Buying a 2nd Home???

[1_pointer]

My wife and I are seriously (given that the financing works out) considering buying my dad's house. Are there any hurdles/issues we should be aware of in buying a home that will not be a primary residence? We talked with the lender who gave use the mortgage on our current house and she was unwilling to do the paperwork associated with buying an 'investment property'. Is it really that big of a deal?

Unless my job situation (ie location) changes drastically in the near future, we'll consider renting out the house. Any infor or advice on dealing with that would be greatly appreciated?

 

[Steiny]

Not a big deal really, however lenders generally will want a higher interest rate for a house that is not your primary residence, and you won't be able to get the few tax breaks and write offs you can get on your primary residence.

Also ..... Assuming you are solid, I would find another banker.

 

[Big Fin]

Pointer:

The low interest rates are usually for primary residences. That is why most people lie and say that the investment property will be their primary residence. Not saying you should do that, but that is waht most people do, and most of the mortgage brokers (at least before the bust) told them to lie about it. The honest guys like Moosie can't do that.

As far as taxes, it will be investment property. If you actively manage it, you will be able to deduct any losses you have, up to $25,000 per year, assuming your adjusted gross income is not too high ($150K). If your income is above that amount, the losses are carried forward and offset against future rental profits, or deductible at the time you sell the property.

You will claim the income on Schedule E as rental income, and deduct against that, all expenses, inlcuding mortgage interest, property taxes, depreciation, and anything you incur in your maintenance or ownership of the property.

The good part is that with depreciation, even if you are break-even cash flow, you may still have a tax loss. The house will be depreciated over 27.5 years (don't ask me how the IRS/Congress comes up with such weird stuff).

When you sell it, you will recognize most of your income as capital gains, which under current laws, are the lowest tax rates. No guarantees it will stay low, but as of today, that is how it would be.

If you can't get a loan on this as the primary residence, and it is located nearby, you may think about making it your primary residence for a while, so you will qualify for the mortgage rates of primary residences. Or, some mortgage broker may tell you to "do like a lot of the other people"................

Your insurance will be higher if it is not your personal residence, but given you content portion will be much lower, it may result in the same premium. If you do rent it out, make sure you have high enough limits, so that if some knothead does something stupid, you are covered.

Or, the cheapest insurance I know of is forming a Limited Liability Company to hold the property. Then if something exceeds the policy limits, they cannot come after you, only the assets of the LLC. Not that hard to set-up. Go to the Secretary of State website and download the forms. Fill them out and send in the small fee, and you are set. Just make sure the property is held in the name of the LLC, if you go that route. Doesn't do any good to have and LLC, but have the property in your name (don't laugh, it happens all the time.)

Good luck.

 

[Moosie]

If you buy it as a 2nd Home, The interest rate shouldn't be much higher then a Primary. If someone tells you it is tell them to "GET BENT". If you buy it as an Investment.... Thats another story In order to qualify as a 2nd home you have to be able to justify having to go there for something... Work, family, consistant travels, etc. Otherwise no matter what you say they will see it as an Investment Property.

If you qualify as a 2nd home, you're good. The amount down will be less. there might be one or two banks that do a 10% down... but MOST banks will be 20% down min 25% for a Better rate down on an investment property. Banks want peopel to have "skin" in the deals any more.....

Not to get to nosey.. but how many brothers and sisters do you have ? Who else was on TITLE when your dad passed away ? Whats teh Senario. I believe, that if DAD has the house and depending if he deeded it or Trusted it to some one or some Ones then you could jsut resume payments and work out a Dealio with the banks. I jsut seen this recently with someone in Cali.

I'd love to be the lender on the deal but we dont' do much out of state. If you have any questions though ask Away, you got my Batt phone # too. We can look at national banks here too and see if someones Blowing Smoke on ya !!!

Good luck !

 

[1_pointer]

Fin- Thanks for the tax benefit info. I'll be talking to TheMailOrderBride about getting the LLC set up, she's done a couple of them for her own businesses. If this goes through I may be willing to trade some UT pronghorn info for some Accounting advice! Looking at the odds, you should be a shoo-in for the area I'm way familiar with.... (hint, hint)

Moosie- I have one brother and one sister and no one else was on the title. The house is a part of the estate, so for me to get it I have to buy it from the estate. In turn when the estate is settled I get 1/3 the value of the estate per my dad's will. TMOB and I are wanting to buy the house in hopes of making it out primary residence someday, but until I find a job near there we'd probably rent it out. Depending on a few factors, but for this to work in our budget we'll have to be coming in with over 50% of the appriasal/asking price. 'Cmon, you can surely swing a mortgage from ID for a couple in UT that is buying a home in IN...

 

[IDHunters]

Find a new mortgage lender, put 20% down to avoid PMI. As long as you can pay the payment without rental income it will qualify as a second or vacation home and you should be fine. Rate should be good also.

 

[JohnSWA]

Presently, I'm dabbling in the idea of renting out my home and buying a much larger home for a unrealistic price hence the drastic drop in home values.

I'm offering 200K on a home that was priced at 489k 6 years ago. They've dropped the price 20K per month since October and I've just offered 200K on an asking price of 250K. Oscar, tell me what you think!

The market is just crazy now and with a VA loan, I just can't lose! Just my opinion of course!

 

[1_pointer]

Thanks for all the advice! We decided not to go the LLC route, not sure why, just didn't. We are locked in for the next 60 days at 4.875% and hoping to close within that time. My father's estate attorney is rewriting the purchase contract to include 'gift of equity' language and once that's done it should be over but for the signing.

We've had a couple of calls in regards to buying it or renting it. We'll probably never sell it, but are considering renting it out until I can get a job that allows us to live there. Any suggestions as to clauses things to include in the contract? Who usually pays utilities on a rental?

 

[Calif. Hunter]

The renter usually pays for electricity and gas, the landlord usually pays for water - you want them to water the lawn. The landlord often pays for a gardener, too. It may be worth your while to pay the 10% or so to get a local Realtor to manage the place for you so you don't have to worry about getting emergency plumbing calls at 3 AM.

 

[JoseCuervo]

Please take everything from Calif with a 'grain of salt'. He reminds me of the Title Companies that try and say the Buyer pays for "this, this, and that", and the Seller pays for "that, that, and this".

You are entering into a rental contract, and as such, EVERYTHING is negotiable. If you want to pay for utilities, you can, if you don't want to pay for anything, you can do that also.

If you listen to Cali, you would be hiring a gardener, a manager, and paying for one the utilities. My guess is you would soon find out that you ain't making much net cash on the house.

Check the local area out there and find out what the normal rental terms are.

 

[Calif. Hunter]

Does the word "usually" constitute an absolute in J'anglish?

TYler's question -

Who usually pays utilities on a rental?

My answer -

The renter usually pays for electricity and gas, the landlord usually pays for water

Tyler asked a question, and I gave him an appropriate answer.

 

[JohnSWA]

Does the word "usually" constitute an absolute in J'anglish?

TYler's question -


My answer -

Tyler asked a question, and I gave him an appropriate answer.

Duly noted, hence the editing.

 

[JohnSWA]

Done deal! Just pulled the trigger on a 5 bed 3 bath 3000+ sf home with a putting green/sand trap, pool/spa/waterfall, built in gas bbq with lighting and speakers in the patio cover in the backyard! The wife is totally stoked and I can't wait for all of the critters to have their own rooms! I bought it for 250k, and it's appraised at 310K!

The best part is that my home(rental now) has a mortgage payment of $615 per month and I can easily rent it out for $1200 per month! I've never been a landlord before, but I'm sure that this will be quite the adventure!

Wish me luck guys!

 

[1_pointer]

John- I don't know that I'll be able to double up on the mortgage, but I should be close! Sounds like a heck of a house you bought, pics?

CH/JC- It would be my preference for the renter to pay all utilities, just to reduce my headache. I was just checking to see if that is SOP. I know of a couple of realtor's in the area so I'll see what they see as the norm for the area and go from there. I have someone taking care of the place and Jose's second cousins baby's papa is taking care of the yard... Right now I'm still working with the estate attorney to get the purchase contract done properly and after that I think it's all over but for the signing. I need another house like a need another hole in my head, but this is somethng for both my wife and my dad.

 

[JohnSWA]

John- I don't know that I'll be able to double up on the mortgage, but I should be close! Sounds like a heck of a house you bought, pics?

CH/JC- It would be my preference for the renter to pay all utilities, just to reduce my headache. I was just checking to see if that is SOP. I know of a couple of realtor's in the area so I'll see what they see as the norm for the area and go from there. I have someone taking care of the place and Jose's second cousins baby's papa is taking care of the yard... Right now I'm still working with the estate attorney to get the purchase contract done properly and after that I think it's all over but for the signing. I need another house like a need another hole in my head, but this is somethng for both my wife and my dad.

I'll post pics when I remember to bring the camera! The lil woman and I are very happy with the place. It's her first house that she can actually call "HER" home. I just love the fact that I have a 3 car garage and tons of space, not to mention my plumbed gas built in grill and my putting green! Guess I'll have to start golfing again! Maybe the Mrs. won't complain about my hunting addiction so much after that. Actually, she doesn't mind the hunting so much as it fills the freezer and she likes to help with the processing! God, I love this gal!

 

[JLG]

John, Congratulations, sounds like an awesome place. You might want to talk to Basser, his dad has used the same property manager for 10 or 15 years. They charge 10% but they take care of everything for you, Take Care, JLG.

 

[JohnSWA]

Thanks for the advice, John! Actually, I've got a line on a great property manager, but if things don't work out, I'll give Rob a call!

Take care, buddy!