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I have an opportunity to buy my retirement home a little early and would like some honest opinions because there's a twist.
There's a house located in the town I'm going to move to which is on the market. It's in the historic district, easy walking distance to things including the bus stop, food market, church, opera house, museum and restaurants. It's located almost exactly where I was hoping I'd find a house for sale.
The house was recently renovated and turned into 2 apartments, one upstairs and one down. The upstairs is already rented to a single person. The rent would almost cover all of the small mortgage including taxes and insurance for the house.
My dilemma is that I still have a couple of years before I was planning to fully retire and move. I could buy the house now, let the upstairs rent pay for it and then in a couple of years pay the mortgage off if I wish to and then decide if I want to rent out the upstairs or use it myself and keep it for when friends or family come to visit. If the tenant moves out for any reason before I move there the mortgage would not be a hardship for me to pay without it being rented. In the meantime, I would hire a property management company to collect the rent and do basic maintenance.
Being a small town, there's not a lot of houses that come on the market located where I would find ideal, maybe 2-3 a year if that.
My concern is that the house is located in another state and I really did not intend to buy one quite yet, but this one has most things I want, and will pay for itself for the most part before I move there.
Should I let this house go and wait, or buy it since it's an opportunity that probably won't happen again? I would just like to get some opinions.
Last edited by marino760; 07-24-2019 at 06:38 AM..
I think if you have the wherewithal to purchase it now, and have actually seen it and know that it's what you are going to want, I'd go ahead and buy it. You could also rent out the lower apartment while you are waiting to retire and make some extra money to sock away or to pay off the mortgage faster, unless you plan on vacationing there pre-retirement. It sounds like a great set-up so that you will be able to have very little out of pocket for your mortgage in retirement.
Get a good prop mgr that is local to the property.
be aware the tax laws changed in 2007 ... if you buy a home that is first used for any other purpose day 1 other then your primary then if you move in and make it your primary later there are changes .
if you move in and make it your primary down the road then if you ever sell that home the 250k or 500k tax exclusion you get depending if single or married is now prorated .
so if you own it 5 years and the first 3 it is a second home and then your primary for two years and you sell , all you can exclude is 2/5 or 40% of the 250k or 500k from taxes ....
Generally, I'd probably have said just wait and not deal with trying to rent it out in a remote locale. But, you have to weigh that against the supply and the chances of finding something you want once you retire. If it is THE house, then maybe it's worth the hassle now. Just do a lot of due diligence.
be aware the tax laws changed in 2007 ... if you buy a home that is first used for any other purpose day 1 other then your primary then if you move in and make it your primary later there are changes .
if you move in and make it your primary down the road then if you ever sell that home the 250k or 500k tax exclusion you get depending if single or married is now prorated .
so if you own it 5 years and the first 3 it is a second home and then your primary for two years and you sell , all you can exclude is 2/5 or 40% of the 250k or 500k from taxes ....
I was trying to figure this out myself and have received conflicting advice. I have a longtime vacation home I purchased almost 20 years ago that I am considering someday making it my primary residence. It is a small house and we may prefer to sell it after a few years and purchase a larger home and was wondering what the affect would be on capital gains since our vacation home has appreciated nicely.
My normal reaction would be we do not know what the future will holds so wait.
But you stated a number of reasons that make this house a retirement candidate and since real estate is all about location I would buy now.
I would rent out the first floor now so the risk of no tenant is minimal.
You mentioned hiring a management company so the day to day problems would be limited to dollars and not the need for you to visit the property etc. This is a plus.
If you need a mortgage it is easier to get while you are working.
If you change your mind in the future you should be able to sell it and I am assuming with a second tenant it is likely that you would not lose any money on the property.
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A property management firm for one property? Nah. Besides, there's no one who cares about your property as much as you do (or will) no matter how much you pay them. Is this place so far away that you can't manage to get there every few months to put eyes on?
Collecting rent is easy. Finding tradespeople or a local handyman to do repairs isn't hard, either. It's just one property. Imagine the LL who has twenty properties and still goes on vacation every year. S/he has to deal with tenant complaints from halfway around the world. Try doing it from a cruise ship sometime.
As to the buy now or wait question, only you know the market. If it's in a historical district, is it likely to be snapped up by people leaving blue states, with pockets stuffed full of cash?
As a former out of state rental owner....yes a prop mgmt firm for one property. You need someone to deal with those maintenance calls, (I don't want to do it) and to screen tenants and to post notice if it rents are late, to do annual inspections, and in general to be able to lay eyes on the place on a regular basis. It's a lot easier to have a dispassionate 3rd party to handle lease renewals, move-in/move-outs, advertising, turning the property between tenants, holding the deposits in escrow, dealing with local laws which can change unbeknownst to an out of state owner. In addition the PM companies frequently have people on staff, or frequently used contractors, to make repairs or do turnover cleaning and painting at a cheaper price than we can get, and without our having to do it ourselves, or supervise contractors.
In our case, our rental was in a city that passed ordinances requiring a city inspector inspect the property annually and to be responsible for city mandated repairs or upgrades, reinspections, etc as well as requiring the LL to maintain a business license to be able to rent out a property. We would not have known and would have been in violation (financial penalties involved of course!) if our Prop Mgmt company hadn't informed us of these brand new requirements.
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