Sell/rent the house and buy the farm?

[horatio 515]

So a unique opportunity has come up for me and I'm hoping to get some advice

 

Long story short I bought a 900 sq ft house in a very good neighborhood 7 years ago with the plan to add a few additions to it over time. I've already done extensive work to it- all new plumbing, gas, ac and a ton of landscaping and more. I had been planning my first addition in about 16 months

 

However, an old farmhouse about a mile away ive always liked just came up for sale. It sits on almost 2 acres ( I know some of you are laughing at that, but around here, that's huge). I sit on about a third acre now. Massive barn and garage, house is the same square footage I was looking to someday finish at in mine. It's a little over a hundred years old. I'd guesstimate it would need about a hundred grand in work in just the core systems. But it's the only house I've ever seen I actually want.

 

However, because of when I bought my house, if I were to sell now, I'd walk away with nothing, which makes any real down payment difficult. The wife and I are considering renting the house until the market improves enough,and as because of the down payment I put on my current house, my monthly payment is actually the same as some renters in my area pay for houses not nearly as nice as mine. However, I know very few good renter relationships.

 

I'm currently spending the nights this weekend reading up on renters rights. I know most will probably just trash the place, but my only real concern is getting a renter who doesn't pay. I couldn't afford that for more than 3 or 4 months

 

Also, the farm I'm looking at is priced 75000 more than I can afford and 120000 more than I'm willing to pay. I want it, but I refuse to live outside my means. Pretty sure that offer will insult them, but there are several other properties in the area in similar circumstances ( none are farmhouses though) and they've been for sale for months if not years.

 

I've got a brutal case of paralysis by analysis and would appreciate some advice. Thanks

[patriot 7,197]

If you can't afford it, that's your answer. 

[horatio 515]

Affordability is relative in this case. The bank is willing to lend me the money, and those payment to income ratios work out, however, as I said, I don't like living above my means.

 

I want the house but I'm not willing to take on that kind of payment and then dump another 150k plus to finish it. I'm more asking for advice on what people would do with my existing house were they in the situation

[james lambert 3,059]

You can count on renters trashing your house, and disappearing owing you months worth of rent.

 

Or just camping out not paying and forcing you to go through the system to evict ,which can take many months

Thats what they did to us, several times!

I finally sold the rental property.

 

If you do rent do a complete background check, and only take the cream of the crop 

[horatio 515]

The trashing I could live with and would pretty much expect. It's the squatting/ not paying that concerns me. My brother in law rented his house to a reputable tenant who was great until he lost his job. He sat in the place not paying for over a year. I couldn't afford that.

 

I plan on doing the credit and background checks and references, but I'm wondering if there's anything else I'm missing.

[SmilinEd 364]

FA,

 

Your in the home owning business not the renter business.

 

If you keep both houses you will have 2 sets of headaches, #1 remolding the farmhouse and then #2 dealing with renters, and if you don't have renters to make the monthly payment on the 1st house you will be making 2 monthly payments. Fighting with the wife over finances is worst than fighting a toothache.

 

Your not in the landlord business, if you were, you would have bought a 2 family unit, one unit to always make the monthly payment and the other month rent goes in your wallet, if you only have one renter your still making monthly payment, thats why single family homes are not ideal to rent, someone trashes the joint, then you have to fix and loose rent money all at same time.

 

If I were you and you really want the farmhouse, sell existing home, take the hit, reduce debt, only one mortgage, less financial strains in the marriage. 

 

I guessing your younger than me, if thats the case, you should grow into your new mortgage financially

 

And don't worry about insulting anyone with a low-ball bid, fuck that shit, its your money and always be patient with making deals.

 

Best to you.

[horatio 515]

FA,

 

Your in the home owning business not the renter business.

 

If you keep both houses you will have 2 sets of headaches, #1 remolding the farmhouse and then #2 dealing with renters, and if you don't have renters to make the monthly payment on the 1st house you will be making 2 monthly payments. Fighting with the wife over finances is worst than fighting a toothache.

 

Your not in the landlord business, if you were, you would have bought a 2 family unit, one unit to always make the monthly payment and the other month rent goes in your wallet, if you only have one renter your still making monthly payment, thats why single family homes are not ideal to rent, someone trashes the joint, then you have to fix and loose rent money all at same time.

 

If I were you and you really want the farmhouse, sell existing home, take the hit, reduce debt, only one mortgage, less financial strains in the marriage. 

 

I guessing your younger than me, if thats the case, you should grow into your new mortgage financially

 

And don't worry about insulting anyone with a low-ball bid, fuck that shit, its your money and always be patient with making deals.

 

Best to you.

Well said. Thank you

 

Pretty sure I'm one of the young 'uns on the site. I'm 31

[YOT 3,743]

Like Jim said, a full background check is a must. Even then people are unpredictable. Being a landlord is not what it's cracked up to be. If the house you want is your dream you might consider selling the other one.

[Lone Eagle 839]

Here's another option.  Rent to own.  A coworker was in the same boat you are, and knew someone looking to buy their first home.  They talked to the mortgage company, and the deal was if the "renter" could make the payments for 12 months on time, then they'd roll the mortgage into the "renter's" name.  He did have to pay the lawyer fees for drawing/filing the contract.  A year later, win-win for both of them.

[james lambert 3,059]

If the farm really is your dream home I would like to see you have it.

 

Just take time to reason out your decisions, 

[SmilinEd 364]

well enjoy your 30s and 40s and be mentally prepared to walk away from any deal, regardless...

[U.S. Pratorean 1,234]

Here is an idea. I don't know your locale and that makes a huge difference but is the farm really a farm? Meaning agricultural exemption and the whole bit?
When I purchased my ranch 20 years ago I went through the farm bureau and secured a loan and greatly reduced interest so much so that I was also able to include a tractor/ trailer and several implements. Much of this could have been next to nothing under the "young farmer program" which wasn't applicable to me as this is a game ranch and many, many time the size of what you seek. This was also a coop and you received a dividend each year which I just applied to the loan. The ranch included 100% minerals and now, wind rights. The loan for 5 figures was paid off ten years ago and the ranch is valued at 7 figures today.
It worked well for me since I had also just built a home in the town where I live about 30 miles from the ranch and also claimed a secondary domicile on the ranch and both are covered under my current homeowners policy. It was a bit complicated at first but I actually saved hundreds of thousands if not low millions and the return investment is enormous.
Forget renting. You'll be out a lot of money and always be fixing what someone else broke and in some places it is really hard to get rid of them. More headache than it's worth.
Southern view.

Same spot looking north.

Edited November 29, 2014 by JAG

[horatio 515]

Thanks guys. Yeah I would definetly do background checks but the more I'm looking at Illinois rental law the more I'm thinking just sell it. Going to keep looking into it though.

 

JAG- I don't think I'll qualify for that loan but I will check it out, thanks. It's about 2 acres but it has a massive front yard and the acre on the side is pretty well wooded. It was probably the original farmhouse until the sold the land to developers. Very nice view by the way

Edited November 29, 2014 by fatty alcohol

[U.S. Pratorean 1,234]

Thanks guys. Yeah I would definetly do background checks but the more I'm looking at Illinois rental law the more I'm thinking just sell it. Going to keep looking into it though.

 

JAG- I don't think I'll qualify for that loan but I will check it out, thanks. It's about 2 acres but it has a massive front yard and the acre on the side is pretty well wooded. It was probably the original farmhouse until the sold the land to developers. Very nice view by the way

You may need a cow or some chickens and/or a small garden. Do what you must if you qualify to save money and lower your tax burden.

[HB of CJ 1,263]

Another point of view. This might be considered rather non realistic, but bear with me. I think we have less than about 3-5 years before the wheels come off of everything. Maybe 10. A national if not global economic collapse. Not another "Great Recession". Not another "Great Depression" like what started in 1931-32 and lasted until the first years of World War Two.

 

My parents went through the Great Depression in the hills of Virginia. The stories they had.

 

A economic crash much worserer than 1929. I think right now, if what may happen does happen, then the last thing one would want to do is become more leveraged. You do not want to take on more debt. What one should be thinking of instead right now is to reduce one's debt as much as possible and try, (TRY) to prepare for a hard future.

 

Just me here. Others will not agree which is good. For what it is worth, I have found that many members of this excellent Saiga Forum appear to have more intelligence and education than other economic and educational forums. Stay where you are. Try to save. Get out of the stock and bond markets. Once the shit hits the fan, all bets are off.

 

Consider hard commodities. Consider prepping. Some silver and gold. Pay down all debt to zero.

 

Real estate prices may, (may) crash. What sells for a buck today may be purchasable for 25 cents in the future. Less if one offers gold or silver. Yep, a rather radical point of view. I figure there is a good one in five chance of the shit hitting the fan. But, of course, this also means a 4 out of 5 chance of nothing happening. Me only.

 

The actual trigger may be when the real inflation rate threatens the stock and larger bond markets. Then everything collapses.

 

HB of CJ (old coot)

[horatio 515]

Hey jag

Ill be looking into, thanks.

 

Hb- I hear you. We'll see what happens

[Dad2142Dad 6,559]

Hmmm 100 year old? That could be quite the money pit.

 

Many things can happen that would make this go sideways. Job loss, lawsuit by renter, economic crash etc. Sounds like it is way over priced anyway, what is the total price?

 

I purchased 10 heavily wooded acres with a trailer for 58K in Oct. I am currently fixing that trailer so when the house sells we move into that and build the new house. A ton of planning and budgeting has gone into this, also quite a bit of work to keep the costs down. Now we paid cash for the property, so no 2nd loan, just two electric and propane bills which are quite low since no one is living there full time.

 

My suggestion is to lay all of the financials out in excel. Pay, bills, loans, savings etc. I understand you want this, but you have to have a really good idea of what your getting into and also have a plan and some savings if it goes wrong.

 

Murphy is out there, just waiting to make you pay. Even with all of my planning and research, I am about 3K over budget and will probably be 6K over by the time I am done with this trailer.

 

Good luck with your decision

[horatio 515]

100 years old- I KNOW it's a money pit:)

They're asking a little over 3 for it. I want it but I refuse to pay more than 220 for it. It's surrounded by some grasslands and the 2 acreish water feature/lake that is by the entrance to the gated community the farm backs up to. No real neighbors but I've driven through the subdivision and roughly guessing I'd say there are no houses in there under 600k. Across the street- forest preserves.

 

I figured about 100k just to get it decent. I'm scheduling a walks through on Sunday but I was in it for the estate sale 2 months ago. Basement - shot (30k) all electric heat I want propane (25k) barn needs new roof (7k) conditition of well/septic unknown (15k) electric? Cloth if I'm lucky probably knob and tube (5k) plumbing? Probably hacked PVC and cast (5k) staircase to second floor is more like a ladder (7k)

And without even getting into windows, drywall, flooring, fixtures, trim....

A lot I can do myself, but I have to hire out some for obvious reasons

 

Still, its a unique property I'd love to own. It's the only house I've ever actually wanted. Doesn't mean I won't walk away in a heartbeat, like I've said, I refuse to live above my means and that takes priority

[patriot 7,197]

That cast staircase can be resold for a nice profit.

[horatio 515]

That cast staircase can be resold for a nice profit.

Sorry I'm not sure what you mean- I might not have been clear in my description of the stairs. I'm thinking you're referring to a cast or wrought iron staircase found in some Victorian style homes? I was more commenting on how the rise/run of the existing stairs is a joke. Very steep. It is original and the wood could be repurposed in the house though.

 

I redid the stairs in my current house because the old one was completely coated in dog hair and I couldn't go in my basement for more than 10 minutes without sneezing up a storm. It wasn't easy, but I managed to rebuild it. The wife ended up doing the poly (used red oak)

[patriot 7,197]

I misunderstood.

[SmilinEd 364]

Make notes on everything that needs repaired, the goat stairs, old electric service, and the you say the house is all electric heat, small miracle it hasn't burnt.

 

You never know how desperate the seller/estate is, who owned it elderly couple that have past on..?? The family probably just want the cash, any cash..

 

I like your offer tho, stick with it. the realtor are vamps, be prepared to do battle, they do it for a living, but at the end of the day they only have a 100 yr old farmhouse and want your cash.

[horatio 515]

[quote name="SmilinEd" post="1006162" timestamp="1417364586

electric service, and the you say the house is all electric heat, small miracle it hasn't burnt.

 

 

My thoughts exactly. A proper furnace for the first floor with ducts would be the first thing done before winter. I actually do know a little about the owners. I'm pretty sure it was the remaining spouse who had passed away and now the lady who owns it also owns a few buildings in the historic district in my town

 

The more I think about it and look into renters rights I'm thinking of offering the 200k and seeing what they do. I could sell my house pretty quick even if it is for a wash. My only concern is if the real estate agent will even tell them my offer

[vulcan16 971]

I have a nice rental house located 15 houses from my current home. We always hire a Realtor to do the screening and then we interview the prospective tenant. We have the rent set at $504 a month over my mortgage, and include landscaping services.

The Realtor takes a months rent as his commission, we use their deposit to pay the mortgage for the first month and have a full year to recoup their deposit with the extra monthly income. Also have a extended home warranty to cover heating, AC, and appliances, which runs $50 a month.

We also have a separate bank account set up just for the rental house. Anything bought for home improvement use is charged to that bank account for tax reasons.

Before setting your price, see what both houses and apartments are going for in your neighborhood. Believe it or not my rental is still cheaper then a nice three bedroom apartment.

[VR762Shooter 838]

The trashing I could live with and would pretty much expect. It's the squatting/ not paying that concerns me. My brother in law rented his house to a reputable tenant who was great until he lost his job. He sat in the place not paying for over a year. I couldn't afford that.

 

I plan on doing the credit and background checks and references, but I'm wondering if there's anything else I'm missing.

 

 

Just keep in mind if you do opt to purchase and rent out the other home. Not all info comes up in a background check, I.E. someone with plenty of money, limited outstanding debt and no police record could still have mental issues. We recently had a person with impeccable background come through and basically ruin our building because they were a hoarder. Took the building owners 6 months to evict and the cost from damage, animal/pest removal, trash removal, lawyer fees.....need I say more. Sometimes trash removal isn't just the person but everything that comes along with them. Keep it in mind when you are making a choice

[SmilinEd 364]

FA, have you made an offer for the house yet.?

 

I suggest that you make offer after you do a little reconnaissance

 

The current owner has only owned the property for a couple yrs.? and you know her name.?

 

Can you make the time to go to the courthouse and see what she paid for it.?

 

Also, see if she is current with her taxes on the other properties.?

[horatio 515]

SE

 

No haven't made an offer yet. When I said Sunday I meant to say next Sunday. I'm calling realtor later today. Also, I didn't really explain the owner very well (Christmas decorations plus 7 yr old and 2 yr old equals unclear posts) in the relationship of the owner. I'm pretty sure it was the remaining parent who died and the lady (daughter) who is in charge of the estate owns the other buildings.

 

So if it is an estate, she probably just wants the money. I'm interested in restoring the farmhouse back to a traditional look ( lots of "modifications" over the years) so hopefully I can use that for some leverage in the negotiations.

[mostholycerebus 415]

Dont hesitate. Its your dream house, get it while you can.

 

As far as renting, I have heard many horror stories and a very few good stories. The difference is, the horror stories can always be traced back to some fault in the landlord. My dad has been renting for decades, in a state with the most protections for renters, and has never been burned. First, he uses a screening company to find renters. They take one months rent for fee, do a criminal and credit check, income check and call references. He has never had a deadbeat renter. He has had a few bad-credit renters, but they offered him the last 6 months rent up front and paid the rest on time.

 

On the rare occasion he has had slight issues, he sticks very closely to the law and his contract. If its not paid on time, they owe the contractual fee, no excuses. If they are getting behind, he is sending certified letters every week, and filing to evict on day 30. In my dads case, the renters get the immediate impression that they WILL be kicked out FAST if they dont pay, but theres no animosity. Those instances have been resolved quickly and many go on to be good renters for years. Be a nice guy, but make it clear that business is business, you have to protect yourself. By living close, you can also keep a close eye on how they are upkeeping the place.

 

Other family, they have the horror stories. Usually because they dont adhere to the law and dont have proof that they were notifying renters (certified letters with copies) when required by law. When, if, it eventually goes to court, the judges tear them a new a-hole for being laissez-faire in matters that will deeply affect a poor family. Thats when the landlord needs to get expensive lawyers, and basically start the whole process over again. Alot of times its unsalvageable, because of a badly written initial contract that leaves a lot of loopholes.

 

Its a little work, especially initially, and you dont often make money in the short term. But if you get a screening agency, write a solid contract, know your laws and stick to them closely, you can do amazingly well. Properties are great losses on paper. You can go years without making an profit on paper, while slowly growing your net worth. My relatives that stuck with it have basically stopped buying properties. They figure they have so much worth now, why bother with more? Going on vacations for 6 months out of the year and buying 5-series BMWs is enough. What more do they need, a 7-series? Another 45 day alaskan cruise?

 

EDIT: My family is also in Illinois. The laws here arent that bad, the protections usually work both ways. Having a higher-end rental that is priced slightly higher is a great way to week out deadbeats too.

Edited December 1, 2014 by mostholycerebus

[sccritterkiller 473]

If it's the house you want sell yours, even if it is a wash, and go for it. Unless you want to rent houses as a business....sell it! I have been renting a house and remodeling the one I live in for the past five years. Luckily the one I rent is paid for but between up keep, taxes, insurance and the management fee I have yet to make any money, breaking even the last 3 years and in the red the first two. Had to replace the HVAC one year and a refrigerator, stove, and DW the next. I have only had two renters in 5 years with no damage. With all that being said your going to go over budget on the remodel. Whatever you think it will cost add 30% and that will get you close. Plus as you remodel you will get the "while we are at we might as well......." Also having to stop working on your house to address something at the rental sucks! As soon as someone makes me an offer above tax value I am taking it. One less headache!

 

Good Luck!