#452 in a series of true experiences in real estate
February 2004, Hills Newspapers
When I was young, newly married, and renting an apartment for the first time, my grandfather drove me by an orchard in full bloom commenting that grandma and he used to own that land. Probably because I was full of nesting thoughts, I found the sight of the orchard enchanting. I easily imagined a little cottage, clothes on the line, standing there among the flowering trees, a place that my husband and I could nestle into.
But the land belonged to someone else. It was not to be mine. I asked my grandfather why they’d sold it. “Taxes,” he said. “No sense in paying the taxes on it.”
Recently, I remembered that orchard again (no doubt worth a small fortune now) when my ex-husband asked if Anet and I would list for sale his property in Oakland’s Rockridge neighborhood. Along with partners, he and I had bought the property — 3 beautiful old apartments — while we were still married and our children were very young. As we did work on the building, buffing and refining it, we confirmed that it was an investment for our kids.
Maybe we’d use the equity to pay for college. Or, if our kids didn’t go to college, when they left home, maybe they’d live there. Certainly we hoped to pass it along to them when we died.
Things changed. Our partners decided to move on to other ventures, and so we bought them out. A few years later, my husband and I separated. He moved into one of the apartments at the property and the kids lived there, part of the week with him, the rest with me.
After several years, feeling strongly that East Bay living was simply too expensive, my ex moved to northern California and, after much negotiation, we belatedly divided up our assets. He got the triplex. Now he wanted to sell, saying that he was certainly sorry. He’d prefer to keep it for our kids, he said, but he’d remarried and he and his wife would like to do some traveling while they’re still in reasonable health.
Also, managing from a distance is difficult. Tenants change, repairs need to be made, workmen met. I understood. Owning rental property is a business that demands time and care and money. But I wondered if there was a way for me to save this asset, a clever plan to make it available for our kids.
Anet and I did some research and came up with a probable sale price. My ex talked to his tax person and got an estimate of the cash he would net from the sale after paying income taxes. The taxes are large; he wouldn’t get nearly as much money as either of us had at first guessed.
And so, for several days, Anet and I talked about how I might pay my ex to keep the property. I’d have to raise the cash, which I thought I could do. And we’d have to have some sort of agreement that the property would be left to the children as their inheritance. Probably that was doable.
But there remained one stumbling block, a big one: Someone would have to manage the property, and I didn’t want it to be me.
A professional manager could be hired. But as both my ex and I feel strongly about personal devotion to the health and upkeep of property, I just couldn’t imagine hiring someone. The kids aren’t at a place yet where they could take care of things, and I don’t know when they might be.
Over and over again I asked myself if I could take on the running of this property? The cost of living here, the costs of buying a home are so large that it would be a tremendous assist to the kids to have this property. Also, if they inherited it from their dad, they’d retain his pre-proposition 13 property taxes. And, if they chose to sell it, they would not have to pay the same high capital gains taxes their dad faces.
All are strong arguments for holding onto property already owned, just like my grandparents’ orchard. But also like that orchard, there are costs for holding on. For me, it wasn’t the taxes that were making me reluctant. It was the time and effort necessary.
I finally decided I couldn’t do it. The property would be sold. We listed it, had some cleaning and painting and staging done, tweaked some fine details, and put it on the market.
It’s a wonderful property, handsome, well maintained, in a great location. A lot of people thought so. Crowds of buyers and agents came to our open houses and we gave out, unprecedented for us, 47 disclosure packages to those requesting them. There were 13 offers to buy.
So many people found the property appealing, including the winning buyer who will be living there, that the sale price is beyond what I could have matched. I could not have found or borrowed enough money to buy it for my kids.
They won’t be inheriting this property from their dad, which is too bad, but I’m trying to be philosophical about it. I don’t believe that children are owed an inheritance and, anyway, maybe they’ll want to live in another area, one with housing that regular working people can afford.
