fix what they complain about and don't do more until you have to, on that property.. exterior at this point first.. and if you do repairs now on outside it's still expense on that property for deductions.
Daughter... if you invested in a duplex,, and let her rent out one side would be a nice olive branch to throw out.. you could downsize and move in other side once you sell your current home.. Keep any and everything on paper lease wise with your daughter.. I've rented to family and it will work you just have to play by the rules and also get that security deposit upfront..
You could turn around and sell your fixed up home your moving out of on a Contract for Deed,,to your daughter after it's fixed up,, you'd have monthly income,, and no broker's fee's on the sale,, and then you can rent out the other side of the duplex she just left....
one thing for anywhere your going to fix up,, if it hasn't been in the rental stage,, get it rented before you do major work,, you can then deduct the improvement costs.. if you do it the other way around,, those improvement costs are not deductible against the rental property... even if you let someone live there while work is going on and pays little or nothing the expenses you can deduct are worth more than the rental income.. it doesn't hurt to run a property at a loss for a portion of a year doing rehab this way,,
Right now with both of your properties you have a great tool ... Equity,, use it to gain another property and grow,, so you can sit back in 3 years and relax..
Thanks, I probably will just leave things the way they are and repair as needed. I know from other investor's stories that renting to family usually ends up badly.
If it works, don't fix it!
I would say that's the best idea. I have a daughter and I know how it is. All she has to do is sweet talk ol daddy and your done for. Don't do it
I concur with @Nick G.
I would move back in, fix it up and sell. With $140K in equity you are losing out on about $1000/month in income based on the equity sitting dead in the property. Money needs to earn it's keep, yours is doing nothing.
Buy something smaller at a lower price and but the rest into a income fund. You will never truly be retired till you get out of the business.
Just curious, How did you come up with the $1000/month loss figure?