Q: We have a house we need to put on the market. It’s a ranch house, built in 1964, about 3,000 square feet. We don’t live in it now, but we did for 10 years. We are going over today to patch the holes and prep to paint the entire upstairs, but it needs a ton of work and it seems insurmountable. Where do we even start? We’re novices at this.
We thought maybe having a rental for extra income when we’re retired would be great. The issue is that we’re not great landlords … we just don’t know what we’re doing. We do have a standard rental agreement drawn up by our lawyer, but I think our plan now is to just get rid of it. I hesitate to sink money into it, but I know a real estate agent is going to tell us we have to. Someone may rent it in its current state, but we would take a bath if someone bought it like this.
A: It sounds like you have at least two or three different issues here. Pulling them apart might help you feel a little less overwhelmed, so you can begin to address them systematically.
You’re really dealing with multiple decisions here — most importantly, whether to sell the place or not. If you do decide to sell it, then you have a decision to make about how much money and work to invest in it before you do. Here are some key inputs and considerations you should factor in as you make these decisions.
1. Talk with a real estate attorney or an accountant before you sell. I don’t have a strong, professional opinion about whether it’s best to sell the place or rent it. I believe in the long-term appreciation trajectory of real estate investment properties, but I also know that they can be an enormous amount of work — work it doesn’t sound like you have enjoyed doing.
If the ultimate aim of retirement is to enjoy yourself more than you did when you were working, then having an investment that puts you to work and diminishes your enjoyment is counterproductive, in my humble opinion. As well, there are other ways to keep your hand in real estate as an investment, like by investing in shares of a real estate investment trust, which are traded publicly on the same markets as other stocks and bonds. Talk with your financial adviser to learn more.
That said, there are significant tax consequences to liquidating a rental property, and there are a number of planning strategies you can implement in advance to minimize them. Talk to a real estate attorney and/or an accountant before you make the decision to sell, so they can help you understand the tax implications and engage in a more deliberate plan of action around selling, if necessary.
2. Talk to an agent — without further ado. Without knowing the full scope of information about what outcomes you can expect from selling, you can’t really know how to move forward. Don’t wait to talk with an experienced local listing agent. You’ll want to work with her to fully understand:
- what you can expect to get for the home — with and without the work;
- what work does (and doesn’t) need to be done if you decide to sell the place after some improvements; and
- what design and finish material choices will appeal to the broadest spectrum of local buyers who are in the market for a home like yours.
You might be surprised at what you can expect to get for the place with just new paint and carpet. Or you might decide, after talking to the agent and a real estate attorney, to rent the place out for another couple of years. Or you might decide to just sell it immediately, but try to do so using seller financing, to manage the timing with which you have to pay capital gains taxes.
My point is, you won’t have the information to even know how to make this decision until you’ve talked with these professionals. So get to talking!
3. Consider whether hiring a contractor — or a property manager — might make sense. I detect a theme running through your concerns: the theme of feeling overwhelmed, out of your element or that you lack the ability, know-how or other resources to take on the various issues this home creates, whether as a landlord or as a home-prepping seller. You might be overlooking the fact that both landlording and prepping a home for sale are relatively easy and beneficial to outsource.
If you decide to continue to own the place but feel underqualified to be a landlord, why not hire a property manager who is a professional at finding and screening tenants, is well-versed in local landlord-tenant laws and has his own crew to manage the property maintenance issues? If you decide to sell the place, ask the listing agent if she has contractor or handyman relationships that she can bring to bear to get the property ready to sell.
Often, the folks who help agents get places in market-ready condition are skilled at bringing large crews to do the most important work for making a good presentation to buyers — and only that work — in a fast and cost-effective way. Don’t go it alone — there are many providers out there who can help you be the best landlord or seller you can be.