My Financial Mistake (long)

[cschin4]

I am a bit distressed as I have made good financial choices for years and yet recently made on of my biggest blunders.
To give you some history, I live in a small town. My spouse and I both have good jobs. We owned our first home in one part of town and then sold it and moved across town to another location to a newer home that had been completely remodeled. We thought that would be wise versus spending on the old home which was 100+ yr old home with lots of problems.
Fast foward. I really just didn't like the new neighborhood as much. It is not "in town", no sidewalks, the kids can't walk to school, etc. Anyway, the old house came up for sale. So, we decided to buy it back, remodel and move back in. Well, really, it was more something I wanted and DH didn't but went along with it just to make me happy. So, I undertook the rennovation and completely rennovated from top to bottom including new wiring, new plumbing, new kitchen, etc. And, no doubt I went overboard.
But, DH's heart was not in it at all. And, I realize that I was pushing him to move back when he really doesn't want to. And, of course, I did all this right before the economic and housing market collapse.
So, today, we are still in our present home. We put the remodeled home on the market and even reduced the price to take a loss but in our town, people are losing their jobs, etc. so now I am in a quandry.
The good points, I have no mortgage on my present home and also paid the mortgage for the other home but took out a HELOC to finish the construction and owe about $50K which, with some effort, I could pay off in a couple of years.
And, the other complicating factor is that my mom who is a widow, moved to our town and is renting an apt. It isn't really an apt but a home that was divided into apts. She is 78 and still drives, gets around, etc. There have recently been a series of bad renters living in the home - parties,
noise, and now the landlord is planning to rent to a newly released convict. I have serious concerns about that for her and the fact that she watches my young daughter at times.
So, we decided to let her live in the remodeled home as she can live entirely on the first floor and it is handicap accessible with downstairs shower. She will pay some rent of $300 a month and will take over the utilities, etc. Of course, I will still owe tax and insurance and be responsible for maintenance of which there shouldn't be much but houses always have problems. And, I will just have her live there as long as she is able and she is very excited about moving in to a newly remodeled home.
Does this sound like the right decision? I would then plan to sell it down the road when she no longer lives there. But of course, the economy could be far worse by then as well. Or maybe this will become a ghost town with jobs losses. I just don't know. All advice welcome!

[gamecock43]

I too got sucked into the "new development" craze. I rented a new construction home for years and tried to love it. Slowly realizing that being far away from town, in a development that felt like a town, in a house that looked the same as everyone else was not for me.

Anyways, I say this sounds like a very good solution! You will have to pay taxes/insurance- but everything else is covered? Hopefully one of the tax experts will come along and help you figure out if this will work to your advantage and how you have to declare this property. (I wonder if the renovations can be a write off because this property is a rental property?)

Anyways, the only problem I see, is if you or hubby lose your job and this house sinks you.

But the housing crisis will not last forever. Its a tough time now- but in 5 yrs from now, things will be very different than they are now (better I assume!). And this house is in town so it should be easier to sell.

[LivingAlmostLarge]

Why don't you want to live in the newly remodeled home now? What brought about this change?

You sound like my mom but slightly younger. Sometimes you just eat the cost and let your mom live there. That's what my mom did, eat all costs of repairs, taxes, etc. No mortgage on the house my grandma lives in, but let's say it's a hugely losing proposition.

But you don't to me (and my mom) kick out your mother. It's different if she couldn't live alone, but not kick her out.

[swanson719]

Is there anyway you can convert the HELOC into a personal loan, or have it as a second mortgage on the newly rennovated house? Meaning that you could then sell your current house and have your Mom live with you and yours in the renno?

[Ima saver]

I think it is a very good idea to let your mom live there.

[swanson719]

I'm all for taking care of family - but there has to be a limit on the cost as well. If you're going to hang onto the house anyway and wait for the market to recover, then let your Mom live in it. But if you're keeping it off the market to give Mom a place to stay, then it might be better for her to live with you guys... You just need to find the balance financially and family wise. If at all possible, I would really sell one of the houses...

[maat55]

I don't see your mother as a financial factor. The question is whether to sell now or later. I've seen small towns die, it is a viable factor. You may later have to choose between which house to sell or just sell now.

Now that I have stated the obvious, I would personally risk the later sell, for your mothers sake, if the possible loss is acceptable. With time, you may breakeven or come out ahead.

[cschin4]

Thanks for the advice. Having mom live with us is really not something either of us wants at this point. She is able to take care of herself and likes her space. Living with us would be difficult as my three kids are pretty loud and it would drive her nuts! We would also drive each other nuts as well as you can't have 2 queens in one hive! Ha!
But, right now, we are just going to go through with letting her live in it. She is 78 so it is hard to say for how long she will be there. And, in some way it is my "gift" to her to give her a really nice place to live as well. And, since it is in the old neighborhood, my kids will be able to walk to her house after school and so forth and i also will get to enjoy the house that I spent so much time on remodeling.
As for living in the remodel, we did have both homes up for sale for a period of time but nothing is selling. And, my spouse is very lukewarm of the idea of moving back as he likes our current home. However, he is willing to entertain the idea of moving back down the road. Our current home is larger and with 3 kids, he likes the space. But, our oldest is 13 and in a few short years he will be flying the nest. So, I do forsee the possiblity of moving back in after mom has lived out her life in it.
Of course, who knows what the real estate market will be like then? I guess everything is a gamble. And, I will also have the loan paid off and own both houses completely so surely having 2 homes in good repair and condition should have some value and be a decent part of the portfolio.
As for the small town, there is a hospital in the next town that is rapidly expanding so there are still some signs of life around here but who can tell.

[simpleyme]

look into the tax implecations of renting a house below what is the norm for the area ,IRS might not like you giving away all that income and taking such a loss, not sure about that but I think you should consider it

[cschin4]

What would it matter to the IRS? I am only charging some rent because I have to finish getting the loan paid. Otherwise, I might not charge at all. I don't see of what concern that is to the IRS.

[maat55]

What would it matter to the IRS? I am only charging some rent because I have to finish getting the loan paid. Otherwise, I might not charge at all. I don't see of what concern that is to the IRS.

Technically, renting a house is a business. But, I would not bother involving the IRS, you would likely breakeven or show a loss, after expenses.

[simpleyme]

I do assume you will have to report your losses and income
I do believe are required to rent at fair market ,maybe not I would check into it

does not mean you should not do it just be aware of things;-)

[cschin4]

I do believe are required to rent at fair market ,maybe not I would check into it

does not mean you should not do it just be aware of things;-)

I did not know that. It is my home so why can't i rent it for anything I want. Or, what if i decide not charge her rent and just let her live there? Tax wise, declaring it a rental would probably make more sense though.

[maat55]

This to me, is a case of too much government involvment. Personally, I would take the government be damned approach. This is not you trying to make a untaxed profit.

This is just another case for abolishing the 16th admendment.

[PrincessPerky]

This to me, is a case of too much government involvment. Personally, I would take the government be damned approach. This is not you trying to make a untaxed profit.

Ditto....most laws can be painted in a 'nice' way but they all boil down to limiting personal freedoms.

rent/loan the house to your mom. Do what makes you and yours happy and safe.