Buying parents home--how to navigate

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hudsonti
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Joined: Mon May 29, 2017 7:24 pm

Buying parents home--how to navigate

Post by hudsonti » Mon May 29, 2017 7:58 pm

My wife and I have kind of a unique opportunity, the pursuit of which I'd appreciate your advice on. My wife's parents have a tiny cottage style home on a highly desirable lakefront lot...amazing location and they would love to see the property stay in the family.

We have proposed to them that my wife and I could build a modestly sized home with a separate access living space (they prefer small studio size, ~500sq ft) for them. It would seem to be mutually beneficial as they are not fans of maintaining their current home and are looking for a more simple living situation. We enjoy having them around (they are great, fun people) and having our daughter spend more time with them would be a definite plus. My wife and I believe that we have a floor plan that gives us both privacy, as well as future flexibility for the space that they would be living in.

The estimated value of their property is ~400k and they owe 230k on the mortgage presently. Were we to proceed, it would be a complete tear down/rebuild scenario. I anticipate that total build costs for us (beyond the plot) will be in the 750k-1 mil neighborhood.

My in-laws are completely deferential to me with regard to how we proceed; and though I have a few ideas, I wanted to put it out here for any wisdom/advice that you all might have. My top priorities are to ensure that they get a genuinely good deal and that the terms of the deal are as simple as possible (I'm sure that there will be questions from other family members).

I appreciate your help!

123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: Buying parents home--how to navigate

Post by 123 » Mon May 29, 2017 9:00 pm

Combining families/generations can have surprising complications. Can you just buy a suitable home nearby and leave the parents as they are? You've got a grand plan when maybe a simple plan would be better.
The closest helping hand is at the end of your own arm.

delamer
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Re: Buying parents home--how to navigate

Post by delamer » Mon May 29, 2017 9:19 pm

It isn't clear from your post if you'd be sole owner (with your wife) of the property and letting them live in it rent-free or charging them rent or sharing ownership with them, or some other alternative.

Is this a place they live in year round while you'd only live there part-time? If you would be part-time for you, is it a place that one of them could live alone when the first of the couple dies?

Boats day
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Re: Buying parents home--how to navigate

Post by Boats day » Tue May 30, 2017 12:56 am

I would not do it . It's just too complicated .

I agree with the comment of buying a property near buy.

Best of luck
Boataday

WannabeEarlyRetiree
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Re: Buying parents home--how to navigate

Post by WannabeEarlyRetiree » Tue May 30, 2017 1:17 am

I think it would be a great arrangements. But to make sure everyone is happy with the arrangement, write down how you guys want split the responsibility/ownership and have everyone sign off on it before start building.

Topic Author
hudsonti
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Joined: Mon May 29, 2017 7:24 pm

Re: Buying parents home--how to navigate

Post by hudsonti » Tue May 30, 2017 3:25 am

delamer wrote:It isn't clear from your post if you'd be sole owner (with your wife) of the property and letting them live in it rent-free or charging them rent or sharing ownership with them, or some other alternative.

Is this a place they live in year round while you'd only live there part-time? If you would be part-time for you, is it a place that one of them could live alone when the first of the couple dies?
My wife and I would be the sole owners. I guess "to rent or not to rent" is part of my question. I assumed that it would be easiest to not have a monthly rent be a possible hindrance in our relationship. As such I had thought that assuming their mortgage payments, paying for their housing through the build process and then subsequently paying them annually over 10-15 years a sum which captures a "family discounted" property cost (eg Discounted total property cost - mortgage payments made on their behalf - ghost rent payments) made sense.

We all would be living there year-around and yes, one of them could live there alone if the other died. They are in their mid-60's.

msk
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Re: Buying parents home--how to navigate

Post by msk » Tue May 30, 2017 4:55 am

I think it's a great idea. To be fair to their other kids, I would buy their current property outright at a fair market price. Build the new property at entirely your cost and rent out the apartment to them at a fair market rent. They ought to have enough cash available from their sale to you of the current property. You can even arrange for them to have the money invested BH style and they withdraw from it regularly to cover the rent. Tempting to make it a one-off payment for rest of life (or 30-year lease) but what if your circumstances change 10 years hence and you have to sell? A simple monthly or annual rent looks more pragmatic (and may throw in a tax deduction if you have to use a mortgage to build).

fourwheelcycle
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Re: Buying parents home--how to navigate

Post by fourwheelcycle » Tue May 30, 2017 7:12 am

hudsonti wrote: I assumed that it would be easiest to not have a monthly rent be a possible hindrance in our relationship. As such I had thought that assuming their mortgage payments, paying for their housing through the build process and then subsequently paying them annually over 10-15 years a sum which captures a "family discounted" property cost (eg Discounted total property cost - mortgage payments made on their behalf - ghost rent payments) made sense. We all would be living there year-around and yes, one of them could live there alone if the other died. They are in their mid-60's.
I assume, since you would be putting in so much money, you would expect the deed to be transferred to you and your wife. If my wife and I were the parents we would want a solid legal contract that guaranteed we could live in our portion of the new house, rent-free or at a price limited/assured rent, until the second of us died. That could be 35 years! Are you sure you would be willing to encumber a $1M plus home and property for that long?

stan1
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Re: Buying parents home--how to navigate

Post by stan1 » Tue May 30, 2017 7:16 am

If you buy your inlaws home it is fair to expect that you will help them with housing the rest of their lives. If you need to relocate (planned or unplanned) you'll feel a sense of obligation to bring them with you or find them an affordable place in the future. They sound like wonderful people who you would enjoy being around but it does become a long term commitment to include health care in the future.

Be very careful about semantics. You do not need to start a business (rental property) to have your parents live in your home. They can live in your household and contribute to household expenses as any other family member would. If they live in your household you can deduct mortgage interest and property taxes on your tax returns but not expenses associated with maintaining their part of the house or depreciation.

You'd need to fully investigate the city/town's requirements for building on the lot. There may be a lot of restrictions about a tear down and also about having a detached or even attached granny flat. For example you might not be allowed to put a full kitchen or laundry hookup in your inlaws "studio". Another option: Are you allowed to subdivide the property? Then you could live "next door" but either could buy/sell their property independently.

NotWhoYouThink
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Re: Buying parents home--how to navigate

Post by NotWhoYouThink » Tue May 30, 2017 7:57 am

hudsonti wrote:
delamer wrote:It isn't clear from your post if you'd be sole owner (with your wife) of the property and letting them live in it rent-free or charging them rent or sharing ownership with them, or some other alternative.

Is this a place they live in year round while you'd only live there part-time? If you would be part-time for you, is it a place that one of them could live alone when the first of the couple dies?
My wife and I would be the sole owners. I guess "to rent or not to rent" is part of my question. I assumed that it would be easiest to not have a monthly rent be a possible hindrance in our relationship. As such I had thought that assuming their mortgage payments, paying for their housing through the build process and then subsequently paying them annually over 10-15 years a sum which captures a "family discounted" property cost (eg Discounted total property cost - mortgage payments made on their behalf - ghost rent payments) made sense.

We all would be living there year-around and yes, one of them could live there alone if the other died. They are in their mid-60's.
Good luck assuming their mortgage payments once the bank finds out you've torn the house down.
This may work, if her siblings are ok with it and you make sure the parents come out whole financially, and assuming you two stay married and don't have to split your finances....but it will be complicated and you need to put the work in to make sure it is transparent and everyone understands the costs and risks as well as the benefits going in.

My business experience has been that the biggest cause of dissatisfaction is vaguely offering someone something for free. Invariably, what they think you offered is much more than what you meant to offer, and their seeming ingratitude at your seeming bait and switch causes lasting bitterness. Work on writing down exactly what you would pay them and when, and what they would pay you for the rest of their lives. Once you figure out the disconnects, do you feel comfortable negotiating with them? That can get awkward.

Ninnie
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Re: Buying parents home--how to navigate

Post by Ninnie » Tue May 30, 2017 8:44 am

Many good questions so far. Do you have siblings? Proceed with extra caution.

I agree that you should keep it simple, by paying them the fair market value of their property. Do not take on their mortgage under any circumstances. Think what would happen if you and your spouse die tomorrow.

As for rent, they can "chip in" with food, utilities, etc. so you don't have to formalize the process.

texasdiver
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Re: Buying parents home--how to navigate

Post by texasdiver » Tue May 30, 2017 10:13 am

If the parents are in their 60s that probably puts you in your 40s or even 30s?

Biggest problem I see is what happens if your life circumstances change? What if you need to relocate for your career or your wife's career or your own family circumstances change in a way that suggests a move? How do you then sell the house that has your wife's parents attached to it?

My wife and I have lived in 4 different homes in 3 different states since we got married in our 30s. Each move was driven by career considerations. I don't think we are unique. Getting tied into a situation like you describe would have made that extremely complicated.

Carefreeap
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Re: Buying parents home--how to navigate

Post by Carefreeap » Tue May 30, 2017 3:47 pm

texasdiver wrote:If the parents are in their 60s that probably puts you in your 40s or even 30s?

Biggest problem I see is what happens if your life circumstances change? What if you need to relocate for your career or your wife's career or your own family circumstances change in a way that suggests a move? How do you then sell the house that has your wife's parents attached to it?

My wife and I have lived in 4 different homes in 3 different states since we got married in our 30s. Each move was driven by career considerations. I don't think we are unique. Getting tied into a situation like you describe would have made that extremely complicated.
Agreed. We've moved 5x for my husband's career and even though we've kept some of the houses we've rented them out full-time to off-set costs. I can't imagine having a $1M property sit nearly empty because of the need to honor the parent's tenancy or have the parents relocate with the OP each time.

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