Tax Lien Rental??...also requesting some basic advice

[Jeremy H.]

Can a house be rented out if it has a lien from the IRS?

First off, would it be possible for my mother to rent the home out even with a lien from the IRS on it? Based on my basic research it would seem this area rents for about $500 a bedroom. The house has 3 bedrooms (and an extra office) and I've seen one estimate say it could get around $1600 a month in rent. We also have a family friend who rented out his house about a half a mile away for around that price. There's numerous industrial and chemial plants several miles away and a lot of workers are from out of state getting paid great money and are willing to pay a bit more or split to have a nicer place than some of the basic trailers they usually set them up in.

Even if she only saw a net income of $1,200 a month she could use that to pay the IRS the $40,000 that she owes in about 3 years. So is this a possible route? At that point it wouldn't have a lien and it would be a valuable member of an investment portfolio with all that equity.

There are obviously other routes we can take to aquire other properties to start our portfolio during that 3 year stretch. But the quicker, easier... and possibly only way, may be to sell the house and lose that $40,000 to the IRS and have that leftover cash to start investing in real estate. I just hate to think about "losing" money and what could be such a valuable asset in a growing area.

DETAILS:

The home in question is essentially a "family" home. My mother bought it with cash around 13 years ago. (Built around 2000) Original purchase was about $135,00 and based on various real estate sites, it's now in the $170-190k range.

The house does need some rehab to it though. We've already done about 15K in repair over the past year, and it would prob need another 2-3k in basic stuff. Some paint, outside trim, landscaping and things such as that.

The location is about 30 minutes from downtown Baton Rouge, and 45-60 minutes from New Orleans. It's in an area that has seen constant growth since Hurricane Katrina destroyed New Orleans and over the past 3 years it's been growing even more. The town I'm from doesn't seem so small anymore. It's added everything from Petsmart to Lowe's to a Bowling Alley and Movie Theater. School lines are constantly being redone and several new middle and elementary schools have been built in the past 5 years, with talks of adding a 4th highschool in a 5 mile radius. New subdivisions have sprouted everywhere and the median market value for the zipcode is close to 300k. In the past few years, about 200-400 yards outside the neighborhood is a fire department, medium upscale grocery store with conneted strip mall of about 10 units, all full. New current development next to it has a Petco with another strip mall and across from the original grocery is a Neighborhood Walmart with gas station. There's also talks of adding a big sports bar/restaurant to one of the corner lot of all this development. It's got great access to our main highway and is a few minutes from the Interstate. Basically, to me the area is still in a state of constant growth and updating. Also this past summer we had a devestating flood which basically rewrote our flood zone maps for the area. I don't know if it increased value necissarily for those houses unaffected but I know it couldn't have hurt it. During the flood the house easily stayed high and dry. Water came nowhere near it. The neighborhood or surrounding roads recieved no water; while only a few miles away houses were up to their ceilings in water.

My mother essentially bought the property to leave to her children for us to do with what we wanted. After discussing it for years with my brother, we really want to get into real estate investment, more specifically rental properties.

But, my mother found out she owes the IRS approximately $40,000 because of back taxes and because of that they put a lien on the home. That's the amount after she got those years filed She has spoken with the IRS numerous times, she hasn't agreed to any form of payment yet. She had hoped to file an Offer in Compromise to reduce the amount but since she has her house as an asset to cover the $40,000, it would seem that isn't a viable option from most attorneys she spoke to. So the plan was then to just repair what we could to make it as valuable as we could get it and sell and essentially take that $40,000 loss, and just go from there trying to invest in rental properties.

After discovering Bigger Pockets and watching and reading for numerous hours for a few days, I was inspired to think creatively to solve this problem. I just don't have enough knowledge yet to know if it's viable. So I'm hoping someone can help.

I know that was long, so thank you to anyone who took the time to read it. Any advice or guidance into what I should be researching would be so helpful. Thank you!

[Ned Carey]

@Jeremy H.as long as she still owns the property she can rent it.  A mortgage is a lien on your home for example and it does  not stop you from renting.

She isn't losing $40K when she sells the house. What she would be losing,  is a debt of $40K, by paying off. That money is already gone. It is not part of her net worth.

You need to calculate whether she will have more money by renting and paying off the IRS or if she can get a better return on her money if she sells the house and reinvests in something else. You have to use real numbers to make this calculation.

Keep in mind much of the rent will go to expenses and will not all be available to pay to the IRS. If here house is really worth 170-190K she may be better off investing in another deal with a better price to rent ratio.