rental property

[retire to nature]

Hi, this is my second post.

My first post was about inherited rental property.

After the post, I realized I was doing well, so I was gonna keep the houses.

But one of house is a problem.

My sister was illegal status, so she needed a house in IL for address to get a driver license.

the 2000sqft house value is about 120k to 130k.

Zillow rental estimate comes at $1450/month, but I get $990 from section 8 and $10 extra from the tenant.

Also, IL property tax is much higher than MO. For the house it is 4K.

So I think it is ridiculous profit rate. profit per year 12k and tax 4k and I pay insurance and repair.

I have other house in MO, 1500sqft, rent 1500, tax 2000 or less(much lower rate for tax).


And now there is section 8 tenant. A single mom with 6 kid and she takes care of other ppl's kid.

I guess she is doing a cash job like day care. The house floor are terrible, of course.

She knows my situation that I took over my sister's property. I am not sure if she paid my sister more money than section 8. She advertise rent @1500 and somehow got @990 with section 8.

Now she is offering me extra 450/month behind section 8. She said get 3k from SS and make extra. so make 6200/month.

I told her I really have no reason to keep a IL house like my sister reason. I have citizenship here.

All other houses are more than 10% profit rate.

Would you sell or just accept her offer and keep it?

 

[38Chevy454]

Not a rental expert, but there is nothing that keeps you from accepting the additional money from tenant on top of the section 8 payment. The tenant may be violating sec 8 rules and risking being kicked out of the program. You have certain minimum requirements for house condition that the extra kids wear and tear could increase your cost a little.
In respect of the offer for more money paid, the tenant probably had under the table agreement with your sister.

 

[Letj]

You can only accept the tenant’s portion determined by section 8. She is not allowed to pay you extra behind section 8’s back. Both you and her can lose participation in the program.

 

[Sunset]

I would sell it, why do you want a house far away to look after.

Since it was inherited, you would only have capital gains from after the date of death, so small amount if anything.

If you decide to keep it, the only reason you would want to keep it is because of the extra money to be paid to you.

 

[DrRoy]

The IL house does not seem worth the trouble.

 

[RetireBy90]

if there is under the table action, something you don't want to be made public I would run from it.

 

[ILikeStarTrek]

You can only accept the tenant’s portion determined by section 8. She is not allowed to pay you extra behind section 8’s back. Both you and her can lose participation in the program.

if there is under the table action, something you don't want to be made public I would run from it.

No, I disagree with these quotes. You can accept the extra $450 rent without it being behind section 8's back or under the table action. There is a rent limit, but it's not limited to the fair market rent established by HUD. Rather, it's limited by the tenant's income. If the tenant makes $6200/mo, she can clearly afford a lot more than the $10 rent (above the section 8 voucher amount) she is currently paying.

Here is an article from the HUD website:
https://www.hud.gov/topics/housing_choice_voucher_program_section_8

"The PHA determines a payment standard that is the amount generally needed to rent a moderately-priced dwelling unit in the local housing market and that is used to calculate the amount of housing assistance a family will receive. However the payment standard does not limit and does not affect the amount of rent a landlord may charge or the family may pay. A family which receives a housing voucher can select a unit with a rent that is below or above the payment standard. The housing voucher family must pay 30% of its monthly adjusted gross income for rent and utilities, and if the unit rent is greater than the payment standard the family is required to pay the additional amount. By law, whenever a family moves to a new unit where the rent exceeds the payment standard, the family may not pay more than 40 percent of its adjusted monthly income for rent."

Here's another (non-HUD) article that states it more concisely:
https://pocketsense.com/rent-section-8-new-jersey-7367193.html

"While federal law prohibits you from charging more rent to Section 8 tenants than you would unsubsidized renters, you can charge more than HUD's fair market statistics. Bear in mind, however, that HUD does not allow Section 8 families to spend more than 40 percent of their household incomes on rent and utilities."

So part of the answer to your question is, you can accept the extra $450/mo the tenant is offering (which is clearly much less than 40% of her $6200/mo income). If you want to be sure of this instead of taking the word of an anonymous poster on an internet forum, the above HUD article includes a link to find the local Public Housing Agency contact as well as branches of HUD itself. Either of them should be able to confirm this information.

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The other part of your question is, should you keep a house in IL in general?

The main "pro" of keeping it is, you currently have a Section 8 tenant, and Section 8 tenants tend to stay in a given house for a long time. And as long as the tenant is in the house, the voucher part of the rent payment is guaranteed. The tenant could default on her part of the rent, but section 8 tenants tend not to do that because you can get them kicked out of the section 8 program (i.e. they will lose their voucher) if you evict them for non-payment. Bottom line is, it's likely that this tenant will stay in the house for a long time. Tenant turnover is perhaps the biggest enemy of a landlord. So as long as the current tenant stays, it may be worth your while to keep this house. But if the tenant leaves, instead of finding a new tenant, I recommend you sell the house.

The main "con" of keeping this house is the high taxes in IL compared to MO and maintaining the house as a long-distance landlord. That's really a judgment call on your part. Does having the current reliable tenant outweigh having to pay higher taxes and having to occasionally scramble perhaps to find a non-local maintenance person to fix some problem?

Is the tenant's lease annual or month-to-month? If you decide to sell, it will be harder to sell if the tenant is still there with a lease. Only another landlord will buy it. You will get a better price if you wait until the lease expires and get the tenant to move out, then paint at least the inside and replace the floors so the house will look great to get a top-dollar price.

As already pointed out, if you sell soon after you inherited the house, there is a stepped-up basis so you will pay little in capital gains. If you keep the house for a while before selling, so there are capital gains to pay, and assuming you will buy a house in MO to replace this one, I recommend doing a "1031 exchange" to defer capital gains. If you're not familiar with this term, search for it on the web. There are rules you need to know before you sell in order to follow the process.

 

[Ginny]

The fact that you are asking the question about whether or not you should keep this property, is the answer. This is a business and a messy one! Do not let your emotions get tied up in this anymore. Hire an attorney that specializes in landlord tenant law in the state in which the property is located and let them do their thing. They will advise you about terminating the tenancy and can hire a realtor to sell the property. You will sleep better at night! Good luck.

 

[pb4uski]

My question is if someone is making $6,200/month then why are taxpayers springing to help pay her rent? That seems so wrong.

But I'm with others... why ave a rental so far away... sell it while the gain and tax bite are low and reinvest in something that needs less attention.

 

[retire to nature]

Thank all of you.

First I have to clear out about the distance. Even if it is in the another state, it is 30min driving distance because I live at the state border.

So, the far away maintenance concern is gone.

Thank you "ilikestartrek" That was exactly I was looking at, but I wasn't sure if I was right.

I sensed where the $1000 set from section 8 came from. It is because she is recorded as making only $3000 income from SS.

I think I would better to keep with her with the deal, and sell it when they move out. It shows the increase of value in the area goes higher than MO values.

Another concern I had was pointed by "pb4uski." Am I gonna feed her wrongdoing thing. I am not sure still, but I informed her at least, this could happen to her badly losing the qualification.

Personally, I don't accept section 8 tenant anyway. So if I lose my qualification, I am okay with that.

I have to known her longer, but she seems to be nice tenant which I mean communicable not just offering the deal, but report problems and respond things nicely. But I am not sure because she is doing all behind, is she trustworthy.

In my guess, she was hiding to me the contract she was paying to my sister under the table, so she didn't pay $450 x 7 months. I saw my sister's some note about calculation and wondered about why there is calculation stuff if she is paid by section 8.

I have asked her about the calculation, she wasn't clear about that.

Am I thinking too complicated??

 

[ILikeStarTrek]

My question is if someone is making $6,200/month then why are taxpayers springing to help pay her rent? That seems so wrong.

Section 8 is basically a government welfare-type program. You actually expect it to make sense from a financial viewpoint? What are you thinking?

 

[pb4uski]

No, you're thinking straight. I'm guessing that she had some sort of under the table arrangement with your sister and that she didn't disclose it to you and just kept the cash for herself.

If the property is more of an area of rentals so people buy as an investment rather than to live in then it might be easier to sell a property with a tenant rather than a property needing a tenant.