I've received an interesting proposition from my mother that I thought I'd share...
My mother received some pretty good unsolicited offers on some property she owns. Its a good property, but 1) she's tired of managing it and 2) she doesn't want to pay a property manager. If she decides to sell, she would do a 1031 exchange to another property and was kicking around the idea of purchasing a home and renting to me (still ok for the 1031, as long as its "market" rent). While it is her asset, obviously, her real property is ultimately coming to the kids at her passing. General consensus is that Irvine RRE does not make a good investment. However, she sees this as a way to 1) help her child looking for a house (I'd keep my current house and rent it for positive cash flow) and 2) generate good income (there would be no mortgage).
I'm trying to weigh the positives and negatives from various perspectives. For my mom, she'd have a pretty hassle-free way of getting some income... however, she limits upside asset growth owning Irvine property. For me, I can get into a house without worrying about buying anything (my 3 year search would end). The bad would be that by renting my current property, I would lose some tax deductions (I'd just be left with a passive loss carry-forward until I sold the house). Looking at the tax rate schedules, I'd definitely have to bump up my withholding and would take an effective income haircut in addition to the rent I'd be paying. I think about the scenarios, and can see where if she just would have held on to her current property, that it would increase substantially in value (apts near downtown LA) to the point that upon future sale, I could buy a home in Irvine and have cash left over...
The ultimate strategy would be that I would get the house upon her demise, so its a conservative, attractive proposition for me. My concern with renting for the longest time is that I hate moving and feeling "unsettled"... this wouldnt be the same.
Am I missing anything here?
My mother received some pretty good unsolicited offers on some property she owns. Its a good property, but 1) she's tired of managing it and 2) she doesn't want to pay a property manager. If she decides to sell, she would do a 1031 exchange to another property and was kicking around the idea of purchasing a home and renting to me (still ok for the 1031, as long as its "market" rent). While it is her asset, obviously, her real property is ultimately coming to the kids at her passing. General consensus is that Irvine RRE does not make a good investment. However, she sees this as a way to 1) help her child looking for a house (I'd keep my current house and rent it for positive cash flow) and 2) generate good income (there would be no mortgage).
I'm trying to weigh the positives and negatives from various perspectives. For my mom, she'd have a pretty hassle-free way of getting some income... however, she limits upside asset growth owning Irvine property. For me, I can get into a house without worrying about buying anything (my 3 year search would end). The bad would be that by renting my current property, I would lose some tax deductions (I'd just be left with a passive loss carry-forward until I sold the house). Looking at the tax rate schedules, I'd definitely have to bump up my withholding and would take an effective income haircut in addition to the rent I'd be paying. I think about the scenarios, and can see where if she just would have held on to her current property, that it would increase substantially in value (apts near downtown LA) to the point that upon future sale, I could buy a home in Irvine and have cash left over...
The ultimate strategy would be that I would get the house upon her demise, so its a conservative, attractive proposition for me. My concern with renting for the longest time is that I hate moving and feeling "unsettled"... this wouldnt be the same.
Am I missing anything here?