Let's talk finance

[phideaux]

I have been looking to buy a small house in town to make life easier than keeping up the farm.

I have kicked some things around in my mind .
So yesterday went and talked to my bank, and got another idea.

Wondering if we have some members with financial background that can give me ideas.

Here's my details and questions.

I live on a small farm with house and rental house.
According to what others similar are selling for , been told , it's worth at least $300,000. I owe nothing.

I thought that we would just pay the normal 20% down and mortgage the balance at about 2.5% interest. Keep the farm..for a while.
Closing cost is about $3000 and taking about 2 months. I could get no down if I went VA loan.
Larger payments of course.

I also looked into a home equity line of credit at 3.25%.
Zero payments untill I use it (300,000). Part or all.
No closing costs. The bank would only bill me each month for 30 years for the interest, but I could pay more and it would go against principal.

I looked into a personal loan , they only go to $25,000.

I'm thinking about going ahead and set up the line of credit , home equity loan, and they cut me a check for whatever I want whenever I need it.

I also have an amount of cash on hand. To use for work on house if needed.

I'd like to hear what my friends here have to say, and if I'm missing any other avenues.

Jim

 

[UrbanHunter]

I am no financial expert, but when ever I have a decision to make I try to look at the costs and the value of each option I have available to me.

The interest on the Mortgage is tax deductible so I would suggest you do a cost/benefit analysis comparison of each of your options over time using a spreadsheet. Don't forget your property taxes and things like that. Also you will have insurance on both properties, that is part of your expenses.

 

[zoomzoom]

Here's what we did in a situation very similar to yours.

Either find the house you're interested in or at least get a purchase price as close as you can figure for the house you want.

Based on places comparable to your existing property, see what you can rent or lease it for. For the sake of conversation, let's say you can get $1200 per month.

Then, shop for a home equity LOAN (not line of credit) on your existing place. Loans have a lower interest rate compared to a HELOC. Again, for the sake of conversation, let's say you need $120K to buy the new place.

If you rent your place for $1200 and you have a $120K loan, you want to get as close as possible to having your tenants pay the loan. $120K loan + interest. At $1200 per month, that should take 10-12 years and that's what I'd use for my loan duration. The longer the loan is for, the more you pay in interest.

Optionally and to keep your involvement down on your existing place, consider getting a "Triple Net" lease for the tenants. Basically, besides the rent, they pay for all maintenance, improvements, utilities and taxes.

 

[HippoTwilight]

I'm with @zoomzoom. Rent out your current place (it would be two houses total?) so they're providing the cashflow to repay the equity loan you use for the new place in town. If you just take a loan for the 20% you'll be back at zero sooner for the farm, and then your tenants will be paying your in-town mortgage. The capitalist in me says keep the farm rentals to pay off of the new place quicker. Then sell and you'll have a nice $300k or whatever to put toward the nest egg.

Triple nets seem more in the commercial wheelhouse than a residential situation. If I'm going to take on the "ownership costs" of a home, I'd rather do a lease-to-own situation. It'd be different if I used the property to make money, but we're talking about a place to live here. You can only get so much in total rent for a given property. If the tenant has to pay the ownership costs, you'll have to lower the monthly rent to compensate. If it were me, I'd just roll your ownership expenses into the rent. Charge the tenant the market rate, set aside what you need for owner expenses, and use the left-overs to pay down equity loan. Once that's paid off you can make the decision to sell outright, or keep renting it and let them pay down your mortgage faster.

 

[LadyLocust]

One more morsel of info. - agree with what has been said, but a tax write-off is only good if you need it. I would figure out the percentage for tax credit vs. the amount of taxes paid if you go that route. I don't like paying interest if I can help it - unless my money is making more interest than I am paying (so if you're earning 5% on your money and loan interest is 2.75% for example - paying cash would be a negative.) Once you play with numbers a bit, then it's just deciding what is more important: not dealing with a loan or earning a little more interest etc.

 

[angie_nrs]

You might consider renting in town first just to see if you like it. A rent to own option would be great, but I think those are few and far between. Sometimes people move and decide later that it isn't what they hoped it would be. Maybe they have rude neighbors, or the noise level is not as expected, or they live under a flight route, or etc., etc.

If you are going to rent your home out, I'd be extremely picky about who it is you rent to. Poor renters can suck equity out of your home faster than they pay rent. Under no circumstances would I rent to someone who has the gov pay their rent. Those folks are almost impossible to evict, from what I understand.....and even though I hate to generalize, they are the ones more likely to trash the place. Do a background check and make sure they don't have a bad history. You don't want them bringing their problems into your rental house, especially a drug history. If you have a realtor friend, tell them what you are looking for as far as a renter is concerned and many of them can give you some solid leads. I actually had a realtor come to me and said if you ever decide to rent out this property, let me know b/c I always have people coming in wanting to know about rental property. Talking to a local realtor would also be a good idea b/c they may be better able to help you find what you are looking for if you don't already have a place in mind.

Just keep in mind renters won't take care of the place like you did. Plus, you'll have to move everything out and store it elsewhere. You'll also still be responsible for a lot of the upkeep unless you go with a rental agency to take care of those things for you. It's probably going to be a lot of work either way if you move or if you rent it out, unless you are able to rent to a close family member. Having a solid rental agreement if you go that route can also save you a lot of headaches.

 

[Supervisor42]

I have been looking to buy a small house in town to make life easier than keeping up the farm.
...

 

[phideaux]

View attachment 50711

You have seen half of my place, I'm old , wife's no spring chicken , we both have health issues , we just can't take care of it properly.

Big decision.

Jim

 

[Morgan101]

I won't weigh in on the finances. You have plenty of sound advice here. I would just ask the question is this something you really want to do? How long have you lived on the farm? Moving to town would be a substantial life style change.

I'm just thinking you may not want to do anything permanent right away. Leave yourself an option to go back to the farm if things don't work out in town. I hope everything works out for you.

 

[phideaux]

I won't weigh in on the finances. You have plenty of sound advice here. I would just ask the question is this something you really want to do? How long have you lived on the farm? Moving to town would be a substantial life style change.

I'm just thinking you may not want to do anything permanent right away. Leave yourself an option to go back to the farm if things don't work out in town. I hope everything works out for you.

We haven't planned on n selling the farm.

Maybe letting one of the kids or even a grandkid live on it , so I could have a get away to hunt, shoot, fish.

No mowing , tree trimming , bush hogging fixing stuff, grading driveways. Fixing fences, Cutting and splitting stacking firewood etc, etc,

I've lived in town before , if you have good neighborhood and neighbors it ain't bad.

Remember this is a very small town .

Jim

 

[Supervisor42]

You have seen half of my place, I'm old , wife's no spring chicken , we both have health issues , we just can't take care of it properly.

Big decision.

Jim

Ok, I suck at keeping my mouth shut.
In my opinion, here is what you should do.
Get your children together and tell them that one of them should build the home of their dreams on the farm and take care of both of you and the farm. Let them decide who it will be.
The one that does that, will inherit the farm (which is worth waaay more than 300K!) after you both have reached the 'exit-door'. It's called "passing the torch".
That worked for my next older brother who is taking care of my mom, and for me who moved in with my inlaws.
That's what children are supposed to do. It gives them time to become one with the property.
On topic: Finances. That 300K number is probably what they would give you for a home-equity line, or a realtor looking to double his money.

 

[phideaux]

@Supervisor42 , we have discussed this....nobody really wants to deal with it.
My grandson ( you know him) is 19 , now going to college, may be interested in living here and taking care of it. I'd still get the rental money , I'd pay the $543 a year taxes. Stays in family and in our name.
It's willed to my daughters.

Jim

 

[Meerkat]

You might consider renting in town first just to see if you like it. A rent to own option would be great, but I think those are few and far between. Sometimes people move and decide later that it isn't what they hoped it would be. Maybe they have rude neighbors, or the noise level is not as expected, or they live under a flight route, or etc., etc.

If you are going to rent your home out, I'd be extremely picky about who it is you rent to. Poor renters can suck equity out of your home faster than they pay rent. Under no circumstances would I rent to someone who has the gov pay their rent. Those folks are almost impossible to evict, from what I understand.....and even though I hate to generalize, they are the ones more likely to trash the place. Do a background check and make sure they don't have a bad history. You don't want them bringing their problems into your rental house, especially a drug history. If you have a realtor friend, tell them what you are looking for as far as a renter is concerned and many of them can give you some solid leads. I actually had a realtor come to me and said if you ever decide to rent out this property, let me know b/c I always have people coming in wanting to know about rental property. Talking to a local realtor would also be a good idea b/c they may be better able to help you find what you are looking for if you don't already have a place in mind.

Just keep in mind renters won't take care of the place like you did. Plus, you'll have to move everything out and store it elsewhere. You'll also still be responsible for a lot of the upkeep unless you go with a rental agency to take care of those things for you. It's probably going to be a lot of work either way if you move or if you rent it out, unless you are able to rent to a close family member. Having a solid rental agreement if you go that route can also save you a lot of headaches.

I like this idea so far.

You don't know how much you miss it till its gone! Maybe continue to rent out the rental and see if grandson wants to live in the primary home.
We lose enough in our senior years no sense in adding a home to the list.
Mydaughter still crys over her house they sold,she loved the view, the area ,etc,etc,etc,.

 

[Haertig]

I for one, would hate to see you sell that place - it's such a nice piece of property. That being said, a time will come, and maybe has, where the best thing to do is sell it. I can't imagine trying to take care a property like you have. I can't hardly even mow my suburban lawn often enough. As others have mentioned, if you keep it and rent it, you will still have maintenance to do. And you will be keeping it up for somebody else, not yourself. This may be worth it if you make money on the deal. But if the property doesn't become an actual source of income then I personally would re-think the deal. The opposing view on that is if you're wanting to hold on to the property to pass on to your kids or grandkids. That's a whole different story there.

Another thing you might be able to do is only lease farming rights to the property (not the home, just the land around it). I don't know what percentage of the property is farmable - you would need a big enough chunk to make it worthwhile for somebody to lease. That's what we did with our family farm in Texas. We eventually sold it to the person who had been leasing/farming it for years (but we retained the mineral and water rights - yeah!)

One good thing for you - at this point in life, you are set for life. You will never be hurting for money, you're not going to have to worry about putting food on your table ever. This gives you the flexibility to do what you want, not stuck with having to do what makes the most financial sense. That is an enviable position to be in.

So it comes down to - IMHO - what do you want to do? Forget the financials if things can be afforded. I never thought I'd hear myself saying that, but that's what I'm saying for your situation. If you can afford to buy another house and keep the farm - do it. If you can sell the farm and buy a mansion in town - do it. If you want to buy a smaller house in town, sell the farm, and bank the cash gained - do it. If you want to sell everything and buy a chinchilla franchise, do^h^h^h well, maybe not that. The nice thing is, you have options. None of them bad. Follow your heart, not your accountant.

I'll let others advise on the best financial moves to accomplish your dreams. That's a bit beyond me (my wife does most of our families financials).

 

[phideaux]

I for one, would hate to see you sell that place - it's such a nice piece of property. That being said, a time will come, and maybe has, where the best thing to do is sell it. I can't imagine trying to take care a property like you have. I can't hardly even mow my suburban lawn often enough. As others have mentioned, if you keep it and rent it, you will still have maintenance to do. And you will be keeping it up for somebody else, not yourself. This may be worth it if you make money on the deal. But if the property doesn't become an actual source of income then I personally would re-think the deal. The opposing view on that is if you're wanting to hold on to the property to pass on to your kids or grandkids. That's a whole different story there.

Another thing you might be able to do is only lease farming rights to the property (not the home, just the land around it). I don't know what percentage of the property is farmable - you would need a big enough chunk to make it worthwhile for somebody to lease. That's what we did with our family farm in Texas. We eventually sold it to the person who had been leasing/farming it for years (but we retained the mineral and water rights - yeah!)

One good thing for you - at this point in life, you are set for life. You will never be hurting for money, you're not going to have to worry about putting food on your table ever. This gives you the flexibility to do what you want, not stuck with having to do what makes the most financial sense. That is an enviable position to be in.

So it comes down to - IMHO - what do you want to do? Forget the financials if things can be afforded. I never thought I'd hear myself saying that, but that's what I'm saying for your situation. If you can afford to buy another house and keep the farm - do it. If you can sell the farm and buy a mansion in town - do it. If you want to buy a smaller house in town, sell the farm, and bank the cash gained - do it. If you want to sell everything and buy a chinchilla franchise, do^h^h^h well, maybe not that. The nice thing is, you have options. None of them bad. Follow your heart, not your accountant.

I'll let others advise on the best financial moves to accomplish your dreams. That's a bit beyond me (my wife does most of our families financials).

Thanks Dave , you've seen the place , so you can imagine how hard it is to sell it.
That's why I'm thinking the grandson option.
I could still come and tinker.
I have the cash to buy a house , up to a certain amount, but I don't want to tie that up, so that's why I'm looking at a mortgage payment or a equity loan payment.
Look , we both know that the twilight years are here , and we also have to plan on, if (when) one of us is the only one left . That is a concern. I probably could stay here and hire stuff done , wife not so much.
She would do better in walking distance to stores.

I guess we're gonna keep the farm ,for a while , either way.

Gotta decide which way to go for financing on a in town place.

Jim

 

[Haertig]

Thanks Dave , you've seen the place , so you can imagine how hard it is to sell it.

If I was nearer to you, I would sell my place and buy yours from you. You have what my wife wants - that large horse barn, nice garden. You have what I want - a private shooting range. The fishing pond, gigantic workshop, tornado shelter, multiple houses - that's all icing on the cake. But I am in no better shape to maintain a place like that than you are. I'm slightly younger (emphasis on "slight"), but I'm fatter, lazier, and I'm incompetent doing hands on work. So as much as I can dream, it's only a dream. Just mowing that place would result in a 3 month nap for me to recover.

 

[Meerkat]

Thanks Dave , you've seen the place , so you can imagine how hard it is to sell it.
That's why I'm thinking the grandson option.
I could still come and tinker.
I have the cash to buy a house , up to a certain amount, but I don't want to tie that up, so that's why I'm looking at a mortgage payment or a equity loan payment.
Look , we both know that the twilight years are here , and we also have to plan on, if (when) one of us is the only one left . That is a concern. I probably could stay here and hire stuff done , wife not so much.
She would do better in walking distance to stores.

I guess we're gonna keep the farm ,for a while , either way.

Gotta decide which way to go for financing on a in town place.

Jim

Part of our place has went back to nature whish is ok now, we have our own little forest wildlife preserve now,lol.
We only take care of whats near the house now and mow the trails around the property so trees don't grow up in them once or twice a year. like the fenced property around the house which is plenty enough room for us now. Or you can hire somebody to help to cut the grass and upkeep now and then.
When you buy in town n-hood people come and people go, who knws who will end up moving in that will drive you nuts or even worse be dangerous.
We had that happen in a very nice part of town 30 years ago, its even worse today.

 

[Meerkat]

Thanks Dave , you've seen the place , so you can imagine how hard it is to sell it.
That's why I'm thinking the grandson option.
I could still come and tinker.
I have the cash to buy a house , up to a certain amount, but I don't want to tie that up, so that's why I'm looking at a mortgage payment or a equity loan payment.
Look , we both know that the twilight years are here , and we also have to plan on, if (when) one of us is the only one left . That is a concern. I probably could stay here and hire stuff done , wife not so much.
She would do better in walking distance to stores.

I guess we're gonna keep the farm ,for a while , either way.

Gotta decide which way to go for financing on a in town place.

Jim

Sounds good to me.