Lately I haven’t been blogging very much due to a variety of factors, and one big thing that is happening right now is that we are buying a house. Yes, I know this sounds crazy considering that I have written extensively about why buying a house is more expensive than renting, but there is a good reason why we’re buying this particular house.
To make a long story short, we are in the midst of purchasing my husband’s parents’ home at a significant discount. They are leaving the country to do long term missionary work in the Philippines in January 2009 and their income will no longer support the mortgage they have on the home. So they were planning to put the house on the open market and sell it, but as you know, the current real estate market is pretty much in the pits and they are not guaranteed to sell the house by the time they leave. So we decided that it is probably best to keep the house in the family somehow. My husband really loves the house because he grew up in it and his parents has lovingly put in many improvements over the years. His parents expressed that they wanted us to live in the house when they leave, but the one problem is that the house is in Southern California and our jobs are here in Northern California.
At first, we were just worried that we couldn’t afford the home, but since his parents agreed to give us a large gift of equity the mortgage will turn out to be about 15% of our gross income and that is pretty affordable. The price we are getting is basically 30% off market value so it is a fairly good deal. We also found that California has a law called Proposition 58 which allows the present tax value to pass from parent to child so the property taxes will not be reassessed to the current value. So after crunching the numbers several times, we found that by renting the home out for the current market value for similar homes we are able to pretty much break even. We plan to keep the house long term as a hedge against inflation, and if his parents decide to return to the United States they could move back to the house they are familiar with and rent it from us. The house is located in a very good upper middle class neighborhood with median household income of $103,000 per year and elementary school API scores of above 900 so we are pretty confident that we can get some willing renters.
We just entered escrow right now and plan to close by the end of October. It is sort of sad that we can’t live in the house because we both like it very much, and it is really weird to be a landlord and renter at the same time, but it will definitely be interesting. For now we are going to rent the home to my husband’s parents, but at the same time we will need to find a renter for the future. I am learning quite a bit through this experience, and I will certainly write about it later.
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2 comments ↓
Good on you for taking the plunge. Sounds as though you are getting a great deal which often is the case on an ‘in family’ ‘off market’ deal. I have done the same on a time share with my parents who found it surplus to their requirements.
I guess you will learn how to add value to your renters over time and if they remain happy you’ll likely have a great time with them.
Also earlier in life I was stationed overseas in the UK and rented our family home in Australia to a South African couple. Sounds like the United nations… Well to cut a long story short, when we were coming home I ended up selling our home to the couple who had rented it for a couple of years and that was an ‘off market’ deal as well.
Good luck with your new life as a landlord.. Sounds like you’re looking forward to it!!!
congratulations to be a landlord.
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