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Here it is; We are looking to purchase a new tow vehicle (Sierra 2500HD Crew Cab SLT Duramax Diesel) with a purchase price of about $53,000.
We could pay cash for this truck but to do so we would have to use a large portion of our "emergency fund". We would then take the "monthly payment" money to build the fund back up. This will take a long time to replenish that account.
Since we have a couple of years yet to go before we go anywhere. We also have the option to rent out unused space in the home for about $650 a month.Over the next two years this would bring in an extra $15,000.
Would you be willing to rent space in your home while you are still living there? Pros and cons?
Thanks!
Mike
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Seeing that this would be a temporary arrangement and the set up would not interfere with your lives, I would say definitely rent out the space.. Just make sure that unless it is to a family member that you have a contract written up and you may want to make it month to month. As for paying all cash for the vehicle I have two questions. A lot of companies are offering 0% interest on vehicles for up to six years. Is this one of them or should you look at other name trucks that have that deal going on. If not 0% what would be the interest rate. some are very low based on credit rating, like 0.9 or 1.9%. So if your money is making less than that, then you would pay it off, if it is making more than that you would keep the money and get the loan. One last comment is, why new? The only advantage I see in new nowadays is the 0% offers, nothing else interests me. My girlfriend recently bought a used, high quality car for thousands and thousands less than what the dealer was selling a new one for. It was only two years older, in showroom condition and 18K miles on it. We searched for a month and were amazed at the great deals and incredible conditions of some used cars. When you buy new, you lose thousands in value as soon as you drive it off the lot. Buying used is especially attractive if you were thinking of paying it in cash since used cars usually have a higher interest rate associated with it.
I rented out my basement a few years ago. It worked for me (I needed the money.) Also, I am super flexible and my renter's occasional shenanigans I found amusing, whereas my new girlfriend (now wife) was driven crazy by him. So it depends. If your renter makes noise, leaves his turtle where your mastiff can eat it and then blames you, pays the rent a week late, doubles you electric bill b/c he decides to buy an autoclave so he can tatoo his friends with clean needles, etc, etc, how will you react? Are you the old man standing in his yard shaking his fist at the neighbors? Or will you be the one driving to the donut shop at 3 am b/c you all got the munchies at the same time... Can't imagine how... Heidi
1. We did a very, very thorough screening of the tenant,
2. We drafted a written agreement regarding payments, length of term, use of the rental area, use of the common areas, consequences of late payments, etc. etc. etc.
3. We verified it was allowable under local ordinances,
4. We verified how acts of the tenant would be covered under homeowner's insurance,
5. We did a thorough analysis of the tax effects of the rental.
Under IRS rules you would have to report the income although you could deduct expenses (pro-rated between personal use and rental use of the home). However, using the home for business or rental purposes MAY impact your capital gains exclusion when you sell the home. You MAY not be able to take your entire exclusion depending on the rental and your tax reporting is done. Wouldn't be a huge deal, but just be aware.
Remember, any mortgage interest you pro-rate and deduct from rental income also reduces the mortgage interest you deduct as an itemized deduction on Schedule A.
With the right tenant, it would be a great boost in the income but just be aware of possible tax consequences and how the rental might "change" the status of your home.
With the wrong tenant, no amount of money is worth the headache and it could cost you in the long run.
I'd suggest consulting an accountant and a real estate attorney.
You can keep things simple, do a deal on a handshake, keep the IRS out of it, and hope for the best. Most deals turn out just fine ... but ... if they go bad, they can go really, really bad and you end up on Judge Judy or worse.
