View Full Version : Real Estate Questions
Hi everyone,
Hope you are all well. I've been busier than usual in recent months, just lurking since the forums moved but recently I've been considering something and wanted to get your thoughts on it.
Just to catch up any who might remember my previous posts from the old board, here are some updates:
I did pay off my mortgage on my one bedroom condo in August.
In February, I changed jobs and got a significant increase in pay. This is in part due to just a better opportunity but also because I am now working as a contractor probably through the end of next year. I've decided I'm willing to travel more now though and my industry has picked up, so I think I can stay at the higher income for the next five to seven years anyway.
I'm moving forward with my plans to obtain my CPA license. So far, I've finished three college courses. I will start my fourth this summer and can complete everything else I'm planning to do totally online through a state university.
The CPA is primarily about the knowledge as it fits in nicely with my current career in health care IT project management. I think it would also be a potential fall back skilled job. When I changed jobs in February, I moved from the clinical side of health care IT to the financial side where I plan to stay.
Okay, so now for my questions...:)
More than a year ago, my elderly next door neighbor died. Her niece inherited her two bedroom one bathroom condo. The apartment was renovated and it looks good now. It is a 1279 square foot condo with two bedrooms and one bathrooms. My current place is 879 square feet with one bedroom and one bathroom. I'd been kind of planning to do some renovations to my place after I paid it off.
My incredibly frugal mom has suggested I consider buying the place next door since the total costs involved in renovating my place might wind up equal to the price of the place next door.
My building is old and charming with high condo fees. My condo fee which covers heating, air, water, sewer, trash, building insurance and external maintenance is $426.45/month along with about $1500/year in property taxes added to that. I pay a $40/month electric bills, a phone bill, a high speed internet bill, a $1.50/month sewer bill and contents insurance also. The largest place has a $585/month condo fee with almost $2,000/year in property taxes. It is possible that I will soon join the condo board. A friend on the board has told me we have essentially no money in savings and will probably have an assessment at some point. $6,000 per condo based on average size but more for larger places and less for smaller places would put us in good shape. There are some condos significantly behind in fees but that situation is happily improving.
After renovating the larger apartment, the niece listed it last September for $164,500. In February of this year, she dropped the price to $154,500. In April she dropped the price to $139,000. The last several condos that have sold in my building were $125,000 for one just like this larger apartment last year and $100,000 and $90,000 for one bedrooms like mine. I was thinking of offering $115,000 for the bigger apartment to see if they would take it.
I bought my one bedroom seven years ago but had nothing to sell, so this would be the first time to buy and sell in a somewhat coordinated way. My dad suggested that I keep my condo and rent it out. I think if I could rent it that $800 would be pretty fair given the research I've done. Some renovations might be necessary but it would depend.
It is my understanding that there are tax breaks through owning rental property which would be helpful to me now as with my new job I'm grossing $120,000/year but I have no debt and no kids and thus no deductions outside of a 401(k) and possible HSA type things.
I think there is a possibility that later on my parents who are now in their early 60s might move into my little condo so I'd like to keep it for them. They would like for me to keep it as I can as Dad thinks one should avoid selling real estate whenever possible. From a tax situation, it could be useful. They have a small business now and couldn't afford to pay anything I wouldn't think at this point but perhaps in the future they could pay rent. Not sure. Plus, I hate to sell now when I think the economy for housing is pretty sad.
Normally, I try to avoid debt as much as I can and I am not at all desperate with this, but I think this condo could be a really good deal and I'd enjoy having the extra space and the renovated place.
What would you do if you were in this situation? How would the tax advantages work for rental real estate or, for that matter, contractors generally? Right now, I am a W2 employee but my contracting company says I can also switch to 1099 if I'd like. If only I had already gotten to my accounting tax class. Scheduled for this fall. Thanks. :D
Gardenarian
4-25-11, 4:09pm
I think you need to take a couple steps back and look at the big picture. Because the condo is right next door, it is directly in your field of vision, and therefore much more tempting. Would you be interested in this condo if it were down the block? A mile away? in another town? Is this the place you want to live forever?
Also, those condo fees are pretty hefty, and never-ending. Admittedly, the maintenance on a house can be expensive, but you have a great deal more control over when and how you are going to spend your money.
There are a lot of ways that you could spend the money that would go to the new condo. Just consider if it really is the absolute best use of your funds.
Welcome back, and congratulations on your accomplishments, bigbear!
My nickel: I'm overextended on realty, tired, and I hate being a landlord. I will admit it was a lot easier when I was a condo landlord rather than a house landlord, but it's still a pain, a risk, and stressful pressure hanging over me. Always waiting for the other shoe to drop - what's wrong now? Why isn't the rent here? You want me to what? When? The neighbors are complaining and they want ME to fix your noisiness? Me being me, if I were in your situation I think I'd stay put and gloat in satisfaction over my perfectly sized, cheaper-to-own and gorgeously decorated place, and enjoy the free time and lack of stress. It really sounds like your money situation is just fine the way it is. Why complicate a perfect life? ;)
I have another view: because it's next door is a HUGE plus. You could make one large unit. You could have parents steps away from you rather than miles away... having reasonable elder care is very valuable.
there are a lot of factors to weigh here.
The first question I would look into is when your elders would require care.
Since my parents and ILs are in their active mid-60s, I'm not that concerned about them needing care for another 15-20 years. This means that I could save up cash assets to eventually buy a condo in the same building (perhaps another one-bedroom for them), if that is the right form of care for them (my grandmother and GMIL have dementia, so they are in a care home.).
If they are looking toward care in the next 5 years, and are independent and healthy overall, then yes, I would consider buying now.
Next, I would look carefully at the fees as this impacts the investment. retirement communities (that step from independent apartments to nursing care for end-of-life) can cost less than the condo fees, honestly, and it might be a better financial decision. It may not be a better emotional decision.
In general, property is a very long-term investment to get any return -- a decade at least, and some decades are better than others. the return on investment is generally a smaller percentage than another safe investment may be, but having a rental property can have advantages and disadvantages. The poster above mentions a few. :)
Also, if your parents have a home and could downsize (sell their place, buy the condo) -- then they could move into the larger place at $115k or whatever, too. You don't have to buy it. :)
I have an appointment to see the bigger condo in the morning. I e-mailed the owner. She said someone who saw it last week is very interested but no offers yet. I've paid to get a credit report so financing is in the works. It really depends on a lot of factors coming together.
For years, I've wanted to buy a bigger condo in my building but I don't want to stress myself out unnecessarily either. So I think this will be a case of nudging the door to see how it goes.
Part of my interest has to do with taxes. My understanding is if I rent out my small unit, I could deduct all the costs (mortgage interest if I got it financed again, condo fees, renovation costs, property taxes, etc.). It is also possible that I might turn myself into an LLC to be able to change from a W2 employee to a 1099 person and try to get a SEP-IRA.
It is a shame I am not yet through with my CPA training though these questions do make me glad I started down this road...
I do not know what you should do, and while I personally dislike (intensely) the idea of a financial commitment to a condo in an old building, I love (intensely) old pre-war apartment buildings and so I can see where the love comes from.
But either way, you are frugal, you have money, you have common sense, and I think whatever decision you make will be fine.
I'm excited for you. I think that -- once you look at it from all angles -- whatever you decide will be the right decision.
I like being an LLC myself. It works well for us.
Due to a work commitment, I ended up moving my appointment to see the apartment to Monday morning. In a way this is good because it will hopefully give me some extra time to line up financing and perhaps get approval to rent out my old condo if I follow through on this purchase.
If I did rent out my one bedroom place, I think I could get $800/month in rent for it. If I got financing on it again, I'm thinking I could deduct the mortgage, the property tax, the $426.45/month condo fee and any renovations. For those who have rental property, is this correct? Additionally, now that I'm a contractor, I'm thinking of moving from W2 to 1099 but I think I have to form an LLC or corporation to do this. I read somewhere that I could then do a Sep-IRA to put 25% of my gross income into a retirement plan. If I can my own health insurance like an HSA, I think I could deduct this too. Though these tax deductions and the rental are technically two different things, I'm wondering if I should seek information from a tax person before I embark on this to arrange the financing in the best way the first time. Does anyone on the boards have suggestions on how I should set this up? I wouldn't do anything illegal, but I would like to move forward methodically as I can understand it with things I could legitimately do. Hmmm, maybe I can sign up for that accounting tax class this summer. :)
It's simple enough to talk to an accountant or lawyer; shouldn't cost you more than $150 to do so, and often that includes setting you up.
From your post and several misconceptions it indicates, you really need to consult a tax and legal professional before making any other drastic and irreversable steps based on incorrect info.
It doesn't seem to me it will be a good investment to keep your one-bedroom unit if the monthly fees are that high and the rent you could collect would be $800. Those fees will rise over the years, you will have vacancies, and your housing & rental property are not diversified - too much of your net worth will be tied up in one location unnecessarily. So, my advice would be to sell your one-bedroom if you decide you absolutely want the two-bedroom.
You have no mortgage, right? Do you really, really, want to have a mortgage again? Or even maybe two?
Definitely consult a professional. I would not want to carry the 1 bedroom condo indefinitely. If your parents want to rent it, ok, but I would not keep it just in case they do. Would your parents eventually buy it?
I saw the two bedroom condo on Thursday. It was not in as good shape as I had thought based on the photographs though there is no furniture, so that was part of the issue. It does have beautiful trees now in bloom covering nearly one whole side. The terrace accessed from windows at the moment runs almost the entire other length, so it could be like living in a tree house.
One of my elderly neighbors put a note under my current condo's door asking me to call her. I had been out of town for two and a half weeks and she had forgotten why she asked me to call her which might be a bad sign but anyway we had a nice chat and I mentioned that I was going to be seeing the new condo that day. A few years ago she had said if I ever decided to rent out my place to let her know. She is one of the few renters in my building and now pays $1300/month for a two bedroom two bathroom. If she moved into my place, she'd save money. Additionally, the place she is renting is for sale. On Friday, she left me a message saying she was getting more frustrated with the owner of her condo as for the second time she cleaned the apartment for a showing only to have it cancel at the last minute. I'm encouraged she might want to rent my place as it would keep me from having to put it on the market right now.
So, I'm still unsure of how/if to proceed. The realtor will be out of town all next week. After that, my parents and some other friends are going to look at the big condo with me so that I can get their input too.
well, if you aren't happy with the condition, definitely offer even less money in some form of offset what nots.
Personally I would definitely not become a landlord in that situation. Your income would only be about $3000/year. A paltry 3% based on a $100,000 value. Not to mention the association assessment that would gobble up over a year's worth of your profit. You could make that much profit with far less risk, uncertainty, and work by putting that money elsewhere.
If you want the 2 bedroom I'd sell your current place and buy the new one and find other investments for your excess income.
Fingers and toes crossed, but it appears I am buying the two bedroom condo. Signed a contract a few weeks ago and am supposed to close a week from today.
I truly feel this was meant to be as I got a great price ($123,500) in what was basically an estate sale. My 93 year old neighbor died two years ago and some basic renovations were done to the condo with the neighbor's grand niece moving in briefly. The apartment has been empty and for sale for nine months. 2 bedrooms, 1 bathroom, 1279 square feet, six closets and a potential small terrance off the dining room and the bedroom. I am so, so excited.
This financing thing is about to kill me but I'm hoping to cross the last hurdle for that today.
So, now I need to sell my little condo next door that is 879 square feet, 1 bedroom and 1 bathroom. My elderly renting neighbor already in the building looked at my condo recently to consider renting but after a few weeks of serious thought decided against it. I understand, she is in her 70s and can afford to stay in the bigger place she is in. However, she is now moving furniture around my place virtually, so she may be reconsidering. She is also thinking of buying my place. The big condo she is renting is for sale and the owner is a bit difficult to get along with. His place is overpriced now but if by some miracle it sells she would have to leave anyway.
So, I am finally about to come up for air in getting my place ready for photos, doing regular work, handling the financing nightmare, etc.
Now, I'm wondering if I should get a realtor. I didn't use a realtor for the big place since the seller was good friends with her realtor and he has been really great with me. I've done okay on my own but I'm not really driving this process and wonder if I would be as the seller. Could I get it done just by hiring a lawyer for the details and posting to Craigslist myself? How could I list my place on the multi listing service without a realtor?
I've never sold a place before but honestly in my heart I'd rather just get rid of the little condo than rent it. Last August, I paid it off, so selling it might allow me to either almost pay off the new place or get a big savings account. I've recently joined the condo board, so I might be able to rent but I'd have to have their permission. Should I list it to buy or sell?
Anyway, I just wanted to let you know the "rest of the story" and request thoughts, wisdom and lessons learned from selling or renting real estate.
Thanks.
Congratulations! This sounds like a move from the heart--always a good thing where real estate is concerned.
I bought my first place without realtor involvement, and the deal went very smoothly; it can certainly be done. You will probably want to engage a real estate attorney (I didn't) and you will need a title company. You could advertise it yourself--there are for sale by owner websites--and see how it goes. If you feel uncomfortable with the process or it doesn't sell, you can always move on to a Realtor.
I bought the two bedroom condo. Moved in this month and am almost settled. So, now I'm turning attention to what to do with my little condo next door.
The little condo has one bedroom and one bathroom. It is 879 square feet. It had been painted fairly recently before I moved into it in 2003. It has lovely curtains in the living and dining rooms. The kitchen is in fairly bad shape with avocado green countertops, sink and kind of plywood like cabinets. Hardwood floors and tile bath. It is in one of the best neighborhoods in my southern city. The building was constructed as very high end apartments in the 1940s and went condo in the 70s.
So, I'm looking for feedback on whether to try and rent/sell and/or how much to ask when trying to sell or rent.
I have a contract job that technically ends in December but which I think will be renewed. I gross $120K/year and up until I bought the new condo had no debt. With the new condo and the little apartment, I'll now have mortgage/condo fee/property tax expenses monthly of $2,250 or so. The little condo has a fee which cover most utilities and insurances of $426.45/month along with about $900/year in property taxes. I got the money to buy my new place by getting a 15 year fixed rate 4.25% interest mortgage for $99,800 along with a $30,000 401k loan at 5.25% fixed rate interest. So the mortgage on the new place is $750, condo fee is $588 and property taxes are about $1900/year. The payment on my 401K loan is less than $200/month I believe. So, if I could get rid of the little condo, I would avoid the $426.45/month and the $900/year property taxes plus I could pay off the 401K loan which would save a bit under $200/month. This would reduce my mortgage/condo fee/property taxes to $1,500/month.
Okay, so I bought the little condo for $84,500 in November 2003 and I paid off the mortgage last August. The realtors who came to visit thought I should list it at $99K (which I think is low) and give them a 5% commission. I would also have to pay title insurance if I sold the place of about $700. This would leave me with $92K in cash if that worked out. Whatever I get from the little condo I'll use to pay off the 401K loan and probably put the rest in savings until I see if my job is renewed. After that, I'll probably combine it with overall savings to pay off the big condo. I'd like to list the little place for $115,000 and take $110,000 or maybe $105,000 with no realtor. If I could get $110,000 in cash, I'd take it today.
I got an awesome deal at $123,500 for my new condo which is 2 bedrooms, 1 bathroom, 1279 square feet and honestly much nicer. I know there is a big difference between the two condos so perhaps $110,000 is optimistic. Who knows?
There is also the potential to rent the little condo. I think I could get $750/month or thereabouts. I'd have to get approval from the condo board with no penalty but I think I could since I am on the condo board and my boyfriend is another of the five members. I would prefer to sell the little condo to get it over with and to be able to move towards being debt free, but it is not a fire sale and I don't have to give it away. My main goal at this point is to have it not sit empty costing me over $500/month.
So, what I think I have decided is to try and sell with the best price I can get unless:
A) The tax benefits of being a landlord are so overwhelmingly wonderful that I can save a significant amount. I'm single with no dependents and, up until now, no debt, so I'd like to pay less in taxes
OR
B) I just have to give the condo away for nothing. I can afford to carry it for a while.
It looks like for the new mortgage (15 year, 4.25% with borrowed amount of $99,800), I'd pay about $400/month in principal and $350/month in interest. Plus I have that other 30K 401K loan which is all interest I believe. I'm also concerned that I'd get a bad renter, the renter wouldn't pay, what are eviction laws, etc.
From your experience, what would you do in my position? Try to rent and sell at the same time and take the first offered? Just try and sell and accept whatever I'm offered and say good riddance? Try to rent and use tax advantages? Thanks.
rodeosweetheart
8-1-11, 2:41pm
Personally, I would sell, but I am not cut out to b e a landlord! the new place sounds fantastic; congratulations!
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