<p>So many smart people on here, would love to get your feedback. My father recently passed away, and my sibling and I inherited his condo. We are thinking of buying sibling’s share and renting it out. I’m not really sure how to go about it, however. Have any of you done this? Know anything about it? Is it a good idea? What are the benefits? Pitfalls? This is not exactly a college related question, I realize.</p>
<p>I have never been a landlord but I do know that many people who rent out properties try to show as little income as possible (so they don’t have to pay taxes on the rental income) which means you might want to put a mortgage on it so you have the interest to deduct. But of course, if you don’t mind the extra income and income tax (not sure how much you could rent it for) don’t take out a mortgage if you don’t need to.</p>
<p>It also will depend on how it was left to both of you. Did you receive it as joint tenants or some other way? That will affect how the Title is transferred and associated costs.</p>
<p>One complication is determining the value- in today’s market an appraisal is liable to be lower than a few years ago, if you buy them out at a lower value and then you later sell when the market has rebounded, there could be hard feelings. Or you could pay a value today and sell later at a lower amount.</p>
<p>My sister inherited a house 50-50 with another woman. They had to pay estate taxes on a value that ended up being 10-15% higher than they could sell it for a few months later and this was about 10 years ago when the market was okay.</p>
<p>I am renting out my parent’s house for them and they can claim depreciation and expenses which do actually reduce the AGI number. Being a landlord can be great with a good tenant and property that debt services and appreciates. One nasty tenant could ruin your good feelings. I think there is a thread on here about landlord horror stories, might be festive reading for you to prepare mentally.</p>
<p>Also, read the condo documents to be sure that renting is allowed and, if so, whether there is a minimum rental period. Some condos don’t allow 6-month leases or month-to-month leases, for example. And many condo associations have to approve all tenants. They can make it really tough on a landlord (I know from experience)!</p>
<p>Check to make sure you’re even allowed to rent the condo out (to a non-family member) before you get too far into the planning.</p>
<p>Just sell it. I’ve been a landlord. It’s a lot of work and even renters with glowing recommendations can do a spectacular amount of damage in a very short time.</p>
<p>Have you run the numbers?</p>
<p>Add up the rent for the year you can get.</p>
<p>Subtract mortgage (if any), taxes, condo fees, insurance, any utilities, a vacancy allowance, a repair allowance, commissions (if you don’t find your own tenants), etc.</p>
<p>Would you at least break even on a cash flow basis?</p>
<p>Estimate the tax benefits if any. Note that while you get deductions for most of the above expenses, if you and your spouse make more than $150K (MAGI) you won’t be able to take the losses right away.</p>
<p>Do you have any familiarity with fair housing laws? Tenant/landlord laws? Lead paint laws (if applicable)? What is legal/illegal on a lease? Do you know what the eviction process is and how long it takes? Do you know how to handle deposits correctly? Can you do an effective tenant screening, or have someone who can do a good job? Can you make repairs yourselves? Do you have a network of tradespeople who you trust?</p>
<p>Are you willing to deal with the 11 PM calls on a Sunday that something has flooded or the heat is out?</p>
<p>Can you be a hard-a** when the tenant doesn’t pay their rent and gives you a sob story?</p>
<p>Have you priced out getting an umbrella policy to protect yourself from liability? Note that this often requires higher limits on your auto and homeowners insurance, which can cost you some money.</p>
<p>As for the condo: what do their capital reserves look like? When was the last time they did major maintenance such as putting on a new roof or replacing the windows or painting? When was the last time the unit’s interior was updated?</p>
<p>Landlording can be a very rewarding and profitable venture (it’s how we are funding our retirement to a large degree), but it is not for the faint of heart. You should have answers to all these questions (and a lot more) before you start.</p>
<p>Here’s the landlord stories thread:</p>
<p><a href=“http://talk.collegeconfidential.com/parent-cafe/1312810-landlords-stories.html[/url]”>http://talk.collegeconfidential.com/parent-cafe/1312810-landlords-stories.html</a></p>
<p>If make it through this and still find the prospect of being a landlord interesting, then it might be worth considering. 
</p>
<p>Is the condo in a resort area? Location, location, location. I might mess with it if it is in a popular vacation area, but if not, I’d just unload it.</p>
<p>There are a lot of ways to skin this particular cat. But it’s going to be you doing the skinning, with a number non-participants looking over your shoulder offering advice. Not everyone is cut out to be a landlord.</p>
<p>OMG how did i ever miss the landlord thread? We’ve downsized from 11 units to 6…and it’s my H’s deal…but whether it’s one unit or 11 or more…it’s months of quiet punctured by months of head banging. But yes do your research all the way around if you decide not to sell it and turn it into a rental.</p>
<p>Another thing to check is how healthy the condo association is financially, so you don’t get stuck paying bigger fees.</p>
<p>Please completely disregard Classof2015’s advice. In the first place, since you have to claim depreciation on a rental property people rarely claim a profit on a rental. Secondly, taking out a mortgage on a property in order to deduct the interest makes absolutely no financial sense. Let’s say you pay $1000 a year in interest. That would save you $150-$350 in taxes depending on your income tax rate. Does that make sense?</p>
<p>There are lots of factors to consider around taking out a mortgage. There’s opportunity cost, leverage, capturing money at a ridiculously low rate, maintaining adequate liquid reserves, whether you can deduct rental losses, etc. </p>
<p>It can be smart to take out a mortgage even if you have the cash not to, it depends on how it fits into your overall financial plan.</p>
<p>You and your brother first need to determine true value of condo. You and your brother should pick out together and hire a real real estate appraiser for a few hundred dollars to appraise the condo. Don’t just rely on an opinion from a real estate salesperson. Get a formal appraisal done and share info with each other so there are no misunderstandings on value between you. Best plan might be to just sell condo and then split proceeds after closing.</p>
<p>second on selling the property and split the proceed. Even that will create some tension among parties.</p>
<p>Buying some one else’s portion on a real estate deal is always controversial, with or without formal appraisal. And it will easily alienate the relationships if one party felt being mistreated.</p>
<p>I really appreciate everyone’s opinions on this. You’ve brought up some things I haven’t considered, such as getting an appraisal. The value is fairly straight forward to figure out, since it is in a largish development, and there is always some turn over, but it probably would be best to get an official number from a disinterested party. It is in a very convenient location in San Diego, about a five minute drive to a nice beach. We happen to be moving out of state in a couple of months, and it is tempting to keep a toe in California somehow. I definitely want to be fair if we buy out my sibling – both to her and to me! But, these things can be tricky, as some of you have pointed out. Not sure I want to be a landlord. I would hope we could have someone else manage the property. If we buy it, I imagine we would keep it for five to ten years (until retirement), and then reassess whether to keep it, or sell it and buy something else. I have this idea that I may like living where we are moving (the midwest), but that even if I do, I may want to winter in California in a few years.</p>
<p>I would not be in business of renting out, except for elderly parents (which we have done and it was great). We sold the condo right after it was not needed by our parents any more. We did not have any mortgage at that time, paid it off in few years after buying it.
I am not sure if any advice is helpful as it is very personal preference. I know family that owns numerous houses and renting them all in addition to both working full time. So, everybody is different…</p>
<p>You need to find out the financial status of the condo association (what percentage of the units have dues owing, what the recent reserve study showed, any special assessments,) and whether properties in the condo qualify for FHA loans – they’ve gotten very, very strict on that front, and it can make properties hard to sell. I don’t know if an appraiser evaluates that aspect.</p>