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December 31, 2007


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How about sell raffle tickets for $100? I recently read another family is doing this. Their farm is worth $400k and they are selling raffle tickets. They asked a charitable organization to organize the raffle and any gains higher than the value of the home goes to charity. This sounds like a great idea to me. Of course you will need this approved by the Michigan gaming board, but with a charitable organization involved, I'm sure it helps.


Here's a link to the story I was referring to:

What about renting to own to a family that needs a home, at a reasonably acceptable market value rather than just selling it outright at a reduced price. This way, the family could take over the maintenance and use the monthly payment to you to build up equity. If anything goes really wrong they just leave as if they were renting the place and lose what's been put in and you try again with someone else. This way you could get the best of #1 and #4.

I also like the arrangement with a charity to do the raffle like above. I entered a similar raffle a while back from a local construction company.

One (bad) option you missed:

* the rent-to-own or dreaded land contract. That might be the best way to sell the house to the needy family, as you still own it, and you could just charge rent prices. Of course, land contracts are awful for a whole lot of other reasons, but it is an option.

How about you sell it at a reasonable market price , say $175,000 . Take the 100 K you want and use the 75K to help many families in need . If you sell the house to one family that would help them, but with 75k you could help alot of people very much.

All good ideas, it is great you are in a position that you can help someone with a gift like that.

Although wouldn't it be most beneficial to sell it at market and donate the $100k (the value you would sell it to the needy family at) and have the difference for yourself? I guess the family would still need to find a home under that scenario, but it sounds like in your area that wouldn't be too tough.

What are the tax implications of selling below market value? Wouldn't that trigger some kind of gift tax. You can't just sell houses for less than they are worth I don't believe --- everyone would sells their house to their kids for $1 instead of just passing with the estate when they die if you could.

Mary --

That's an interesting thought. Do you mean that there's a gift tax associated with selling below market value? If so, I believe that the annual amount someone can give someone else without incurring taxes is $12k per person. If so, my wife and I could each give $12k to each of couple we'd sell too -- that would get us to $48k below market value.

In addition, I believe any applicable gift tax would impact them, not us, and they could account for this financially when they bought the house.

Anyone out there know the specifics on this issue?

Mary's example is a little different since that involves "related parties", which is a whole other ball of wax when discussing gift tax implications. Also, in the situation Mary discusses, the "gift" of the home to the kids for $1 is added back into the estate tax calculation, as are all lifetime gifts.

FMF you are correct about the $12k annual gift exclusion. I believe the transaction would be considered a part gift/part sale. You would probably need to determine the FMV based on appraisal, then take the difference between that and the final sales price. Like you said, you could make up $48k of the difference if you and your wife treated it as a gift to 2 couples. Any additional difference could be made up by your lifetime gift/estate tax exclusion, assuming you have not used it up.

I also think a Lease-Option is a good idea. You could find a family with bruised credit or low income and they would rent it out with a option to buy in 1-3 years. These tenants tend to care for the property better than a straight renter.

And once you move out of your house, it's not "your house" anymore. I know it's hard to think about someone else living in your home, but that's what will happen when you sell it, right? The market is depressed right now, and I'd hate to see you undersell or "give away" property that could provide you a great supplemental income or a wonderful profit. I know my parents rental properties has covers their mortgage on the properties, their homes, and both their cars and basic expenses. Their retirement income is pure fun money for them.

You have some good ideas and have done an excellent job with the pros and cons. However, I have to say that -- having been a landlord in the past -- the renting option can be tricky. Yes, you can make money but it is a second job, and a demanding one.

Keep in mind with renting- it is almost a universal truth that renters will trash your house.

Now, there are some renters that are awesome, and will take care of your house, but you should always operate under the assumption that you will have no choice but to replace all the carpet and paint all the rooms, as well as do heavy cleaning. I've cleaned out enough locations for my sister to know this to be true.

Additionally, before you start renting, or Rent to Own, make sure you look into how to evict someone if they do stop paying. It can be time consuming, and expensive, and in some states nearly impossible.

You seem like a busy guy, so I'd be wary of anything that involves keeping the house in one way or another. I've watched various friends and family deal with renters and rent-to-owns and it's just a headache. Anonymous at 09:41 seems to have the right idea, in my humble opinion.

We actually own a condo and a home. We are currently renting it out since condos don't sell as well as houses despite the market. I think holding a property, renting it out then selling it when the market gets better is the best thing for us right now. yeah, there is headaches with the applicances but the structure is itself is pretty new. But i'm not sure if that's the best option for us.

Wow, you are a generous person! Still, I'd only consider rent-to-own if you are OK with selling it below market price if the market turns around e.g. to help someone.

I used to rent out my old condo. I got very lucky with tenants - they kept the place cleaner than I did when I lived there, even though they had two kids during the time they lived there. It was a one bedroom, and they were just a young to-be-married couple when they moved in. Their original plan was to stay 6 months only and buy a house, but they ended up staying for 5 years as the property values started to go up and they had problem finding an affordable house. They asked for a flexible arrangement - month-by-month with 2 months advanced notice from either party if anything changes. I liked them, so during 5 years or so they lived there I only raised the rent once. The lady must've really liked cleanliness, I still don't know how she managed to keep the stove burners clean and shiny. Carpet got messed up a bit, but this is normal wear-and-tear: if you have carpeted dining area, you have to resign yourself that it'll get messier with time. After they bought a house and moved out I decided to sell: the value went up considerably, and I was afraid I wouldn't be as lucky again.

Month-by-month with advance notice option is a pretty convenient option: if you get really bad tenants, eviction is easy - you just tell them you aren't extending lease for another month.

About depreciation. Unless the rules changed in the past few years, you absolutely have to deduct it. When you sell property, assuming you sell it for more than (original_value+cost_of_improvements - depreciation), you have to fill out the tax form as if you were taking off depreciation regardless of if you did it or not. If you weren't claiming it, you have an option of submitting amended returns for the years in which you could deduct depreciation but failed. I do my own taxes, and I read the publications about selling your home and residential rental property in detail when I sold my condo. The form spells it out clearly. The good thing, though, is that the depreciation you add when you sell your property is taxable at max 25%, so if you are in higher bracket, you pay less in taxes when you sell than what you are getting back when you are deducting it.

I think you should do a giveaway on your site. Post a comment, win a house... ;)

Seriously, though -- I'd probably rent it out. Put it under management (probably something like 10% of the rent amount) and start building a stream of income. If you're really focused on doing something charitable with it, you could always donate the profits (though I'd probably start saving them for the purchase of an additional rental property). When the real estate market ultimately recovers, you can re-assess your decision and perhaps sell it. Or you could continue down the path of accumulating rental properties.

FWIW, I've been intrigued by the idea of owning rentals for quite some time, but we've never gotten around to doing it. When we moved 1.5 years ago, we sold instead of holding onto it as a rental because: (1) we were moving out of the area and wouldn't be able to keep tabs on it, and (2) we hated the idea of subjecting our old neighbors to renters who might not care about the appearance of the house/yard. In your case, #2 will possibly be a big sticking point.

We own a home outright as well and we're also considering buying another home in a couple of years when the market will be lower. We're thinking that we'll keep our current house, rent it out for a few years and then sell it when the market goes back up (2014?). Another advantage to holding on to your first home is that you won't have to move twice - in our case we'd probably have to move out of the house in order to do all of the painting and carpet replacement prior to selling (and realtors generally recommend that it's better if the house isn't occupied). So holding onto our current home would allow us to move at a more leisurely pace into the new home.

BTW: FMF what part of the country do you live in?

skeptictank --


Lease options can work if you KNOW the people you're dealing with. Doing one with strangers is a whole other ball of wax. All the pain of being a landlord, with less profit in the end.

I think it's really awesome that you would consider selling the home at a "loss" or letting a pastor use it. I think renting it out is the best option -- you can still rent it out to a pastor or some other needy family you know (the one that wants to adopt), but give them a fair price.

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