How to plan for taking over a family rental property
June 4, 2018 1:09 PM Subscribe
For the past few years, my father has been renting out a family beach house to cover costs. It's becoming very stressful for him, and my siblings and I would like to take over, starting next year. Lots of questions about property managers, taxes, family dynamics, etc. inside.
The house, a small beachfront property on the South Shore of Massachusetts, was built by my grandfather. We spent summers there growing up, and it's now the site of my extended family's weeklong reunion, so it has a lot of sentimental value.
Technically, the property is in a trust that benefits us (the kids, all now in our thirties) but my father has always paid for upkeep - taxes, maintenance, etc. My parents are amicably divorced, and my mother is the trustee, as well as the only member of the family who is still local. A few years ago, my dad decided to start renting out the property on AirBnb to cover costs, which has helped him a lot, moneywise, but has been very stressful for him, and has also inadvertently resulted in a lot of work falling on on my mom's shoulders. My Dad hires a woman to clean & meet AirBnB guests, but my mom is the one who ends up checking the house after a storm, doing minor repairs, etc.
My siblings and I would like to take over practical & financial responsibility for the house from our parents once this summer is over. Our collective goal is to rent out the property at a rate that would cover costs, ideally with a little bit left over to save up for larger unexpected expenses (seawall repair, etc.) while reserving the house for the family to use during one week in the summer. We would like to do this with as little stress and family tension as possible. None of us kids are local, and none of us has ever owned property before.
Dad is in his seventies, and every time we've tried to have conversations about the logistics of taking over the house, they've gone off the rails. For example, asking him approximately how much he pays in taxes every year can easily result in a half-hour long monologue about rising insurance costs, dishonest accountants, the problems he's had getting contractors in to fix the porch, and may or may not conclude with a concrete figure. For that reason, I have no real sense at the moment about what the overall financials of the house might be. The trust obviously complicates the situation further, though all I really know is that it means my mom needs to sign off on some paperwork at the end of the year.
What are the questions we should ask my dad when we see him this summer in order to lay the groundwork for the transition? I'd like to keep these questions as concrete and straightforward as possible. He is theoretically willing to hand over responsibility to us, and I think for this to work, the transition needs to be complete - he shouldn't be involved at all as of next year.
Given the logistics, I'm thinking we should ditch AirBnB and hire a property manager, but I have lots of questions about that. How do you pick a good one? How do you check up on them? Even with a property manager, how much work/decision-making will be required on our part? Is it possible to turn the property over to a manager and still reserve the house for a week for the family? Will the property manager guide us through taxes, etc., or is that a separate concern?
What else am I not thinking of? My blood pressure is spiking just thinking about this, but I want to do a good job, and I appreciate any advice you may have. Thanks!
The house, a small beachfront property on the South Shore of Massachusetts, was built by my grandfather. We spent summers there growing up, and it's now the site of my extended family's weeklong reunion, so it has a lot of sentimental value.
Technically, the property is in a trust that benefits us (the kids, all now in our thirties) but my father has always paid for upkeep - taxes, maintenance, etc. My parents are amicably divorced, and my mother is the trustee, as well as the only member of the family who is still local. A few years ago, my dad decided to start renting out the property on AirBnb to cover costs, which has helped him a lot, moneywise, but has been very stressful for him, and has also inadvertently resulted in a lot of work falling on on my mom's shoulders. My Dad hires a woman to clean & meet AirBnB guests, but my mom is the one who ends up checking the house after a storm, doing minor repairs, etc.
My siblings and I would like to take over practical & financial responsibility for the house from our parents once this summer is over. Our collective goal is to rent out the property at a rate that would cover costs, ideally with a little bit left over to save up for larger unexpected expenses (seawall repair, etc.) while reserving the house for the family to use during one week in the summer. We would like to do this with as little stress and family tension as possible. None of us kids are local, and none of us has ever owned property before.
Dad is in his seventies, and every time we've tried to have conversations about the logistics of taking over the house, they've gone off the rails. For example, asking him approximately how much he pays in taxes every year can easily result in a half-hour long monologue about rising insurance costs, dishonest accountants, the problems he's had getting contractors in to fix the porch, and may or may not conclude with a concrete figure. For that reason, I have no real sense at the moment about what the overall financials of the house might be. The trust obviously complicates the situation further, though all I really know is that it means my mom needs to sign off on some paperwork at the end of the year.
What are the questions we should ask my dad when we see him this summer in order to lay the groundwork for the transition? I'd like to keep these questions as concrete and straightforward as possible. He is theoretically willing to hand over responsibility to us, and I think for this to work, the transition needs to be complete - he shouldn't be involved at all as of next year.
Given the logistics, I'm thinking we should ditch AirBnB and hire a property manager, but I have lots of questions about that. How do you pick a good one? How do you check up on them? Even with a property manager, how much work/decision-making will be required on our part? Is it possible to turn the property over to a manager and still reserve the house for a week for the family? Will the property manager guide us through taxes, etc., or is that a separate concern?
What else am I not thinking of? My blood pressure is spiking just thinking about this, but I want to do a good job, and I appreciate any advice you may have. Thanks!
Given that you're really going to do this, instead of just asking him about doing it, it's time to not just ask him for approximate numbers, but ask for copies of past years files. Does he have files? Make a list, and transition all the document history from him to you.
You'll want all the bills: power, water, trash, internet, cleaners, contractors, etc (at least one month, ideally a full year), plus at least one year of tax forms: property taxes, income/expense for the AirBnb (however he's handling that income in taxes); plus any paperwork either parent has about the trust.
What you want to have happen is a series of phone conversations telling him what documentation you need, followed by either flying out and going over it all together if you've got a visit coming up, or him mailing you copies of everything and a long phone call to followup after you've gone through it all.
He's probably got all this as literal paperwork, but in terms of handling this remotely with multiple siblings, digitization is key - set up all the accounts online, as well as a bank account for the house.
posted by aimedwander at 1:37 PM on June 4, 2018 [1 favorite]
You'll want all the bills: power, water, trash, internet, cleaners, contractors, etc (at least one month, ideally a full year), plus at least one year of tax forms: property taxes, income/expense for the AirBnb (however he's handling that income in taxes); plus any paperwork either parent has about the trust.
What you want to have happen is a series of phone conversations telling him what documentation you need, followed by either flying out and going over it all together if you've got a visit coming up, or him mailing you copies of everything and a long phone call to followup after you've gone through it all.
He's probably got all this as literal paperwork, but in terms of handling this remotely with multiple siblings, digitization is key - set up all the accounts online, as well as a bank account for the house.
posted by aimedwander at 1:37 PM on June 4, 2018 [1 favorite]
The property tax part should at least be very straightforward without asking your dad: google "$townname assessor database" and you should be able to find at a minimum the assessed value of the house (these websites are all terrible but when you know the address and the name of the owner you can find what you're looking for). Some towns will list the actual tax bill as well, but if they don't you can figure it out by multiplying the assessed value by the town tax rate.
posted by mskyle at 1:44 PM on June 4, 2018 [1 favorite]
posted by mskyle at 1:44 PM on June 4, 2018 [1 favorite]
Based on the rambling and your description of his difficulties, this seems like something you should discuss in person with your dad. It’s possible that things are not very organized right now and that a big chunk of the work will be getting him to mentally own-up to his disorganization while passing things off to you. If possible, plan a weekend trip where you set aside 2 hours for “business” and physically go through whatever paperwork he has. You can then set a timeline for a handoff date in person too. I have a hunch there’s a bunch of emotion wrapped up in this for him.
posted by samthemander at 1:53 PM on June 4, 2018 [3 favorites]
posted by samthemander at 1:53 PM on June 4, 2018 [3 favorites]
Yes, you're really going to need to do this in person, so you can keep revisiting the issue every time he goes off on tangents (and take breaks so no one snaps). Take at least a four-day weekend to sit with him and go over this. Ask him to get whatever shoebox he's keeping docs in out in advance. Ask your mom for copies of the trust documents in advance, too. Bring your Xanax. I recently went through a similar process with my mom and it took two years off my life, at least.
(I would honestly be concerned at this point that he may not have been keeping up with expenses. Step in sooner rather than later...)
On the legal front, IANYL, but one of you should probably become successor trustee to your mom of the property. Is she open to this? And, by the way, has she been approving this use all along? This sort of setup is unusual because it's, frankly, inappropriate for one beneficiary of the trust to be appropriating the revenues generated by an asset in the trust for his personal benefit, always assuming that that's not already (directly or implicitly) provided for in the trust documents. (Actually, it's not clear to me from what you've written that he is a beneficiary, which would make it even less appropriate...) When one of you becomes successor trustee, spend some money, get some legal advice, and stop being so darned casual about the legal responsibilities involved here--otherwise, one of these days, it will come back to haunt you. If you're going to waive your rights or assign your interests, make sure you know you're doing it and exactly what you're doing.
posted by praemunire at 2:34 PM on June 4, 2018 [1 favorite]
(I would honestly be concerned at this point that he may not have been keeping up with expenses. Step in sooner rather than later...)
On the legal front, IANYL, but one of you should probably become successor trustee to your mom of the property. Is she open to this? And, by the way, has she been approving this use all along? This sort of setup is unusual because it's, frankly, inappropriate for one beneficiary of the trust to be appropriating the revenues generated by an asset in the trust for his personal benefit, always assuming that that's not already (directly or implicitly) provided for in the trust documents. (Actually, it's not clear to me from what you've written that he is a beneficiary, which would make it even less appropriate...) When one of you becomes successor trustee, spend some money, get some legal advice, and stop being so darned casual about the legal responsibilities involved here--otherwise, one of these days, it will come back to haunt you. If you're going to waive your rights or assign your interests, make sure you know you're doing it and exactly what you're doing.
posted by praemunire at 2:34 PM on June 4, 2018 [1 favorite]
Just a note that with more people involved, things get messier. I've seen this in my own and in close ones' families. Expenses add up - the need to replace appliances or fix plumbing - there will certainly be a discussion about the value of buying the cheapest fridge versus a better one that will last longer. These discussions/fights spill over into other parts of relationships. It is one thing for a single married couple to discuss such issues, it is quite another when you're dealing with multiple (3+?) households with different financial situations and different values.
Also, as generations pass, more interested parties appear. In my own family's place like this, we are now at 3 couples in their 60s/70s, and 7 couples (each with 0-5 children) in their 30s-40s, and now of the youngest generation there are 2 people in their mid-20s now asking for access. Who among all of these people gets Labor Day? Memorial Day? Unsurprisingly, despite all of us having fond memories of this place, many of us have decided to opt out, sell our portion to others, and stop fighting about it.
Make sure that multiple siblings go through the opening/closing procedures with your parents. In my family, there was actually a TEST for this so that people don't eff it up. It is quite the ordeal to turn on the water, etc.
With regard to renting it out, this isn't something that my family did, but my ex-partner's did and it was pretty intense. For better or worse, strangers are not going to treat your property like you do. (Heck, your own family might not.) Being ready for the fact that strangers will be using the appliances, the outdoor gear, etc. and will certainly not treat them well and won't obey the rules (cuz there are few consequences) is something that everyone needs to be ready for. Is it worth renting it out financially?
posted by k8t at 2:42 PM on June 4, 2018 [2 favorites]
Also, as generations pass, more interested parties appear. In my own family's place like this, we are now at 3 couples in their 60s/70s, and 7 couples (each with 0-5 children) in their 30s-40s, and now of the youngest generation there are 2 people in their mid-20s now asking for access. Who among all of these people gets Labor Day? Memorial Day? Unsurprisingly, despite all of us having fond memories of this place, many of us have decided to opt out, sell our portion to others, and stop fighting about it.
Make sure that multiple siblings go through the opening/closing procedures with your parents. In my family, there was actually a TEST for this so that people don't eff it up. It is quite the ordeal to turn on the water, etc.
With regard to renting it out, this isn't something that my family did, but my ex-partner's did and it was pretty intense. For better or worse, strangers are not going to treat your property like you do. (Heck, your own family might not.) Being ready for the fact that strangers will be using the appliances, the outdoor gear, etc. and will certainly not treat them well and won't obey the rules (cuz there are few consequences) is something that everyone needs to be ready for. Is it worth renting it out financially?
posted by k8t at 2:42 PM on June 4, 2018 [2 favorites]
All I can say is I would purchase it if not in trust (which I think is a good idea). If a named owner on the deed has to go into a home or needs rehab, etc the house might need to be sold for funds.
posted by beccaj at 2:59 PM on June 4, 2018
posted by beccaj at 2:59 PM on June 4, 2018
My family owns a beach house in Alabama. It was built in 1930 by my great-grandfather. A few years ago the seven members of my generation took over ownership of this grand house (five bedrooms, 150 feet of wide screened porch, etc.), from our parents. The prior ownership was in the form of an LLC, and the new ownership involved transfer of the owners of that LLC.
In addition to transfer of the LLC, the owners guaranteed the promissory note backing the mortgage on the property. All of this required legal review. You should anticipate this sort of thing.
We rent the property, and use it ourselves. The agreement is that the owners pay half of the rental rate for the weeks the use they property. The rental income does not cover the cost of maintaining a house on salt water, so the owners have to cover the annual shortfall.
Who will manage the property? Your best bet is someone local, who can look in on the house and answer renter's questions.
I would be happy to share specifics with you, including the legal documentation involved in the LLC. Send me a note.
posted by Midnight Skulker at 3:11 PM on June 4, 2018 [1 favorite]
In addition to transfer of the LLC, the owners guaranteed the promissory note backing the mortgage on the property. All of this required legal review. You should anticipate this sort of thing.
We rent the property, and use it ourselves. The agreement is that the owners pay half of the rental rate for the weeks the use they property. The rental income does not cover the cost of maintaining a house on salt water, so the owners have to cover the annual shortfall.
Who will manage the property? Your best bet is someone local, who can look in on the house and answer renter's questions.
I would be happy to share specifics with you, including the legal documentation involved in the LLC. Send me a note.
posted by Midnight Skulker at 3:11 PM on June 4, 2018 [1 favorite]
Best answer: You can get a property manager/rental agent who will take care of rental contracts and dealing with guests and keys, cleaning both weekly for guests and spring opening and fall closing for you, repairs, contractors, lawn maintenance, weekly property checks during the winter and after storms, winterizing, dewinterizing and probably a few other relevant things I'm forgetting. They will forward all rental contracts to you for your approval, and you can absolutely reserve one week or as much as you want for family use.
posted by Gnella at 4:08 PM on June 4, 2018 [2 favorites]
posted by Gnella at 4:08 PM on June 4, 2018 [2 favorites]
When you go over all of this with a lawyer, please make sure to plan out what will happen when any of the siblings die or becomes disabled enough to need a guardian. I am in an ongoing legal nightmare because I co-own property with a relative who has dementia and has a guardian who is hostile to me. Don't make any assumptions based on your current relationships with your siblings.
posted by FencingGal at 7:44 AM on June 5, 2018 [2 favorites]
posted by FencingGal at 7:44 AM on June 5, 2018 [2 favorites]
Response by poster: Thanks everyone! I've got a list of questions to head into the conversation with, and I think we're going to lean towards giving as much control as possible to the property manager, precisely to minimize the number of collaborative decisions we need to make, and thus hopefully minimize tension.
The trust is, yeah, its own issue. My Dad created it, out of fear of losing the house if he got sued, and it's brought nothing but complications since. We'll deal with that, too...but one step at a time.
posted by pretentious illiterate at 8:43 AM on June 5, 2018
The trust is, yeah, its own issue. My Dad created it, out of fear of losing the house if he got sued, and it's brought nothing but complications since. We'll deal with that, too...but one step at a time.
posted by pretentious illiterate at 8:43 AM on June 5, 2018
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- Ask your mom about the taxes/expenses, if she's the trustee she either pays them or approves their payment. Likewise: insurance. The key to this will be making sure the house is appropriately insured for the AirBnB use you are planning. Talk to your mom about what she wants her role to be. You might be able to put money into that trust with your siblings to make some of the cash outlay stuff simpler.
- Taxes are due twice a year (one amount, split in two) in Massachusetts and the town sends a bill to SOMEONE. So, there is a bill, find that bill. Or call the town clerk of the town and they should tell you how much it is. I pay mine in late January and late April. Property manager has nothing to do with taxes, usually.
- If you're in MA you also have to inventory the contents of the house and pay taxes on this and towns are slowly getting on board with that. Just know it's coming.
- Think about if you want to rent the place over the winter or just keep it closed up. You may do this already but it's also a choice you can make.
- Make this as easy for your dad as possible. I think if it were me I'd give him a postage-paid envelope for him to deposit bills/receipts into once they're paid. Because technically you already own it, so the ownership stuff is pretty simple it's mostly a social issue.
- I do not have a property manager but we do have a "lawn guy" who does a walkthrough once a week in the winter to make sure pipes haven't frozen and deals with emergencies when they come up. He's not cheap but not that expensive either. Happy to share his name, I sent you a PM. It should be zero issue for you to have a property manager and also use your own house.
Also, and I don't mean to be doom-and-gloom but think realistically together about how long you want to have a waterfront property because of global warming. You may be well protected, you may not be (my house isn't on the ocean) but that should be part of your calculus in all of this. Best of luck, please PM me if I can help further.
posted by jessamyn at 1:32 PM on June 4, 2018 [5 favorites]