Keep as rental vs. renovate and move back to childhood home

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Topic Author
peche8
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Keep as rental vs. renovate and move back to childhood home

Post by peche8 »

Many years ago, my parents gifted my childhood home to my sibling and I. Recently, one of the units became vacant (it’s a duplex) and I’ve been considering whether I should move back in. I keep going back and forth at how sensible the plan is, and worry my nostalgia for the house is blinding me to some critical issues so I would love any advice this group can provide. Thanks in advance!

Why I should renovate & move back in:
  • I already like the city. (I recently moved back to my hometown and currently rent about 5 minutes away.)
  • It’s down the street from my mother so I can be nearby as she ages and her needs increases. (It also gives me the flexibility of building an accessible ADU in the backyard should there ever be a need for one.)
  • I live in a VHCOL city. I’m solid financially, but the thought of paying $1M for a similar house is daunting—and fixing up my childhood home so that it works for me seems more affordable.
  • There’s a lot of delayed maintenance that would easier to complete (I think) if I lived on the property to get contractor estimates, check on work, be present for inspections, etc.
  • I could possibly save money. I’d be able to use the money that would’ve gone toward rent ($2,250/mo) and instead use it to renovate the property.
Why I should keep it as a rental:
  • The property likely needs costly updates with some more critical (i.e. new wiring and plumbing) and others more cosmetic. I’ve only started talking to contractors so don’t fully know the scope of the costs.
  • If I didn’t co-own the property, I’m not sure I’d want to live there exactly. (It’s in a highly desirable city but the particular street is slightly less desirable. I’m fond of the house for nostalgic reasons.)
  • A tenant has lived in the other unit for 15+ years. (Both units are small 1-bedrooms. My partner and I both work from home. To make the living situation doable for the long term, I think we’d need both units. I feel awful about asking/paying them to leave, but at the same time, I’m thrilled at the thought of not being a landlord anymore. I’m not cut out for it and would rather invest in index funds.)
  • I may need to buy out my sister’s share of the house. [Renovating and living on the property would make things really complicated (i.e. should I have more ownership because I paid for the renos, how much rent should I pay her to offset the lost rental income, etc). My sibling has less of a sentimental attachment to the house and has shared before that they’d like to sell it. Their finances are less solid so the proceeds from selling their share would be helpful—but I worry they would burn through the funds.)
  • A reno would take time and create added stress in my life. It would be easy to continue to rent especially because I like my current rental (it’s also a 1-bedroom but newly built and more spacious), and work a somewhat intense job.
Questions:
1. What important things haven’t I considered?
2. What would you do if you were in my shoes?
rbd789
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Re: Keep as rental vs. renovate and move back to childhood home

Post by rbd789 »

Not sure you would want to live there. Don't really want to be a landlord any more. Option 3: sell out to sister..

Sister has shared that she'd like to sell. Option 4: agree with Sister to sell the property.
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AnnetteLouisan
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Re: Keep as rental vs. renovate and move back to childhood home

Post by AnnetteLouisan »

With apologies to Thomas Wolfe, you can’t go home again.
Mike Scott
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Mike Scott »

You don't want to be a landlord and sister wants to sell. It's going to be an enormous amount of time and money to renovate both sides and you will lose the rental income. You have nostalgia but don't really want to live in that location.
Sell it.
Put your half into index funds and it's not your responsibility to control what sister does with her half.
Carefreeap
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Carefreeap »

1. Do not be a partner in a business with your sister. Buy her out. If that limits your options so be it. As said upthread your sister's choices are hers. You're not responsible for them.
2. Your relationship with your tenant is a business one. They've had a good 15 years at the property and nothing lasts forever. I bet their rent is signicantly below market? If you want to be generous give them 60 days notice and a a month of free rent.
3. As a tenant yourself you will run into #2 above. If you plan on being in the town for 5 years or longer I would likely buy to control when and where I move.
4. Are you in CA? Are there some property tax benefits to buying this home?
5. This doesn't have to be an all or nothing situation. You can phase the renovations and live in your close by apartment.
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Strayshot
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Strayshot »

Money is fungible, simplify the problem first.

Lets say the duplex is worth $1M and renovations would be 100k.

If you were spending 1.1M, would you buy this renovated duplex or something else?

That’s the first decision, everything else is details……..
rbd789
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Re: Keep as rental vs. renovate and move back to childhood home

Post by rbd789 »

Strayshot wrote: Sat Aug 06, 2022 1:04 pm Money is fungible, simplify the problem first.

Lets say the duplex is worth $1M and renovations would be 100k.

If you were spending 1.1M, would you buy this renovated duplex or something else?

That’s the first decision, everything else is details……..
Taken as a purely financial issue, I agree completely. However I believe the considerations listed by the OP are almost entirely non-financial. For that reason, based on those considerations, my recommendation was to sell. But ultimately, it's OP's decision.
ClassII
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Re: Keep as rental vs. renovate and move back to childhood home

Post by ClassII »

I'd argue that by the time you do all the maintenance and remodeling to make it what you want, it won't be your childhood home anymore. Unless it's a great home in a great neighborhood that you can get for cheap (i.e. Nona's little bungalow she build in 1955 in Cupertino, CA for $5k) I'd just sell and be done with it. Even keeping it as a rental it sounds like a hassle of increasingly complex and expensive maintenance ahead. The market may be cooling but less so in a VHCOL. Seems like a perfect opportunity to get out while the getting is good and use the money to get the house you really want.
Topic Author
peche8
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Re: Keep as rental vs. renovate and move back to childhood home

Post by peche8 »

rbd789 wrote: Sat Aug 06, 2022 11:07 am Not sure you would want to live there. Don't really want to be a landlord any more. Option 3: sell out to sister..

Sister has shared that she'd like to sell. Option 4: agree with Sister to sell the property.
I considered selling initially, but I wasn’t sure it made sense based on a few financial and non-financial factors:
  • I don’t have an immediate need for the cash. And I feel like a more stable living situation (i.e. knowing there won’t be rent increases or any lease renewal issues) could add more value to my life right now. If my partner and I were actively looking to buy a house, I could see selling the house to help offset the downpayment some more. But we have enough for a 20% downpayment—and had been choosing to rent because it keeps our lives simple.
  • If I sold the house, I wonder if I would be worse off after subtracting taxes on my half of the proceeds. I would still have to take out a considerable loan even if I used the proceeds to purchase another house. And I wonder if I would end up spending less money if I bought out my sibling and didn’t pay taxes on house proceeds.
  • I only pay $2,500/year in property tax. When you consider reno costs, property tax savings is small in comparison—but the thought of paying closer to $13K/year for a new house is not great.
  • While I’m less fond of the street the house is on, it’s in a good neighborhood with good schools and surrounded by really nice streets. The street isn’t dangerous. It’s just near a train line, doesn’t have a sidewalk, and doesn’t have much curb appeal. So part of me feels like I’m being overly picky because it’s a perfectly okay situation. If I were to consider purchasing another house, I’d likely have to buy somewhat of a fixer and make certain tradeoffs too.
  • I don’t have children right now. But when I do, there is something priceless about knowing my children could walk down the street to their grandma’s house or that my mom could come over for a family dinner on a weekday. I and most of my childhood friends had similar upbringings where our grandparents or other family members lived within walking distance and raised us while our parents worked. Some of those friends have expressed that they’re a little sad that their children won’t have the same experience—but it’s expensive and takes pure chance to recreate that scenario. Houses don’t often come on the market near my mom’s house. (Mostly townhomes or apartments come up for sale. In the last 20 years, only 2 houses on my mother’s street have come on the market—and one was because an elderly neighbor passed.) So I worry that I might lose out on this potential opportunity if I sold the house.
Topic Author
peche8
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Re: Keep as rental vs. renovate and move back to childhood home

Post by peche8 »

Carefreeap wrote: Sat Aug 06, 2022 12:21 pm 1. Do not be a partner in a business with your sister. Buy her out. If that limits your options so be it. As said upthread your sister's choices are hers. You're not responsible for them. Yes, I think regardless of what decision I take—I'll need to buy out my sister. What you said about not being responsible for my sister's choices is where it gets a little tricky. Part of the reason I would like to keep the rental is because my sister may need to live in one of the units later in life. She doesn't have a good relationship with money and I've always thought of the rental as an in-case-of-emergency living situation for her. She could technically live in one unit if she falls on tough times vs. me/my mother having to pay for rent elsewhere. If I bought her out and she burned through her proceeds, I would likely still bail her out. (I know it's something I would never advise a friend to do, but there are reasons why I feel obligated to do this.)
2. Your relationship with your tenant is a business one. They've had a good 15 years at the property and nothing lasts forever. I bet their rent is signicantly below market? If you want to be generous give them 60 days notice and a a month of free rent. Yes, their rent is about $500 below market. I would likely give them 4+ months to find another rental. I think they may have a tough time finding something within their budget right now and I also empathize that moving after so long would be an emotional process as well.
3. As a tenant yourself you will run into #2 above. If you plan on being in the town for 5 years or longer I would likely buy to control when and where I move. Yes, our landlord has been transparent that he'd eventually like to do more major construction on the property. He's just waiting a few years because he needs to save for the reno. When that happens, we'd likely move because we know we couldn't deal with a year's worth of construction while working from home. My partner and I do see ourselves living here for 5+ years. This was the first year where we saved enough for a downpayment, but we've been hesitant to buy because we're torn between the simplicity & savings that comes from renting vs. the stability and peace of mind that comes from owning.
4. Are you in CA? Are there some property tax benefits to buying this home? I am in CA. If I kept the house, I would only pay $2,500 in property taxes. If I purchased a similar home, I might be looking at paying something closer to $13K/year.
Oddball
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Oddball »

Without knowing more info on the layout of the house, here are some thoughts:
Talk to contractors about turning it into a single family house. If you don't want to be a landlord, and likely need both units before you (might) have kids, and you need major electrical/plumbing done already, do the major rehab now before you move in if possible. A SFH likley will be worth more than a duplex as well.

If the costs make sense, than buy out your sister by having her give seller financing to you, say a 15 year mortgage at 4%APR. Do it official with a lawyer. That way she won't burn through all the funds as they will be spread out over time, and that will leave you more funds upfront for the rehab. Seems like a win/win.
Topic Author
peche8
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Re: Keep as rental vs. renovate and move back to childhood home

Post by peche8 »

Oddball wrote: Sun Aug 07, 2022 8:35 pm Without knowing more info on the layout of the house, here are some thoughts:
Talk to contractors about turning it into a single family house. If you don't want to be a landlord, and likely need both units before you (might) have kids, and you need major electrical/plumbing done already, do the major rehab now before you move in if possible. A SFH likley will be worth more than a duplex as well. That's really interesting. I hadn't really considered it at all, but the house used to be a single family house. Based on the permits I found at city hall, the original owner converted it into a duplex in the late 1940s. I've read in the past that a duplex might be worth more than a SFH. Does it just depend on the location or are there other variables that determine which style house is more valuable?

If the costs make sense, than buy out your sister by having her give seller financing to you, say a 15 year mortgage at 4%APR. Do it official with a lawyer. That way she won't burn through all the funds as they will be spread out over time, and that will leave you more funds upfront for the rehab. Seems like a win/win. That's a great suggestion. I've only recently heard of seller financing and wasn't sure if it was an option for my scenario (buying out part of another person's share vs. buying 100% of a property from an owner). I'll definitely dig into this more. It feels like regardless of which path I take (keep as a rental vs. renovate and move back), I'll need to buy out my sister so I'll likely start by getting an appraisal and then go from there.
toomanysidehustles
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Re: Keep as rental vs. renovate and move back to childhood home

Post by toomanysidehustles »

I love real estate, but this would be a hard pass for me too. Especially if a sibling is involved. Sell it and 1031 into something without the baggage and drama which will likely come if you keep the childhood home.
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Sandtrap
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Sandtrap »

AnnetteLouisan wrote: Sat Aug 06, 2022 11:11 am With apologies to Thomas Wolfe, you can’t go home again.
Outstanding!
well said.

As for nostalgia. . often.. the image and "feelings" that we have for a childhood home, culture growing up in an area, etc, is just that. . feeling and imagination. . .
The hardcore reality of the childhood home, hometown, hometown culture, can be shockingly and sometimes depressingly different once "feelings" are removed.
. . .
or it can be wonderful. . . all over again. . .it depends.

j :D
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Sandtrap
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Sandtrap »

To OP:
One option:

1. purchase the home of your youth
2. pay off sister so it is fully owned by yourself
3. evict renter. . either wait for current least to expire or give proper notice to vacate
(some landlord tenant codes and leases allow the "owner" or "owner's family" to move back into the rental unit given the proper notice to vacate and it can void the lease termination date. Check your local code and the existing lease).
4. Live in the unit.
5. Make and incremental, stage by stage plan, to turn the home back into the home of your youth. . in the long run. . it will be wonderful. . .
6. Keep in mind that at some point of the above, once paying off your sister, that you can always sell the home and go back to renting or so forth, so your options are always open.

**Realize that life and these dynamics of what you want to do and decide does not fit neatly on a spreadsheet or flight plan. So look at the biggest long term picture comprehensively. What really needs to be taken into many considerations cannot be quantified nor do they have "numbers".

To OP:
I hope this is helpful to you.
j :D

Dis Laimer: zillions of ways to do things and opinionizations based on nil to zero to extensive personal and professional experience this is only one.
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Watty
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Watty »

AnnetteLouisan wrote: Sat Aug 06, 2022 11:11 am With apologies to Thomas Wolfe, you can’t go home again.
+1

There was a post a few years ago by someone who had inherited a large family home that they were raised it. They kept it as a rental and while they had the normal hassels if being a landlord it basically worked out OK for them financially.

They posted though that they regretted keeping it since their fond memories of having been raised there were replaced by the memories of dealing with it as a rental property.
rbd789 wrote: Sat Aug 06, 2022 11:07 am I may need to buy out my sister’s share of the house.
Not maybe, you either need to sell the house or buy her out. Siblings become estranged over things like this.

Things could be very awkward if something happens like your sister is laid off and really needs the money either during the renovation or right after.
peche8 wrote: Sat Aug 06, 2022 10:51 am ....I like my current rental (it’s also a 1-bedroom but newly built and more spacious), and work a somewhat intense job.
Taking on a major renovations while you are working an intense job sounds like a nightmare, don't even think of trying to live in the house while it is being renovated.

Having the house empty when it is being worked on is also a lot easier since you can just give the contractors the keys and not need to worry about your stuff.

Don't underestimate how long it will take to renovate a house. There are lots of delays with contractors and shortages. A house up the street from me was sold and it is being renovated and they are 18 months into it now. There were often three or four weeks gaps when it looked like there was no work being done. I don't know all the details but I think they thought it would take about six months. After a year they got tired of waiting(and paying for rent and a mortgage payment at the same time) so they moved in before the renovation was done.
peche8 wrote: Sat Aug 06, 2022 10:51 am I live in a VHCOL city.

There’s a lot of delayed maintenance.....

Based on the permits I found at city hall, the original owner converted it into a duplex in the late 1940s.

1. What important things haven’t I considered?
Once any major work starts you will also find additional work that needs to be done.

I obviously don't know that area but I would suspect that if someone else bought it they might tear it down and build a now house on the lot.

Especially if there are other houses in the neighborhood that have been torn down and replaced I would be very cautious about putting a lot of money into it since the house sounds like it is around a hundred years old already.

It could be some sort of old gem of a house that is worth spending hundreds of thousands of dollars to renovate to its former glory but I really suspect that it is more likely that it is near the end of its useful life.

One other thing. You might want to contact the adjacent landowners to see if they would be interested in buying it. In some situations two adjacent lots can be combined into one large lot or split into three or four smaller lots which can be a lot more valuable if they can fit a number of houses or one very large house on the same land.
Carefreeap
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Carefreeap »

peche8 wrote: Sun Aug 07, 2022 10:39 pm
Oddball wrote: Sun Aug 07, 2022 8:35 pm Without knowing more info on the layout of the house, here are some thoughts:
Talk to contractors about turning it into a single family house. If you don't want to be a landlord, and likely need both units before you (might) have kids, and you need major electrical/plumbing done already, do the major rehab now before you move in if possible. A SFH likley will be worth more than a duplex as well. That's really interesting. I hadn't really considered it at all, but the house used to be a single family house. Based on the permits I found at city hall, the original owner converted it into a duplex in the late 1940s. I've read in the past that a duplex might be worth more than a SFH. Does it just depend on the location or are there other variables that determine which style house is more valuable?

If the costs make sense, than buy out your sister by having her give seller financing to you, say a 15 year mortgage at 4%APR. Do it official with a lawyer. That way she won't burn through all the funds as they will be spread out over time, and that will leave you more funds upfront for the rehab. Seems like a win/win. That's a great suggestion. I've only recently heard of seller financing and wasn't sure if it was an option for my scenario (buying out part of another person's share vs. buying 100% of a property from an owner). I'll definitely dig into this more. It feels like regardless of which path I take (keep as a rental vs. renovate and move back), I'll need to buy out my sister so I'll likely start by getting an appraisal and then go from there.
Duplexes are generally appraised based on income stream. One thing that is somewhat unique to CA markets is that duplexes generally haven't been built in CA since the 1960s when condominiums became the norm. Developers will market "duettes" which are one half of a duplex building but are generally structured as a condominium.

The duplex + the opportunity to build an ADU (Assessory Dwelling Unit), especially under SB 9 & 10 is a really interesting possibility. Can you share the general metro area?

And FWIW I would not do private financing with your sister. 30 year fix loan gives you what you need without intertwinning finances. You borrow from her and it will be constant "I need my money...".
Every day I can hike is a good day.
Outer Marker
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Outer Marker »

Sell. I had a similar dilemma a few years ago when I inherited my childhood home. I rented it for a few years and eventually fought off the nostalgia and did the right thing in selling it. I was attached to the place, but my significant other wasn't, and although it's in a beautiful spot, it doesn't really suit our current needs and lifestyle. Anette hit the nail on the head. You can't go home again.
Topic Author
peche8
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Re: Keep as rental vs. renovate and move back to childhood home

Post by peche8 »

Carefreeap wrote: Mon Aug 08, 2022 11:03 am The duplex + the opportunity to build an ADU (Assessory Dwelling Unit), especially under SB 9 & 10 is a really interesting possibility. Can you share the general metro area? I'm in a suburb within Los Angeles County and ADUs are definitely really popular here. I currently live in one and my city is very ADU friendly. For a moment, I had considered moving into the empty unit while I convert the two-car garage into an ADU for myself. I was tempted because of the new CA grant that gives homeowners up to $40K to build an ADU. I ended up pausing that idea because that would mean an additional project—and the idea of fixing up two units seemed daunting enough.
Topic Author
peche8
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Re: Keep as rental vs. renovate and move back to childhood home

Post by peche8 »

Thanks for sharing all your perspectives! I definitely have a lot to think through.
dboeger1
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Re: Keep as rental vs. renovate and move back to childhood home

Post by dboeger1 »

Strayshot wrote: Sat Aug 06, 2022 1:04 pm Money is fungible, simplify the problem first.

Lets say the duplex is worth $1M and renovations would be 100k.

If you were spending 1.1M, would you buy this renovated duplex or something else?

That’s the first decision, everything else is details……..
I hear this point made a lot, but I don't think it applies nearly as often as it's used. Money may be fungible, but the things it can buy aren't. The costs and complexities of keeping and renovating vs. selling this house are apples and oranges. Heck, even money itself is often not fungible in the strictest sense. Money in a 529 account has very different practical considerations than money in a Roth IRA, for example.

That being said, I do think buying a home that doesn't really suit you in its current state is unnecessarily complicated. OP doesn't want 2 separate unites, OP wants 1 house. It might work out eventually and even be financially optimal, but it's a lot of trouble over just buying the house you want when you're ready, and there is substantial risk of complete ruin from things going wrong.
Carefreeap
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Re: Keep as rental vs. renovate and move back to childhood home

Post by Carefreeap »

peche8 wrote: Tue Aug 09, 2022 11:15 pm
Carefreeap wrote: Mon Aug 08, 2022 11:03 am The duplex + the opportunity to build an ADU (Assessory Dwelling Unit), especially under SB 9 & 10 is a really interesting possibility. Can you share the general metro area? I'm in a suburb within Los Angeles County and ADUs are definitely really popular here. I currently live in one and my city is very ADU friendly. For a moment, I had considered moving into the empty unit while I convert the two-car garage into an ADU for myself. I was tempted because of the new CA grant that gives homeowners up to $40K to build an ADU. I ended up pausing that idea because that would mean an additional project—and the idea of fixing up two units seemed daunting enough.
Between the zoning and the Prop 13 status I think you may have a diamond in the rough. But it will be work and you have to set aside the sentimental aspect and look at it through the cold eyes of an investor. And while it might be more efficient to remodel everything at once there's nothing wrong with doing it in stages. I'd probably take it on myself but I'm also a property person.

Good luck with your decision.
Every day I can hike is a good day.
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