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Seeking thoughts and feedback

December 26th, 2017 at 01:25 am

My wife and I have been living in a small 2 bedroom townhouse (no mortgage) in the metro area and walking distance to my job. We are planning to return to our 3 bedroom 2 bath house (almost 30k remaining on the mortgage) (30 miles away) that we’ve been renting for the last 3 years to the same renter with the purpose of doing foster care. I will be largely the sole income and while I know foster care does some reimbursement, we know it won’t be a lot. I’m 48, my wife is 54. I’ve got good retirement but am too young to retire especially with health insurance being such an unknown. We have no big plans beyond the next two years at least. I also think that while we’ve lived for 18 months in 800 square feet, long term we need more space.
Additionally, I’ve got shared ownership (with my two sisters) of a small 1 bedroom cabin (no mortgage) on 40 acres (no lake) 2 hours away. They are no longer interested in owning it and so I need to buy them out. The tax assessed value is almost 100k. One sister wants the buy out in one lump sum and the other is open to payments.
What I need help on is trying to figure out once we have re-located to the house, what do I want to do with the townhouse. There is no mortgage and bought it 5 years ago and it’s tripled in value.
Question and other details…
Once we’ve fully moved into the house and the townhouse is empty, I am trying to figure out what to do with it. I see two options rent or sell, perhaps you have another idea?

Renting option:

If I rent it, between property taxes, HOA, renter management (I don’t want to deal with it) I might clear around $500 a month. I could use this to make payments to one sister and pay on a loan for the lump sum payout for the other one. The benefit is that I would hold on to the property and we could always move back into it down the road….but we might not want to go that small again. We have dreamed about using it as a home base while traveling extensively in an RV once we’re older. It’s one level, walking distance to my current job of 10 years, and supposed to be on the light rail line eventually (maybe 5 years) and very easy to close up and leave for long periods of time. When we rent a property, we’re always at risk for damage, including a built in oak Murphy bed in the living room area.

Sale option:

If I sell it, the proceeds will be used to pay off mortgage on the house, pay lump sum to sister for the cabin and balance to other sister and any balance set to payment schedule. If I sell it, it would also free up some of my cash flow during the month because I wouldn’t be paying property taxes and HOA fees (on the townhouse) or mortgage (on the house). We would also lose the Murphy bed because it’s too expensive to move. This would simplify all the property we own from three down to two.

Bonus question:

The cabin was started by our father before he was killed. It’s very sacred space to me and has annual expenses of approximately $5000 between taxes, insurance and operating expenses. Some of the land is rented for agricultural purposes and we gain somewhere between $1500 (corn crops) or $600 (hay crop). Unfortunately, we are only out there approximately 6-12 times a year. My life is too busy to do much more and I feel like we should leverage this space a bit more. We’ve thought about Airbnb or VRBO and the challenge is that we’d have to either hire someone to manage it or at the very least clean after each guest. It would require very special guests to stay as it’s small and simple. Electric and water but minimal cooking facilities and no internet. It might be really nice for a writer or artist as get away. Many people might be interested in renting it for hunting but my Dad was against hunting and I want to hold the land as my father would have wanted to. I do realize at some point, I might have to let the cabin go but I’m not quite ready to do that yet.

Let me know if you have questions and thanks for your thoughts….

2 Responses to “Seeking thoughts and feedback”

  1. AnotherReader Says:

    The rule of thumb with rentals is that approximately 50 percent of the rental income is eaten up by operating expenses and capital improvements. In the case of a townhouse, the HOA pays some of the expenses and in turn charges you. So if your net income estimate is based on gross income less taxes, the HOA fee, and property management, you are overestimating. You will have vacancy and collection loss, repairs and replacements, additional HOA assessments for capital improvements, insurance, etc.

    Your return on your investment might be low as well. The rule of thumb is that rents should be at least one percent of the value per month. Unless the townhouse will continue to appreciate rapidly, the cash flow may not be high enough to warrant keeping the property.

    I would also question if now is the time to move 30 miles away and take on a long commute. I would consider staying where I am and putting off the foster care plan for a few more years. Fostering might be something to consider when you retire.

    In your shoes, I would think seriously about letting the cabin go. It does not sound like it would make much money and it would be a lot of work. It's a potential alligator if it generates only a little income with agricultural use. I don't think your father would want you to keep the cabin if it hurts your finances. I would sell it and be done with it, as your sisters have decided to do.

  2. snafu Says:

    Since you asked for opinions, I mention choices now affect retirement for decades. If I read your post correctly, I wonder about the efficacy of commuting 60 miles to work and back daily possibly for as long as a decade. I'd like to see you looking forward, looking back is not helpful. Like AR, I can't see the value of increasing the drain on your finances by the cabin. Neither you or sisters enjoy the facility sufficiently to spend all vacation and weekends on the land. At least explore the results of a plan to sell.

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