Howdy Ags,

I was wondering what your thoughts were on a situation and if people thought this would be a wise investment or not. I think it will be, but I'd like your thoughts.

My parents are retired and rent a house in Greenville, TN for about $700/month. Its a 3 bed 1.5 bath, 1344 sq ft, and was built in 1996. They've been renting for several years now and plan to rent for at least another 10. My dad really doesnt want to take on a mortgage at this time in his life, so hes asked if I'd like to buy it and he would be my tenant. The house isnt on the market yet, but we could probably buy it for around $120K. Im not sure what my monthly payment would be on the mortgage, including property taxes, but lets say I could get my dad to agree to cover my total costs each month...AND my dad said he will take care of any and all repairs each year. So basically, I would net ZERO cash flow, but have a guaranteed tenant for, most likely, at least 10 years, and any unexpected repairs covered. I would just be out of pocket about $25K for the mortgage. Would this sort of thing be worth it? I'd build equity over 10 years and get the appreciation when the house sells.

NOTE: I'm inexperienced in out of state real estate and how that would even work...but would learn.
NOTE: My main purpose of an investment property is for kids college in 15 years.

THANKS EVERYONE IN ADVANCE

He will do repairs or won't?

What is the current rental rates of rent hat submarket?

Oops sorry about that. My dad WILL cover any and all repairs that come up.

I think the rental rates are between $700-800 of similar size. Not quite sure yet though

For a traditional rental situation, a purchase at 120k and rents at 700-800 per month is not a cash flowing property unless you buy the mortgage down with a big down payment. Situation can be a little different if not covering repairs, maintenance, or vacancies. However those numbers still do not look overly favorable.

I would do it.

If your parents cover all your costs (Principal, interest, insurance, HOA, property taxes, maintenance and upkeep) you would be looking at appreciation and equity build-up as you mentioned, but possibly some tax savings. You can depreciate the structure (not the land) over 27.5 years so say if the house is $90k of the $120k, that is $3,272 of depreciation per year. Talk to you tax advisor to see if you could take advantage of this as each situation is different and I'm not your CPA. But with minimal appreciation, equity gain through paying the note down and any possible tax savings, your ROI on the $25k - $30k down payment gets to double digits pretty quickly, you get a flavor for real estate investing with a lot less risk, and most importantly you help out your parents!

I personally would never mix personal and business matters. The money is usually never worth the headaches, hurt feelings, etc.

I am not sure what your relationship is or what your Parent's finances are but would you be able to let your parents live for free if something bad happens? What if their health goes downhill and they can't afford rent? What if he can't continue to fix all the maintenance issues? A good plan/health today can not account for what happens in the future.

I personally would not ask my kids to do this unless I was desperate.

But I would definitely do this for my parents if asked. But i would go in with the assumption that I would be happy/willing to let them live rent free and pay for all of the carrying costs.

I don't think this makes great financial sense at 120K, but not everything needs to make financial sense.

Thanks guys. I appreciate the advice.

I'm leaning towards doing the deal. Is there anything that I need to be aware of when purchasing a home out of state IE tax wise, etc?

Also, are interest rates for an investment property really around 5.75%? My 1st rental property 3 years ago, I got at 4.62% 30 year fixed.

PS - I'm thinking about doing a cash out refi on my 1st property to buy the home in TN....but I'm not sure its worth losing the 4.62% and going to 5.75% with $3500 closing costs. Not having to use my own $ is intriguing however. Advice PLEASE!!??

Medaggie said:

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I personally would never mix personal and business matters. The money is usually never worth the headaches, hurt feelings, etc.

I am not sure what your relationship is or what your Parent's finances are but would you be able to let your parents live for free if something bad happens? What if their health goes downhill and they can't afford rent? What if he can't continue to fix all the maintenance issues? A good plan/health today can not account for what happens in the future.

I personally would not ask my kids to do this unless I was desperate.

But I would definitely do this for my parents if asked. But i would go in with the assumption that I would be happy/willing to let them live rent free and pay for all of the carrying costs.

I don't think this makes great financial sense at 120K, but not everything needs to make financial sense.

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I would ditto this. Currently, I am in a situation where the property taxes in Texas have made

my investment go from profitable to not.

Understand about the family thing.

Situation is different that you are thinking though. This is a vacation rental. Parents live in DFW and only travel to TN about twice a month. If my parents become ill and cant travel anymore, I'd either sell the house in TN or try renting it out to someone else...but my parents would keep paying for the rent until I was able to find another solution. They are pretty well off financially, so I know they wouldnt leave me hanging.