I own a home in a major city, which I own after a divorce.
I decided to keep the house just in case one of my children - who had learning issues - needed the income one day.
Fast forward a few years, and I have since remarried, and my now-husband and I have bought a single-family home to live in. My kids are grown and graduated college.
The home had been rented to my brother and his family who have been paying moderate rent in exchange for some upkeep. There is also a second tenant that pays rent that, until lately, was on par with city rates.
The problem is taxes have risen along with home values, on top of the cost of maintenance and repairs, such as the roof and boiler. The collective rent barely covers the mortgage and expenses from maintenance work.
My plan is to sell the home since my children are done with school, and use that money to help them with their loans if they don't want to live in the home. My kids say it's impossible to live there, but my brother and his family don't seem to have any plans to leave. I did let the family know of my intention to sell the home last spring, ahead of when my kids finished school.
What should I do now? Should I just raise rents dramatically, or sell the home?
I really don't want to have to un-house either my family or the tenants. But the expenses are affecting my stress and financial choices throughout the year. I worry all the time, and I'm concerned that I'm just selling it to unburden myself and I'm aware that my kids and spouse will lose out on generational wealth.
Do I sell? Or not sell?
Stressed Out
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Your dilemma here is whether to keep the rental to pass it on to your spouse and kids, or to sell it and use the money to help them with their education.
You first need to go through your expenses with a fine-toothed comb.
Question 1: Does it make sense to keep renting the house if it doesn't make a profit? Factor in higher taxes, maintenance, the mortgage, insurance, and such, and see if you are breaking even or losing money.
Question 2: Are you having problems with the tenants, or are you having issues with being a landlord? They are two separate issues.
If you passed the house over to a management company, and charged market rent, would it help you to decide to keep the property? Once sold, you cannot go back. If the stress from renting to family members is one major factor in your decision, you could be throwing the baby out with the bath water.
If you're breaking even, you have time to consider what you want to do next. And if you are renting to tenants with whom you do not have a relationship, it will give you more insight into whether this is an issue about (a) dealing with family as tenants who don't pay or (b) you not being able to deal with the day-to-day business of being a landlord.
If you are losing money, you may wish to explore the option of selling. Contact realtors in your area and see how much you can sell the home for. Few homeowners are selling their home. Redfin said that new listings of homes for sale fell over 20% at the end of April, as compared to the year before.
You may be able to get a good price if you sell given that few homes are on the market. Just keep in mind that house prices generally go up over time, so if you sell now you will lose out on any increase in value.
With the proceeds of the sale, you can help pay your kids' student loans, or you can also re-invest by purchasing an apartment or some other type of property that can be useful for them immediately or in the near-term. After all, you said you only kept the home in case one of your kids needed the income one day.
Keeping the rental in the family obviously means you will have it to pass onto your spouse and children in the years to come. They will have the home as an asset they can tap on if they need money. They will also have a big leg-up in this era where homeownership is becoming more expensive.
But you have to be a landlord first and a sibling second: You need to raise rents to turn a profit. Tell your brother and the other tenants that the rent falls short, and that you're losing money. If they refuse, you may want to "un-house" them. But you cannot be held hostage to other people's demands. This is the problem when (i) you do someone a favor by renting below the market rate and (ii) mix business and family.
Eviction is not the same in every city. It's hard to determine whether that will be an easy or convenient option for you. In some big cities like San Francisco, a landlord must have a "just cause" to pursue an eviction, the city's government says. These can range from tenants not paying rent to moving tenants out in order to demolish the housing unit.
If you're in a city without such protections for tenants, and if your tenant is month-to-month, you could terminate the rental agreement and sell, according to Daniel Bornstein, a San Francisco-based real-estate attorney who represents property owners in landlord-tenant issues. But doing so may damage your relationship with your brother, and add more stress and worry.
Weigh both options. Talk to your kids, and see if they could use the money now that they've graduated college and are starting their careers, or if they would rather inherit the home down the line.
Ultimately, this is a decision you have to make for yourself. Whatever you decide, make sure you do it for the right reasons.
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