Rental Property Advice

[txtig]

I'm looking for some advice from those here that have rental property. Here's my situation: one of my adult son's is having a bit of a rough time right now with his job and housing situations. He and his wife have a new baby and he lost his job a few months ago and he has not yet found another job. He's got a few good prospects now, and we're hopeful he will find employment soon, but, unfortunately, he will be on the lower end of the earning spectrum. His wife is working, but she makes just a bit over minimum wage. They are currently living in an apartment complex and their lease is about to be up. They want to get out of the complex (its not a very good place to live), but I doubt that they would qualify for a new lease somewhere else with their current earnings.


So, DW and I have been discussing the possibility of purchasing a very basic single family home that we could then rent to them. We've seen some properties in the area that I think we could purchase at a price where principal, interest, taxes and insurance would be less than they are currently paying for apartment rent. If we do this, we would want to conceal the fact that we're the owners of the property. We fear that if he knew we were the owners, that he would be less motivated to keep up with the payments. So, I'm thinking that we could form an LLC to own the property and to collect the payments, with all communications via email and payments sent to a PO Box or transferred electronically. I know this charade sounds a bit convoluted, and I'm still somewhat reluctant to help based on his past track record. But the addition of our new grandson to the equation has changed the way we're looking at this. We want to see them in a decent home and we certainly don't want them moving in with us.


I guess my question to the group is how best to set up the structure of an LLC. Should I purchase the house in my name, or should the LLC purchase the house? I would want to rent him the house at our cost (mortgage payment plus property taxes plus insurance). Assuming that a portion of the mortgage payment would be principal, would this be generating taxable income for me? Any way to get around that? I'd also like to set up a rent-to-own structure to give him an incentive to keep up with the payments. So, as equity builds, it would reduce the cost if the LLC were to later sell the house to him.


I've never rented out any property before, so would certainly appreciate any advice you can offer.

[Big_Hitter]

why don't you just use a property manager and have everything go through them (with your direction)? they will be responsible for collecting rent, etc but there will be a haircut, about 10% of the rent


way less hassle than the llc charade

[homestead]

I would be open with them and let them pick the house. Tell them you will rent at below market rates and you will put it in your will for them to inherit the house.

[DROPOUT]

#1 thing to think of ...

If you don't want him knowing, would you evict if he couldn't make the payments? Whatever your answer, it what you will need to live with.

If you don't evict ~ chances are they will find out you own it.

If you do evict ~ can you live with that?

I wouldn't put myself in that position personally. I'd either gift the house or atleast be upfront about what you expect, or not get involved.

[Fishingmn]

I own rental property but I think you are setting yourself up for problems.

How about co-signing on a 6 month lease (if you can find that as an option).

[Lakewood90712]

I would strongly advise against this. If you want to buy a rental, great, but a rental. If you want to help out financially until they get back on their feet , great, co-sign a lease and/or help pay some of the rent , as others have suggested.

Don't mix the two things. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[sailor]

+3 on co-signing new lease.

[calmloki]

High tolerance for pain?

We have a bunch of inexpensive single bedroom apartments - just right for young relatives just starting out with their first rent paying time away from home. Never had ANY desire to put myself in the landlord position with them. I don't enjoy the times when I have to make someone who is having a hard time go and find a different place to live - eviction is no fun. Training people that they need to be considerate neighbors is no fun. Do not make Thanksgiving dinner more difficult than it is.

You want to help your son and grandson discretely and behind the scenes, but I don't think an llc or management company will do the trick - when they are looking at eviction you don't want to be involved, and knowing is involvement

[Rickt]

You will regret your decision. I purchased a modest home in a modest neighborhood in 2006 for a couple who wanted to come work for us in our business. They did not like the small town we live in and left after staying for just 3 months in that house. I have been stuck with that house, tried to rent it and got burnt 3 times. Decided to sell it but then the economy went south. Had major damage last year due to water pipes burst in the the winter. Have now spent over $20K in repairing that damage and am now listing the house for sale at a fraction of my purchase price. Have vowed never to be a landlord and surely never to immediate family/friends.
I agree with the suggestion that you may cosign on a 6 month lease. Cheers!

[HawkeyeNFO]

Txtig, this is a horrible idea. Offer to pay some rent for your kid if you want, but this is absolutely the wrong reason to buy real estate..

[txtig]

Quote:

Originally Posted by HawkeyeNFO Txtig, this is a horrible idea. Offer to pay some rent for your kid if you want, but this is absolutely the wrong reason to buy real estate..

That's what I like about this forum. No one holds back or sugar coats their responses. Well, I still haven't totally given up on the idea yet, but definitely rethinking it. Thanks for the input.


Sent from my iPad using Early Retirement Forum

[harley]

Quote:

I own rental property but I think you are setting yourself up for problems. How about co-signing on a 6 month lease (if you can find that as an option).

Quote:

I would strongly advise against this.

Quote:

High tolerance for pain?

Quote:

You will regret your decision.

Quote:

]Txtig, this is a horrible idea.

Well, since nobody else is willing to offer an opinion, I guess I'll step in.

We had a situation where DD and brand new DGD were on their own and living pretty poor. We decided to buy a townhouse (cheap, in 2009) to have a place to stay nearby. Well, pretty much right away her job got outsourced, DGD's father wasn't paying, and she was in trouble.

We moved her into the townhouse, and as soon as she got a job we started charging (nominal) rent. It was a risk, but she was our daughter! She and DGD loved their home, and we visited often, improving our already good relationship with them both. Over time she found a better job, got promoted a couple of times, met a guy, got married, and is doing great!

They're still living there, and paying a still cheap but more reasonable rent, while saving for a house of their own. They're handling their money wisely, and seem to be pretty happy.

I guess my point is, while maybe it's a mistake to do something like this most of the time, it can also work out pretty well. So definitely make wise financial decisions, but also realize that you're trying to do something good for your family. So even if it doesn't work, you were trying to help.

Of course, if you know deep in your heart that DS is prone to bad financial decisions, maybe you should go with the co-signing idea. Owning a rental does have some issues, but in a family situation you can ask them to cover any repairs as quid pro quo for cheap rent, which cuts down on your aggravation level. Good luck.

[unno2002]

Personal opinion, I don’t like the secrecy aspect.

Whatever financial transactions I've done with friends or family, I've done pretty much the same paperwork I would have done with a stranger.

[growing_older]

Once you buy the property, how do you expect to secretly install them as tenants. This plan seems doomed to failure if you "don't want them to know" it's you. Who do they send rent to? Who do they call if there are problems? Who signed the lease? How can you be sure they will pick your property when they leave (if they leave) their current place?