@Kevin Sobilo:
Tax implications are never based on local laws because we are talking about FEDERAL taxes. If local laws changed federal taxes localities would prevent residents from having to pay at all! A gift would of course be WORSE because then you would be on the hook for capital gains on the ENTIRE SALE PRICE.
What I suspect is that you "inherited it" but that when you transferred title into your name the deed showed $1 because that is allowed for close family transfers and avoids state transfer tax aka tax stamps on the sale. At least that's how it would be in my state. So, I suspect my original response may still be on point with regard to federal taxes.
I think your mindset about renters may need some re-evaluation. Renters, ESPECIALLY those who know they are only looking to rent for a finite period are generally focused on function over aesthetics. You aren't selling someone their forever home. You are renting them a place for a couple years max. So, updating a 1940s ranch is a perfectly reasonable sounding thing to do. In fact a 1940s ranch isn't even "old" in many parts of the country. For a rental in my market that would be NEWER than average as most rentals were built 1890-1920.
There are so many other options to consider. Could the house be converted to a 2 bedroom and studio? Could it be rented by the room rather than to a single tenant? Does it have a basement or garage that could be converted into livable space.
A remodel sounds to be like lower hanging fruit. Less investment, less time, less risk. So, I would try to look at that with fresh eyes and evaluate every possibility imaginable before dismissing it.
There is a tendency with people, especially new investors to want to create "what they like". What you like may or may not make the best sense as a rental investment. Me personally, it took me a while to understand what the expectations were for rentals in my market for different classes of rentals and it was much different than I would have expected at the beginning. For example a C class rental in my market is on average functional but VERY dated looking like the finishes are from the 1970s or early 1980s. This is what an entry level working class family expects to find on average here. This will vary from market to market, but you want to understand your market IS, NOT what you WISH it was.
For a renter you describe including a washer/dryer is probably more appealing to them than having a brand new modern aesthetic as in many markets those are not typically included. This is just one example of how expectations may differ from how a new investor might believe.
Not sure why I put "local" but re-reading the same article I read a few weeks ago, it does change the way the IRS views the sale. i.e. it is no longer considered a "sale" but a gift. The house was not inherited, it was sold for a $1 to us several years prior to the resident (a family member) passing away. Here is the link for reference, I'm sure you could make better heads/tails of it but we still plan on talking to a financial advisor. (https://ibuyer.com/blog/can-you-sell-a-house-for-one-dollar/... Regardless, we have considered your input and are willing to attempt to evaluate the cost of rehabbing versus selling and building. Here are our concerns;
- Some of the floor joists have been exposed to excessive moisture and are rotting away. There are a few joists I can physically stick a finger into the wood is so soft. This seems like a costly fix, as well as a rental safety concern
- The basement leaks, the basement is below ground and built into a hill, and there is always stagnant water in certain spots of the basement floor regardless of amount of rain, which only makes it worse. We have since put in a dehumidifier but too little too late it seems, I believe the basement will need to be sealed.
- The unattached garage (built into same hill) has drain run off that goes underneath the driveway and into the road. Drainage pipe is broken/clogged somewhere and water drains freely under the driveway. I recently had to fill a sinkhole that formed in the driveway that was at least a foot deep with gravel and top with asphalt patch. A short remedy for a potentially much bigger issue.
This is all aside from a very outdated kitchen and flooring which I agree is purely aesthetic, but considerable costs. It is a 3 bedroom with 1 bathroom. 1 bathroom I don't believe will be attractive to potential students. Converting to a 2 bedroom and studio may be possible, but is all additional cost on top of structural concerns previously mentioned.
We do not have a lump savings to cover the cost for this rehab. We have talked about taking out a HELOC, but then we are making payments on a home for an unknown amount of time for it to become rental ready. That is what led us to believe it would be easier to sell and turn the money directly over into a new build.
All of those concerns out in the open, I'm all ears. Rehabbing was our first thought and is not out of the question. Do you still think that would be the most viable in our situation? How would you go about financing the rehab? I assume our first step would be to get a quote from a structural repair contractor?
