Landlords - Bad idea or terrible idea?
 

My future stepdaughter has accepted a teaching position in the Quad Cities, and needs to move. She has a cat and a large Husky / German Shepherd mix, which some landlords are hesitant to accept. She's going to check out some apartments this weekend, but if she can't find something, what do you think of this idea?

There's quite a few condos and single family houses below $100k in the area, and they don't all appear to be in the hood or the flood plain. I could sell a few investments and buy one without a loan, and rent it back to her at less than market rate. What are the risks or tax implications of doing this? Would anything change when her mother and I get married? That should happen June 2017, unless Morgan Fairchild starts returning my emails.

Let's say she hates the job and leaves after a year, or two years, or ????
I don't want to rent to someone I don't know, so I'd sell the place if she moved again. How would that affect things?

A sweet gesture on your part, but what are resale prices in the area?

How about setting her up with a loan so she has a 20% down payment and she buys the place ? Less out of pocket for you lets her build credit and eventually equity and makes her responsible for the place. Gives her skin in the game


No expertise in anything but it sounds like you want to help her out and maybe make a little money but dont want to be in the landlord business

Rent typically will cover a mortgage.

Why not put the down-payment down, and use her rent to pay the mortgage.

User her payments to give her some equity.

I like this angle.

Like NotaBRG said dog/cats may not be allowed in a condo. The condo bylaws may not allow pets. I think a single detached house with a fenced yard would be more suitable for a dog. However having a stepdaughter you may not be able to control the situation as well as she becomes family. Dog could bark too much if left outside all day.

Renting is not easy. Have been doing it eight years.:)

Well, I'm not concerned about the dog barking. He just doesn't bark. She's had him about 3 years now and I've only heard him bark twice. Once when I put him in the bathroom while we were moving her from one apartment to another, he didn't like that. Her current roommate has a dog, and he's learned to go to the door and bark when he wants back in. He never used to do that before, he'd just stand at the door and stare in the window until you opened it. Her mom likes the idea of her having a big dog for protection, although seriously I doubt he'd attack anyone that didn't have bunny ears or a squirrel tail. He knows not to mess with the cat.

As far as setting her up with a loan, she has a huge student loan debt and I don't think anyone in their right mind would give her a loan, but then I'm not a banker. Probably better in the long run for me to buy it and she'll just get it when they read the will.

One thing that does concern me is resale. If I look at the area with Trulia it shows a lot of blue dots, which are houses in pre-foreclosure. I'm not sure what that means for the area but there's a lot more Trulia blue dots in Davenport than there are in La Crosse.

Some tax considerations:
You will be able to depreciate the unit but you will owe the tax when you sell.
You will owe gains taxes if you sell for a profit.
You can put income against mortgage interest and property tax, so paying it cash may not be the best way to go, if you can get a good loan.
You have to rent out at fair market value, otherwise the tax man will get you for writing off too much vs. an artificially low income.

Some personal level considerations:
This is the kid of your future spouse. What if you don't end up married? What if the kid is a PITA, such as not paying her rent etc.?

And finally - unless a down payment is a GIFT from a relative / friend, you cannot count it as a down payment. A loan is not a down payment and any mortgage company will reject your application. Of course you can lie on your mortgage application, but that would only work if the loan is not documented, which also is not a good idea for the lender (you in this case).

HTH!?

Cheers,

George

This is a very important point. Things can change quickly in relationships and in life so CYA in the meantime. She is the adult girl of mommy and not you.
But it could also work out to the benefit of all.

Large school debt existing. New job in a new unfamiliar city. New mortgage.
Yikes. Triple whammy.
But it looks like she is trying.

That city doesn't look too bad on paper for specs:
https://en.wikipedia.org/wiki/Davenport,_Iowa
(good)- "In 2012, Davenport as well as the Quad Cities Metropolitan Area was ranked among the fastest-growing areas in the nation in the growth of high-tech jobs."
(good)- "The Quad Cities was ranked as the most affordable metropolitan area in 2010 by Forbes."
(danger danger)- "The city is prone to frequent flooding due to its location on the Mississippi River."

382,000 residents.
236 homes for sale per zillow.
5 forclosure. 7 pre-forclosure.

It is a huge investment, and you will have to do much research and consideration leaving nothing out.
Should she rent the first year and get to know the area first?
Is another area better because townships generally have lower taxes?
What would be her work commute, and the best way to strategic this?
What nearby things are there, such as grocery, gas, parks, etc?

Most bang for the buck.
For her the owner. For you the banker. For all.

Animals need a house and a yard. Plus a hammock in the back yard feels like home for a teacher grading papers.
Condo/HOAs can be insane (don't ask).
She can get a single female room-mate if need be to help with bills. She should actually.
Always watch out for the drunk boyfriends with tempers.

Consider using a https://en.wikipedia.org/wiki/Land_contract if you go that route.
Her initial down payments and higher 'rent' might cover extra costs should you both have to foreclose in the future.

Personally, I would research every square inch of the city and it's potential.
Lot's of heavy talks first. No drama or taking sides allowed. Only harsh reality.
Lot's of "what if's" and honest discussion.

You can always wait...
Recessions happen. Prices drop by hundreds of thousands.

Family and business never mix. Nice gesture, but high risk...

I plan to do this more my kids in 3 years. Will buy a house close to whatever college they go to... It's cheaper than school housing... But I am paying myself...

Rule#1 and #2.
#1). Don't ever 'fall in love' with a house.
#2.) Buy one of the least expensive properties in the best stable upcoming area. Only after multiple inspections.

It is an investment.
Things can be fixed.
Things can be built to suit any persons needs.
Paint and doorknobs are cheap. Other things are expensive.

I second that family and business rarely work....

Yep. If you get audited by the tax man...

It's an extremely high risk, low reward venture.

Let's break this into categories.
First...
The investments you speak of selling to fund the purchase, are you perfectly fine without them in your portfolio?
If the house value stagnates and it becomes upside down, are you good with that?
If you incur the worst luck and pump thousands and thousands into the home, are you ok with that?

Second...
You may know her and are marrying her Mom, but what if things get downright ugly with her in the home?
Will you be able ( emotionally ) to evict her? Talk about that with Mom before you go any further.


If you proceed, document, document, document. And don't forget to document everything, and I mean down to lightbulbs, landscaping, dryer vents, blinds, etc.
Oh, and all three of you should watch Judge Judy a few times. TOGETHER.

This can be a blessing to the entire family, or the wedge that drives you all away from each other. By the way, that tax implications are minor compared to the "family factor".
.02

Hell yeah.
Always keep a pic/vid copy off-site.
For insurance and black helicopters.

You guys are really scaring me off this idea. Hopefully she'll find something on her own.

But, if she doesn't, how does the IRS determine what I should be charging for rent? Do they average in the neighborhood, the city, the region? How about if we provide appliances?

The main advantage of this deal is I wouldn't charge her extra for the pets, or have an issue with the dog.
He does need a yard. Christmas 2014 she brought him home and he was downright chunky, but when she moved to Des Moines she found a house to share with a couple of roommates, with a big fenced back yard and now he's back to his regular weight.

As far as her missing rent or me having to evict her, that does worry me. She has a degree in music, not finance, and definitely did not learn money management or budgeting from her parents. I have a hard enough time with her mother. But on the other hand, we've been dating for almost 6 years, and living together for almost 2, so she's not going anywhere anytime soon. I'm getting too old and too tired to find another one that will put up with me.

I rented to a teacher and she was a little quirky but super reliable about paying rent on time.

You are a good guy for wanting to help out the future SD.

Having said that:

I also married into a SD, super smart and hard working young lady (Graduating this year).

I love my wife dearly and she loves me... but if anything threatens her little girl she goes into mama bear mode.

Long story short (just IMHO) if SD comes up short in anyway you will end up paying 'the rent'.

She has a student loan + cost of moving into a new place + whatever other cost of living expenses.

Just my two cents.

Run Forest, RUN!!!

This I can relate to!

For the health and happiness of your future marriage I would recommend staying away from trying to be a landlord to your SD (does your GF know you are thinking about this?)

I say let the sd look after her own accommodation. If things go badly with a house you bought then you could well end up looking like the bad dude. You could well be subsidizing the sd as well.

It is not good business to deal at non arm's length with the SD. Having said that I am still paying for my married daughter's car insurance and some tuition. But for the latter I am not talking a lot of money.

I remember many years ago a good looking coworker said that anybody that marries her gets to take over her debts. I wondered what happened to her.....:eek: