Buying a 2nd home to rent (at a loss) to my adult child
Trying to make this as simple as possible. I'm not even sure what sub I should be posting in. Suggestions welcome!
Basically, I have a daughter that lives in Florida. She's lived there through college and appears to be staying. She rents. Has a roommate. They have been good with managing their money, etc. We are considering buying a home that daughter and her roommate could rent from us. Their rent would just barely cover the PITI, and we would need to front the down payment, cover utilities, maintenance, etc. She would benefit by having a nicer living arrangement - more space, privacy and a garage - at an apartment living price. She would have some responsibilities as she's the one there to deal with house "problems". And we would eventually gift her the house.
How does this work tax-wise for now? I'd have to claim the rental income, but we'd be "losing" money. Somehow I feel like I've heard this isn't considered a real rental since it's to family (+1)? Am I going to be stuck with a huge tax bill on top of everything else?
We've considered buying it with my daughter (her name on the deed). Still renting to the 1 roommate. Again, how does this work tax-wise? One downside to this (that I see) is that if she ever wanted to buy her own house, she's no longer a 1st time buyer, which sometimes comes with some perks. Not sure about any of that either.
Maybe the house needs to be in a trust. How much does that cost to set up and maintain?
How this affects us financially:
For now, this will limit our spending and leave our cash funds on the low side. Our budget will be tight for 3-4 years. In 3 years, we have access to SOME retirement funds and at 4 years we are mortgage free as well. We are in good shape at that point. Paying off the mortgage now (60K @ 3%) would leave us with less than 20% down on the other house, so it doesn't seem like a good idea. It would make the monthly budget a breeze, but we'd definitely be cash depleted, which is a little scary.
Also, some of our costs will be offset, as we make several annual trips down to FL already to visit and need to pay for hotels, etc. This house has a bedroom for us for our visits. We can cook more than eat out, etc. We should save several thousand a year with this.
We will retire in 9 years. At that time, we can realistically afford to snow-bird. So, even if daughter is "done" with Florida or the house, we can use it ourselves or simply sell it.
I am concerned about what we can still do for our other daughter during these few lean years. We want to help her with wedding costs, help with her downpayment should she want to buy house soon, etc. That is going to be tough. However, she is more financially secure and lives near us, so we can help her in small ways. I don't want this to be too lopsided as far as "fairness" for either of the kids, though. Nothing is ever perfectly "fair" but we always try to even things out as we are able.
Our thought process is that our current home will at some point be downsized and the excess cash will go to the daughter that's here, and the FL daughter gets the FL house. Who knows. Time will tell. Things change. When / how we would gift the house is another thing I have to figure out, but my brain already feels like it's going to explode.
What are all the pros and cons I should be considering that I'm not seeing. And help with the tax questions would be GREATLY appreciated. Bonus points to anyone that could estimate what utilities on a 1800 sf house in FL will run! I know this is A LOT and I feel like I'm leaving quite a bit out. Thank you to anyone still reading!