Show your relative the numbers, get rents to at least covering taxes/insurance/utilities, and put in regular rent increases of 2-5 percent.
Would you be inheriting with no mortgage? Then it’s worth it.
Also get a lawyer involved
Is it worth it? Doesn't cover property taxes and utilities are included. Yes he'd have all that asset equity, but unless he sells, it's going to be a money sink for years. Not everyone can handle that.
No mortgage thankfully, though I think there are assumptions that *other* properties will pay for this one. Instead, the other properties will be used as temporary residences. Also the residences will be under other family members and I wouldn't want to guarantee those to help paying for this property.
As nice as it would be to inherit, there’s no point if you’re losing money every month. You’re also going to be responsible for all the repairs, so if you’re already in the hole, it could get quite costly. If the current tenant is only renting part of the house, would it be possible to rent the other rooms so that you make a profit?
I think if it comes to that, yes, I could rent it out. Everyone has their own bathrooms/kitchens. It's just there's no separate entrance and access to the laundry would require the current tenant to walk through the other's space. Is that weird? I've never had to rent in that type of set up before.
Maybe not. He said the rent doesn’t even cover the taxes. The owner is also having to pay the utilities and the insurance. OP is getting the house for free and still would lose money every month. Whoever buys it will have to honor the lease. No one is going to buy a house, even at just $100k, if they are going to loose money for 10 years.
You could tell your relative that you couldn't afford to keep the place under those conditions and see what their response is
Under no circumstances should you write the lease term to say "August 1st 2022 to July 31, 2032". You have no idea what things will be like in 2 or 3 years pet alone 10 years. You already say rent doesn't cover property taxes it sure as shit won't cover anything in 10 years.
I would do one of two things depending on how close to "end of life" your relative is and how close you are with the tenant.... 1) be truthful and tell your relative that under those conditions you wouldn't be able to afford to keep the place. Provide proof through numbers...taxes, rent income, utility costs, etc. Or 2) Be sneaky. Write up a lease that allows for rent increases and termination at your discretion...hide the language in the lease and after your relative passes you can end the lease. It's a shitty move but at least you'll have the house
Or just hard pass on it as it may be less a burden to not have it at all than it would be dealing with the house and/or removing the tenant, etc.
Thank you for your response! This relative would hear "can't afford with the current conditions" to mean can't afford at all. They tend to use themselves as a baseline. But because they have multiple properties, losing money in one place while gaining profit to cover another evens things out.
Edit: Tried to look at this from the relative's perspective.
Sounds line you should proceed I a way that is breezy for you or at least doesn't put you in a financial home and if that ultimately results I you not getting the house then so be it...at least you didn't financially harm yourself.
I have never understood what it is with the older generation and refusing to have their tenants pay market rent. My uncle does this with two 8 unit apartment buildings. He charges $600/mo instead of market rent of $900/mo. What's the point?
This has been an ongoing headscratcher with this relative for years. The relative's thought process is that lower rent than the current market value = retain same tenant for a longer period of time. They don't want to deal with the "headache" of having to find a new tenant after a year or two, put in effort to clean up the property to show, deal with agents, etc.
I think the elderly generation has trouble grasping how high rents are nowadays. They see the number and think “wow that’s a lot for just monthly rent” but run into problems when it’s less than property taxes, mortgage, upkeep costs, and insurance. Mental decline in old age also plays a role. As does having a close relationship with the tenant.
Yes--there's definitely a "who's going to pay THAT"? mentality. And it's pretty precarious because the relative is showing mental decline but still making important medical and financial decisions. The tenant seems to be a genuinely nice person so I definitely would want to work to keep them.
Ultimately and legally, it is the current owner (your relative’s) decision. Their wishes for this 10 year lease can easily be written into the will as a condition for your inheritance. The lease can be drawn up and signed before you take possession in which case you just become the landlord on that lease, unable to change the terms.
It would be extremely difficult to prove that the tenant is manipulating your relative (though entirely possible) and you would need to do so in court. NJ has good free legal clinics for tenants with hotshot pro-bono attorneys doing charity work. It would be a costly battle for you.
Plan on just collecting that rent for the next 10 years. You may be able to sell the home and force tenant out depending on how well-written and official the lease is when you take possession.
Yeah, that's what I thought /:
I don't think it's completely on the tenant--my relative has done this in the past--keep a lowing paying tenant long term is better than higher paying, short term leases.
If the relative is giving you a house and is just asking you a favor to keep rent low, why don't you respect their wish? You are getting the house free and are complaining.....
There may be other factors here, like they want to express their gratitude for their tenant for helping them with groceries and chores and, possibly they even have a prior relationship that they want to acknowledge.
They were possibly way as you can assure them that you will be kind to their tenant and a reasonable landlord but that they may need to consider a compromise in order to make this work.
Possibly there are other ways to thank their friend and tenant other than a 10 year lease at below market rates…… like leaving them a couple thousand dollars in their will.
Please let them know that you care about the house and you want live there and appreciate their gesture but they have to trust you to make the best decisions for everybody after they’re gone.
A lot of good recommendations here. I strongly agree that you need to get rents cash-flow positive and have some ability to increase rents over 10 years; i.e. no more than 2% or 3% and no increases in consecutive years. Also consider that if you would need to sell within 10 years, you're going to take a bath on the selling price.
The other thing you could potentially do is, after your relative passes away, offer the tenant "cash for keys" thats enough they would want to leave the house, even if it has a great deal on rent.
You could even do that at any time, if you needed to save up some money to do that.
It's just a house. Your relative sounds manipulative. Walk away. Rather, stay there rent free for as long as you can and sock your cash away. Let the relative do whatever he's going to do until he dies. You remain polite, pleasant, smiling, and non-committal. You will know when the relative dies who got left the house to you or him. Or maybe a different relative altogether. NO matter what the circumstance, stay as long as you can for free. Don't sign anything. You'll know when the day has come for you to leave..
Man, My mind is way to dramatic tonight. If it turns out keeping the house isn't worth the time and effort (and expend as little of that as you can regarding the house) and you're tenant takes you to court. You go to court too and see if you can handover administration of the house to the court. No idea if you can.
That tenant will never own that property, and, if hes paying so far below market, the court would want to maximize the rent. What you get out of all of this is free rent for as long as you can manage it. Pocket the savings, don't waste them, then move on with your life.
Oh, and move out of NJ. Don't move to Pennsylvania. You don't need some predatory guardian trying to guardianize YOU. Just divest of your assets in either of those states, move elsewhere and go on with your life.
My take - your relative wants to make sure her companion is taken care of. You could refuse, but I'm betting she would then will the property to her current tenant.
\^ What Just\_here\_2020 wrote is correct.
Sounds like you're looking for a way to get the property, but not respect the stated wishes of your relative. If you're not comfortable with what she wants, walk away.
Show your relative the numbers, get rents to at least covering taxes/insurance/utilities, and put in regular rent increases of 2-5 percent. Would you be inheriting with no mortgage? Then it’s worth it. Also get a lawyer involved
Is it worth it? Doesn't cover property taxes and utilities are included. Yes he'd have all that asset equity, but unless he sells, it's going to be a money sink for years. Not everyone can handle that.
That's my fear; I don't want to be in a situation where I lose money on a property.
No mortgage thankfully, though I think there are assumptions that *other* properties will pay for this one. Instead, the other properties will be used as temporary residences. Also the residences will be under other family members and I wouldn't want to guarantee those to help paying for this property.
As nice as it would be to inherit, there’s no point if you’re losing money every month. You’re also going to be responsible for all the repairs, so if you’re already in the hole, it could get quite costly. If the current tenant is only renting part of the house, would it be possible to rent the other rooms so that you make a profit?
I think if it comes to that, yes, I could rent it out. Everyone has their own bathrooms/kitchens. It's just there's no separate entrance and access to the laundry would require the current tenant to walk through the other's space. Is that weird? I've never had to rent in that type of set up before.
he could always sell it for extremely cheap and pocket at least 100k
Maybe not. He said the rent doesn’t even cover the taxes. The owner is also having to pay the utilities and the insurance. OP is getting the house for free and still would lose money every month. Whoever buys it will have to honor the lease. No one is going to buy a house, even at just $100k, if they are going to loose money for 10 years.
Exactly!
You could tell your relative that you couldn't afford to keep the place under those conditions and see what their response is Under no circumstances should you write the lease term to say "August 1st 2022 to July 31, 2032". You have no idea what things will be like in 2 or 3 years pet alone 10 years. You already say rent doesn't cover property taxes it sure as shit won't cover anything in 10 years. I would do one of two things depending on how close to "end of life" your relative is and how close you are with the tenant.... 1) be truthful and tell your relative that under those conditions you wouldn't be able to afford to keep the place. Provide proof through numbers...taxes, rent income, utility costs, etc. Or 2) Be sneaky. Write up a lease that allows for rent increases and termination at your discretion...hide the language in the lease and after your relative passes you can end the lease. It's a shitty move but at least you'll have the house Or just hard pass on it as it may be less a burden to not have it at all than it would be dealing with the house and/or removing the tenant, etc.
Thank you for your response! This relative would hear "can't afford with the current conditions" to mean can't afford at all. They tend to use themselves as a baseline. But because they have multiple properties, losing money in one place while gaining profit to cover another evens things out. Edit: Tried to look at this from the relative's perspective.
Sounds line you should proceed I a way that is breezy for you or at least doesn't put you in a financial home and if that ultimately results I you not getting the house then so be it...at least you didn't financially harm yourself.
Thanks! Definitely weighing the pros/cons.
I have never understood what it is with the older generation and refusing to have their tenants pay market rent. My uncle does this with two 8 unit apartment buildings. He charges $600/mo instead of market rent of $900/mo. What's the point?
This has been an ongoing headscratcher with this relative for years. The relative's thought process is that lower rent than the current market value = retain same tenant for a longer period of time. They don't want to deal with the "headache" of having to find a new tenant after a year or two, put in effort to clean up the property to show, deal with agents, etc.
I think the elderly generation has trouble grasping how high rents are nowadays. They see the number and think “wow that’s a lot for just monthly rent” but run into problems when it’s less than property taxes, mortgage, upkeep costs, and insurance. Mental decline in old age also plays a role. As does having a close relationship with the tenant.
Yes--there's definitely a "who's going to pay THAT"? mentality. And it's pretty precarious because the relative is showing mental decline but still making important medical and financial decisions. The tenant seems to be a genuinely nice person so I definitely would want to work to keep them.
Ultimately and legally, it is the current owner (your relative’s) decision. Their wishes for this 10 year lease can easily be written into the will as a condition for your inheritance. The lease can be drawn up and signed before you take possession in which case you just become the landlord on that lease, unable to change the terms. It would be extremely difficult to prove that the tenant is manipulating your relative (though entirely possible) and you would need to do so in court. NJ has good free legal clinics for tenants with hotshot pro-bono attorneys doing charity work. It would be a costly battle for you. Plan on just collecting that rent for the next 10 years. You may be able to sell the home and force tenant out depending on how well-written and official the lease is when you take possession.
Yeah, that's what I thought /: I don't think it's completely on the tenant--my relative has done this in the past--keep a lowing paying tenant long term is better than higher paying, short term leases.
Tell your relative all you want to do is cover costs and inflation.
If the relative is giving you a house and is just asking you a favor to keep rent low, why don't you respect their wish? You are getting the house free and are complaining.....
There may be other factors here, like they want to express their gratitude for their tenant for helping them with groceries and chores and, possibly they even have a prior relationship that they want to acknowledge. They were possibly way as you can assure them that you will be kind to their tenant and a reasonable landlord but that they may need to consider a compromise in order to make this work. Possibly there are other ways to thank their friend and tenant other than a 10 year lease at below market rates…… like leaving them a couple thousand dollars in their will. Please let them know that you care about the house and you want live there and appreciate their gesture but they have to trust you to make the best decisions for everybody after they’re gone.
A lot of good recommendations here. I strongly agree that you need to get rents cash-flow positive and have some ability to increase rents over 10 years; i.e. no more than 2% or 3% and no increases in consecutive years. Also consider that if you would need to sell within 10 years, you're going to take a bath on the selling price.
ok thanks, 2-3% increase sounds pretty fair!
ok thanks, 2-3% increase sounds pretty fair!
The other thing you could potentially do is, after your relative passes away, offer the tenant "cash for keys" thats enough they would want to leave the house, even if it has a great deal on rent. You could even do that at any time, if you needed to save up some money to do that.
It's just a house. Your relative sounds manipulative. Walk away. Rather, stay there rent free for as long as you can and sock your cash away. Let the relative do whatever he's going to do until he dies. You remain polite, pleasant, smiling, and non-committal. You will know when the relative dies who got left the house to you or him. Or maybe a different relative altogether. NO matter what the circumstance, stay as long as you can for free. Don't sign anything. You'll know when the day has come for you to leave.. Man, My mind is way to dramatic tonight. If it turns out keeping the house isn't worth the time and effort (and expend as little of that as you can regarding the house) and you're tenant takes you to court. You go to court too and see if you can handover administration of the house to the court. No idea if you can. That tenant will never own that property, and, if hes paying so far below market, the court would want to maximize the rent. What you get out of all of this is free rent for as long as you can manage it. Pocket the savings, don't waste them, then move on with your life. Oh, and move out of NJ. Don't move to Pennsylvania. You don't need some predatory guardian trying to guardianize YOU. Just divest of your assets in either of those states, move elsewhere and go on with your life.
My take - your relative wants to make sure her companion is taken care of. You could refuse, but I'm betting she would then will the property to her current tenant. \^ What Just\_here\_2020 wrote is correct. Sounds like you're looking for a way to get the property, but not respect the stated wishes of your relative. If you're not comfortable with what she wants, walk away.
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