Buy house for retired mother?

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Livehard1234
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Buy house for retired mother?

Post by Livehard1234 » Sat Jul 21, 2018 8:29 pm

My divorced 69 year-old mother retired last year. Her pension and SWR from her retirement funds will net her ~$75k per year. This will allow her to get by, but it will be tight. She has 300k in home equity and still owes about $100k on her mortgage. We would prefer she be able to access this equity to make her retirement more comfortable. We would also like her to move to an active retirement community near us in which she will have a better quality of life and be closer to her grandkids.

In support of this, I am considering buying her a house in such a community and, in essence, letting her unlock her equity (she would sell her current house and pocket the money). I would pay the down payment and she would pay me the PITI each month. The house is listed at $550k.

Financially, this is not a burden on me and my wife. She (36) and I (40) will make $950k this year, thought this could be closer to $750k in future years depending on RSU performance. Our expenses are $15k per month and the rest goes to savings. We currently have a $2.1M net worth split across 401k ($610k), taxable account ($860k), and home equity ($630k). However, as our salaries have increased significantly the last few years, our yearly savings are now much higher than in previous years.

We would be putting in a high down payment (55%) and charging my mom below market rent to just cover PITI (which, of course, will fall further below market over time), so this is obviously not a good "investment". Best case, we get lucky with appreciation, which has been high in this area. My question is if there are any gotchas we are missing or additional things we should consider. Thanks for your help.
Last edited by Livehard1234 on Sun Jul 22, 2018 2:30 pm, edited 3 times in total.

AlohaJoe
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Re: Buy house for retired mother

Post by AlohaJoe » Sat Jul 21, 2018 8:48 pm

There may be state, federal, or local laws about charging family members below market rents. Have you researched them?

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cheese_breath
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Re: Buy house for retired mother

Post by cheese_breath » Sat Jul 21, 2018 9:04 pm

Have you considered a senior apartment community instead of a house? At 69 and single does she really need all the headaches that come with owning a house? Plus who knows how long her health will hold up, and if she might have to move out?

True story. DW had a major stroke last year at age 71, only 2 years older than your mom. She might be in a nursing home the rest of her life. Last April I moved her from MI to TX so we could be near her daughter to take over DW's care if anything happens to me. Meanwhile our house in MI stands unoccupied. As soon as DW's son can get it emptied and cleaned out I'll put it on the market for a fast sale at whatever I can get.
The surest way to know the future is when it becomes the past.

Dottie57
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Re: Buy house for retired mother

Post by Dottie57 » Sat Jul 21, 2018 9:34 pm

cheese_breath wrote:
Sat Jul 21, 2018 9:04 pm
Have you considered a senior apartment community instead of a house? At 69 and single does she really need all the headaches that come with owning a house? Plus who knows how long her health will hold up, and if she might have to move out?

True story. DW had a major stroke last year at age 71, only 2 years older than your mom. She might be in a nursing home the rest of her life. Last April I moved her from MI to TX so we could be near her daughter to take over DW's care if anything happens to me. Meanwhile our house in MI stands unoccupied. As soon as DW's son can get it emptied and cleaned out I'll put it on the market for a fast sale at whatever I can get.
OP, I agree a house may not be the best option here.

@cheese_breath - so sorry to hear about yoyr wife. Moving to TX is a good idea.
Last edited by Dottie57 on Sun Jul 22, 2018 9:38 am, edited 1 time in total.

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willthrill81
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Re: Buy house for retired mother

Post by willthrill81 » Sat Jul 21, 2018 9:58 pm

AlohaJoe wrote:
Sat Jul 21, 2018 8:48 pm
There may be state, federal, or local laws about charging family members below market rents. Have you researched them?
Unless the OP was trying to claim a business loss resulting from below market rent to family members, I've never heard of any laws that would prohibit this. But state and especially local laws can be all over the place. Some HOAs prohibit renting altogether.

I'd lean toward renting a place for her.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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celia
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Re: Buy house for retired mother?

Post by celia » Sat Jul 21, 2018 9:59 pm

Livehard1234 wrote:
Sat Jul 21, 2018 8:29 pm
My divorced 69 year-old mother retired last year. Her pension and SWR from her retirement funds will net her ~$75k per year. This will allow her to get by, but it will be tight. She has 300k in home equity and still owes about $100k on her mortgage. We would prefer she be able to access this equity to make her retirement more comfortable.
I was going to ask why her expenses are so high, but then figured she is spending a lot on the mortgage. It appears to me that she is spending more than her income and that is the real problem.

It sounds like YOU are going to own the new house and rent it to her. Since many retirement communities are limited to those 55 and older, will they allow someone as young as you to buy, then rent to someone else? They will probably want to know what will happen to the new house when she dies or moves to a care facility and you are too young to move in. (I've never heard of renters in these communities.) Something could happen to her health at any time, then you will have to do something with the house.
Livehard1234 wrote: We would be putting in a high down payment (55%) and charging my mom below market rent to just cover PITI (which, of course, will fall further below market over time), ...
How do you figure the PITI will decrease over time? Property taxes and homeowners insurance usually increase over time. A variable rate mortgage would likely increase over time (given today's lower-than average interest rates) but a fixed rate mortgage would stay constant.

I will assume you would absorb the increases in the PITI and charge her a fixed (or declining rate??) but it appears she may not be able to afford it in the long run due to her tight financial picture.

Have you considered moving her in with you, especially if her grandkids are your kids? She could "work" for her room and board by babysitting for you or watching the kids after school. Or you could buy her current house from her and have her rent that back from you. Or just have her rent near you.

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celia
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Re: Buy house for retired mother

Post by celia » Sat Jul 21, 2018 10:10 pm

willthrill81 wrote:
Sat Jul 21, 2018 9:58 pm
AlohaJoe wrote:
Sat Jul 21, 2018 8:48 pm
There may be state, federal, or local laws about charging family members below market rents. Have you researched them?
Unless the OP was trying to claim a business loss resulting from below market rent to family members, I've never heard of any laws that would prohibit this. But state and especially local laws can be all over the place. Some HOAs prohibit renting altogether.

I'd lean toward renting a place for her.
Here's a short summary of the IRS rules when renting to a relative (so you can take deductions):
When Renting Property to Relatives, Know the Tax Rules

AlohaJoe
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Re: Buy house for retired mother

Post by AlohaJoe » Sat Jul 21, 2018 10:51 pm

willthrill81 wrote:
Sat Jul 21, 2018 9:58 pm
AlohaJoe wrote:
Sat Jul 21, 2018 8:48 pm
There may be state, federal, or local laws about charging family members below market rents. Have you researched them?
Unless the OP was trying to claim a business loss resulting from below market rent to family members, I've never heard of any laws that would prohibit this. But state and especially local laws can be all over the place. Some HOAs prohibit renting altogether.
I didn't mean to imply it would be prohibited, so apologies if it came across that way. The OP asked for gotchas and I just wanted to point out that there are various laws about renting to family members below market rates. Whether those laws and their consequences are deal-breakers or merely a small thing to keep in mind will depend on what the OP's exact situation is.

JoeRetire
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Re: Buy house for retired mother?

Post by JoeRetire » Sun Jul 22, 2018 7:32 am

Why don't you just purchase the new house for Mom and let her live in it, without requiring that she pay you anything?

Later on, when she no longer needs it, you can sell it and keep the profits.

Jack FFR1846
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Re: Buy house for retired mother?

Post by Jack FFR1846 » Sun Jul 22, 2018 7:50 am

Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
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SQRT
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Re: Buy house for retired mother?

Post by SQRT » Sun Jul 22, 2018 8:05 am

Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
This post wasn’t called for. Reeks of cynicism and sarcasm.

maroon
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Re: Buy house for retired mother?

Post by maroon » Sun Jul 22, 2018 8:25 am

So $75K/year is "tight"? That's more than my annual earnings and somehow I've been able to buy my own house.
Also, I'm helping to support an extended family member whose income is well under $20K/year (just social security).

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cheese_breath
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Re: Buy house for retired mother?

Post by cheese_breath » Sun Jul 22, 2018 9:20 am

SQRT wrote:
Sun Jul 22, 2018 8:05 am
Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
This post wasn’t called for. Reeks of cynicism and sarcasm.
But it does make a valid point. What if mom doesn't want to move? Has OP asked her?
The surest way to know the future is when it becomes the past.

Broken Man 1999
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Re: Buy house for retired mother?

Post by Broken Man 1999 » Sun Jul 22, 2018 9:40 am

$75,000 in some areas of the country could indeed be tight. Depends on the cost of living, and that it mostly local.

OP, in your shoes I would definitely consider a condo or something that relieves her (or you or hired help) of having to take care of a single-family home. I would think condos would be offered in many senior-living communities, though I have zero experience.

My father lived in a small condo the last years of his life and loved the lifestyle. He didn't golf, but he took long walks around the golf course when the weather was good.

Best of luck on your new adventure!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Pajamas
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Re: Buy house for retired mother?

Post by Pajamas » Sun Jul 22, 2018 11:35 am

Her recent retirement was probably a major life change for her and she might not be ready for another one such as moving right now.

Has she discussed her preferred future living arrangements with you? That's where I would start. No doubt she has already given this some thought. Maybe let her know that you will be glad to support and assist her with whatever she decides to do.

You should also give some thought to long-term plans, say if an active retirement community becomes unsuitable for her and she needs some assistance. Some sort of continuing care community with independent living as a baseline might be worth thinking about if she decides to go that route.

Seems to me that it would be much simpler and cleaner for everyone for you to provide her with direct financial support if and when she needs it rather than becoming her landlord. $75k should be enough to support a lifestyle that doesn't include a lot of expensive luxuries or private-pay assistance or health care, anyway. If she moves in circles in which she can't wear the same dress to a party or event twice, it would be a different matter.

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celia
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Re: Buy house for retired mother?

Post by celia » Sun Jul 22, 2018 11:53 am

SQRT wrote:
Sun Jul 22, 2018 8:05 am
Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
This post wasn’t called for. Reeks of cynicism and sarcasm.
SQRT, I didn't read it that way at all. I read it that she might not want to move and she has spending problems. I thought Jack said it creatively to make a point. Just saying that
she might not want to move and she has spending problems
doesn't get your attention as much.

Livehard1234
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Re: Buy house for retired mother?

Post by Livehard1234 » Sun Jul 22, 2018 12:17 pm

Thank you all for your responses. Very helpful. Some additional context.

My mother lives in the HCOL city in which we grew up, but now all her family has moved away to even higher cost of living areas. She is isolated and lonely, and has wanted to move closer to family for a long time, particularly as grandkids have started arriving. The house I want to buy would be her dream home and is something I want to do for her. We grew up lower middle class with patched clothes and my father working 3 jobs at a time, including janitor work. My parents sacrificed a lot for us and my mom's tireless effort, budgeting, and focus on ensuring we got a great education both at home and in the schools of our choice is a big reason why we are now making 10X what I ever thought possible. She is also good with money and things will only be tight because she would be moving to a higher cost of living area (we are in a tech center).

I agree that renting an apartment or buying a condo might be more prudent. I will evaluate those options though she would prefer a single family with a patio, and the house we are considering looks right into the woods. We also considered just buying it outright and not having her pay us anything, but she prefers to help as much as she can and likes the idea of it being an investment for us rather than charity (though we did also buy her a car). If things ever got tough for her, we would just cover the difference.

Thanks again for the help and the kind words.
Last edited by Livehard1234 on Sun Jul 22, 2018 1:20 pm, edited 4 times in total.

SQRT
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Re: Buy house for retired mother?

Post by SQRT » Sun Jul 22, 2018 12:28 pm

celia wrote:
Sun Jul 22, 2018 11:53 am
SQRT wrote:
Sun Jul 22, 2018 8:05 am
Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
This post wasn’t called for. Reeks of cynicism and sarcasm.
SQRT, I didn't read it that way at all. I read it that she might not want to move and she has spending problems. I thought Jack said it creatively to make a point. Just saying that
she might not want to move and she has spending problems
doesn't get your attention as much.
“Jaguar lease” or “150% of median family income for one” were the giveaways.

stan1
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Re: Buy house for retired mother?

Post by stan1 » Sun Jul 22, 2018 12:34 pm

I'd think about a patio home that's not in a dedicated senior community or a senior apartment in order to help minimize maintenance and upkeep. Many single story patio home communities do have a large number of seniors living in them and at least in my area these properties command a premium price.

It sounds like you have the ability and desire to purchase a home for her. I'd buy the property as your second home and let your mom live in it contributing to household expenses. You do not need to establish a rental property business just to let your mom live in a house you own so do not start introducing business terms like "rent". Millions of Americans have an adult family member living in their primary or second home who is contributing to household expenses without declaring rental income. No one charges their 90 year old disabled mom living in a downstairs bedroom rent but they might use some of her social security income to hep pay for utilities. What you cannot do is deduct business expenses such as home maintenance unless you are also declaring rental income. If you aren't sure talk to your accountant or attorney.

gotester2000
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Re: Buy house for retired mother?

Post by gotester2000 » Sun Jul 22, 2018 12:56 pm

Livehard1234,

Why cant your mother live with you and grandkids?

Livehard1234
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Re: Buy house for retired mother?

Post by Livehard1234 » Sun Jul 22, 2018 1:04 pm

She could move in with us. However, we prefer that she live in a community where she can make friends in the same stage of life as her and where she can also have a life of her own. She is very sharp and active and her mother lived on her own until 90 (passing at 96).. We are hoping this living situation could last for many years and be the best of both worlds.

Great point on not using the "rent" term. We will not be trying to deduct maintenance or business expenses.

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Pajamas
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Re: Buy house for retired mother?

Post by Pajamas » Sun Jul 22, 2018 1:10 pm

Your plan makes more sense with the additional context.

You should also consider the tax consequences for you and your mother. For instance, you might not be able to deduct the interest if you use a mortgage and you wouldn't get a bump up in value to eliminate capital gains at inheritance. Your mother might lose a property tax deduction but it seems likely that she wouldn't be itemizing, anyway. Then you should think about long-term planning for health care and her possibly wanting to rely on Medicaid at some point and assets would come into play. Really you might consider consulting with an elder law attorney.

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willthrill81
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Re: Buy house for retired mother?

Post by willthrill81 » Sun Jul 22, 2018 1:13 pm

SQRT wrote:
Sun Jul 22, 2018 12:28 pm
celia wrote:
Sun Jul 22, 2018 11:53 am
SQRT wrote:
Sun Jul 22, 2018 8:05 am
Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
This post wasn’t called for. Reeks of cynicism and sarcasm.
SQRT, I didn't read it that way at all. I read it that she might not want to move and she has spending problems. I thought Jack said it creatively to make a point. Just saying that
she might not want to move and she has spending problems
doesn't get your attention as much.
“Jaguar lease” or “150% of median family income for one” were the giveaways.
I can only think of perhaps three areas of the country where a single person with no debt cannot live very comfortably on $75k. I'd be quite happy retiring on that level of income today with our family of three (assuming we had no mortgage).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings


Goal33
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Re: Buy house for retired mother?

Post by Goal33 » Sun Jul 22, 2018 1:29 pm

We pay rent on a nice 2 bedroom apartment in east sf Bay Area and support a lifestyle of regular eating out and vacations for less than 75k.
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Shallowpockets
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Re: Buy house for retired mother?

Post by Shallowpockets » Sun Jul 22, 2018 1:42 pm

This is what 40 year olds think of their parent who is 69. 69 is hardly old to me. I am 67 and in the same ballpark and I don't have or need anyone to manage my life in such a way.
Doesn't seem like BHs would think of themselves as old like that. Not on this forum, but perhaps we are shuffled into this niche by the BHs who are in the younger categories. Luckily I have no children who start thinking of me as old enough to require some sort of intervention of my lifestyle.
I guess it's a generational thing.

SQRT
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Re: Buy house for retired mother?

Post by SQRT » Sun Jul 22, 2018 1:43 pm

willthrill81 wrote:
Sun Jul 22, 2018 1:13 pm
SQRT wrote:
Sun Jul 22, 2018 12:28 pm
celia wrote:
Sun Jul 22, 2018 11:53 am
SQRT wrote:
Sun Jul 22, 2018 8:05 am
Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
This post wasn’t called for. Reeks of cynicism and sarcasm.
SQRT, I didn't read it that way at all. I read it that she might not want to move and she has spending problems. I thought Jack said it creatively to make a point. Just saying that
she might not want to move and she has spending problems
doesn't get your attention as much.
“Jaguar lease” or “150% of median family income for one” were the giveaways.
I can only think of perhaps three areas of the country where a single person with no debt cannot live very comfortably on $75k. I'd be quite happy retiring on that level of income today with our family of three (assuming we had no mortgage).
Yes, of course you can live on $75k but that wasn’t the point of the original post,nor does a response along these lines require sarcasm and cynicism to make that point. Jaguar lease? Where did that come from?

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Re: Buy house for retired mother?

Post by Jack FFR1846 » Sun Jul 22, 2018 1:57 pm

I didn't mean that she had a spending problem or anything at all mean towards your mother. $75k is a lot for a single person anywhere in the US.

I know that if my kids were out of the house and wife decided to move to Europe by herself, I could easily continue to live in my 2800 sq foot house on 13 acres outside of Boston and and rent a new Jag every 2 years on $75k a year. Heck, we currently spend less than that now, if I were to exclude all the tuition money we spend. Outside tuition, we spend $50k a year (we as in family of 4).
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Livehard1234
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Re: Buy house for retired mother?

Post by Livehard1234 » Sun Jul 22, 2018 1:57 pm

Good point, Shallowpockets. She had to make very difficult lifestyle choices to raise us as she did and we would like to make things easier/nicer for her now that we are able. However, it is important to be sure this is actually what she wants and that we aren’t overstepping. I don’t think she feels this way, but it is best to overcommunicate and ensure there is no bitterness.

My mother is far from old, we just want to help her be as happy as possible and live near friends and family. We feel very fortunate in our situation in life and this is one way we’d like to pass it forward.
Last edited by Livehard1234 on Sun Jul 22, 2018 1:58 pm, edited 1 time in total.

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TomatoTomahto
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Re: Buy house for retired mother?

Post by TomatoTomahto » Sun Jul 22, 2018 1:58 pm

OP, welcome to the forum, and kudos for appreciating what your parents did for you. You probably know that some members like to play the “more frugal than thou” game; please ignore it, it’s their version of walking uphill to AND from school.

I lean towards renting, for ease of transitioning, but I also understand what pull a parent’s dream can exert. Good luck whatever you do.

DC3509
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Re: Buy house for retired mother?

Post by DC3509 » Sun Jul 22, 2018 2:19 pm

TomatoTomahto wrote:
Sun Jul 22, 2018 1:58 pm
OP, welcome to the forum, and kudos for appreciating what your parents did for you. You probably know that some members like to play the “more frugal than thou” game; please ignore it, it’s their version of walking uphill to AND from school.

I lean towards renting, for ease of transitioning, but I also understand what pull a parent’s dream can exert. Good luck whatever you do.
Some thoughts --

1.) The OP is essentially trying to do something very nice and generous for his mother who made true sacrifices for him and almost surely played a big role in him becoming the financial success he is today -- and yet a fair number of the people posting here go on these rants about how the mother must be spending too much money or if they were the mother they would only spend X amount of money, etc. etc. Seriously folks? The frugal-er-than-thou attitude is extremely off-putting to most "normal" people, and a lot of people here too. Moreover, she is talking about $75K income -- not spending $750K. It is not that much money, especially in a high tax/high cost of living area.

2.) To the OP's question -- I don't know why you wouldn't consider doing it as a rental. You don't have to call it rent. Here is an example -- let's say she moves into a 55+ active community. She agrees to pay the HOA fees and the property taxes perhaps and say those come to $500 per months. Let's say the mortgage is another $700. You can put all of the expenses in your name and then charge her $500 in "rent" -- but in reality she is just paying two bills she would have paid anyway. She pays you and you shuffle it around. Through this very easy exercise, then, you get to deduct all other expenses associated with it. You will also get a fat depreciation deduction and will likely "lose" money as far as taxes are concerned. Your passive activity losses can be counted up to your passive activity gains, if you have any, or they carry over year to year. So this may even potentially shield some other income you might have, which at your income is nothing to sniff at. If you are buying the house, I doubt your mom will care how you structure it to benefit you from a tax perspective. The only catch to this is that the total rent paid needs to equal approximate FMV minus 20% -- it seems like you could likely play around with those numbers and get pretty close.

3.) The poster who wrote about Medicaid is correct and that's another reason for you to buy it. If you anticipate that she will need Medicaid someday, you are much better off putting the house in your name and taking the proceeds from the sale of her house, putting them into an irrevocable trust, and starting the 5 year clock (if you are inclined to do that...)

I am considering a very similar situation OP. Happy to discuss more through PM's if you would like.

RickBoglehead
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Re: Buy house for retired mother?

Post by RickBoglehead » Sun Jul 22, 2018 2:26 pm

Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
I totally get this. I have a relative that lives on 167% of OP's mother, and does so even though they know they'd run out of funds long before they passed away. Had a Jag at one time. Wouldn't adjust spending regardless, even when told they weren't going to live in anyone's basement when the money was gone. Surprise gift from a relative now ensures that this absurd level of spending can go on for the rest of their life.

Any Medicaid strategy for the OP's mother is silly - he clealry wouldn't put her in a Medicaid facility.

DC3509
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Re: Buy house for retired mother?

Post by DC3509 » Sun Jul 22, 2018 2:42 pm

RickBoglehead wrote:
Sun Jul 22, 2018 2:26 pm
Jack FFR1846 wrote:
Sun Jul 22, 2018 7:50 am
Gotchas?

The mother says "I'll move when the jack booted sheriff shows up and clubs me over the head with an aluminum baseball bat". Maybe she doesn't want to leave. Maybe she can live just fine with 150% of the medium income for a family of 4 supporting just herself. Maybe even a new Jaguar lease every other year.
I totally get this. I have a relative that lives on 167% of OP's mother, and does so even though they know they'd run out of funds long before they passed away. Had a Jag at one time. Wouldn't adjust spending regardless, even when told they weren't going to live in anyone's basement when the money was gone. Surprise gift from a relative now ensures that this absurd level of spending can go on for the rest of their life.

Any Medicaid strategy for the OP's mother is silly - he clealry wouldn't put her in a Medicaid facility.
What do you mean by a "Medicaid facility"? There are many nursing homes that accept both private pay and Medicaid. The care isn't different -- it's the same nurses and the same physical building (There are many lower cost of living areas where pure private pay places do not exist -- every nursing home in those areas accepts Medicaid. If Mom can protect her assets to pay for a private room, extra aides, geriatric case managers, etc. -- I understand the moral questions about it, but it is at least something to consider. Also important to consider because what if anything happens to the OP -- death, disability, divorce? The OP might not be in the same position he is in today forever and if you don't do Medicaid planning properly there is no "do-over" because of some other external life event.

HereToLearn
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Re: Buy house for retired mother?

Post by HereToLearn » Sun Jul 22, 2018 2:48 pm

If you would like this to be a home where your mother can age in place, take a close look at any steps into the house or inside the house, and the ability to later tear out the existing shower and have a barrier-free one installed.

Even a single step can become a problem for some older people, so while this may not be an issue for many years, it makes sense to consider these obstacles now so that she will not need to move later.

You are doing a very kind things for your mother. Best of luck!

Livehard1234
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Re: Buy house for retired mother?

Post by Livehard1234 » Sun Jul 22, 2018 5:21 pm

Great point on the steps and shower. One of the advantages of buying into the retirement community is that the house is single story with no steps, all yard work/landscaping is covered by the HOA, and there is medical support oncall.

delamer
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Re: Buy house for retired mother?

Post by delamer » Sun Jul 22, 2018 6:41 pm

The unpleasant situation that needs to be considered is what happens in the unlikely — but possible — scenario that the OP dies while his mother is living in the house. So maybe the OP’s mother becomes dependent on the goodwill of the OP’s remarried wife to remain in the house?

Or what if the OP and his wife both die with his mother still in the house? What protection will his mother have?

Both my husband and I have family members who outlived their children who died in car accidents in their adulthood. The young-adult sister of one of my kid’s friends died in a sports-related accident last year.

Tragedies happen every day. You want your loved ones to be protected.

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Pajamas
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Re: Buy house for retired mother?

Post by Pajamas » Sun Jul 22, 2018 7:05 pm

RickBoglehead wrote:
Sun Jul 22, 2018 2:26 pm
Any Medicaid strategy for the OP's mother is silly - he clealry wouldn't put her in a Medicaid facility.
As far as I know, all of the top hospitals and skilled nursing facilities in this area accept at least some Medicaid and Medicare plans. Admittedly, not all providers at those facilities do and it will depend on which facilities a managed care plan has in-network.

DC3509
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Re: Buy house for retired mother?

Post by DC3509 » Sun Jul 22, 2018 8:03 pm

Totally agree with the last two posters -- the prospect of a tragedy is why the mom should be doing Medicaid planning if she otherwise has very modest assets. Maybe you never need to actually exercise it because you are making close to a million and you decide to private pay -- or she never needs a nursing home. Great. But what if the ultimate rainy day happens and something happens to the OP, the money isn't there anymore, and mom never planned accordingly?

Agree too as I said in my own prior reply about "Medicaid facility" -- there is a perception I think that all Medicaid facilities only accept Medicaid patients and are dungeons. Some are. But not all are, and some nice nursing homes, especially in lower cost of living areas, definitely accept Medicaid because there are simply not enough private pay people to fill all the beds. This is sad, but it is kinda like filling airline seats -- airlines give last minute discounts all the time because it is better to have the seat filled by someone than have it be empty. Nursing homes play the same kind of number games.

What several elder law attorneys have told me is that having the ability to private pay for at least a year or two is what makes the difference between getting into a nice facility or not. Even if the family switches to Medicaid at some point -- once you are in, you can't be kicked out.

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StevieG72
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Re: Buy house for retired mother?

Post by StevieG72 » Sun Jul 22, 2018 10:28 pm

My mom lives in a similar community.

Many of the residents get together frequently to play cards, go to movies, play golf etc.

The friendships and support of the community are priceless.
Fools think their own way is right, but the wise listen to others.

gotester2000
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Re: Buy house for retired mother?

Post by gotester2000 » Mon Jul 23, 2018 12:35 am

I am surprised that people think that living in retirement community is better than living with family - old people need company of young and kids as well - it is another case if family doesnt want to live together - to each his own.

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willthrill81
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Re: Buy house for retired mother?

Post by willthrill81 » Mon Jul 23, 2018 12:38 am

gotester2000 wrote:
Mon Jul 23, 2018 12:35 am
I am surprised that people think that living in retirement community is better than living with family - old people need company of young and kids as well - it is another case if family doesnt want to live together - to each his own.
I don't know. A lot of retirees seem to really like being around other retirees. And if they can also be relatively close to family, it can be a win-win.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

CurlyDave
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Re: Buy house for retired mother?

Post by CurlyDave » Mon Jul 23, 2018 12:53 am

With your income and assets, the easiest way to do this is to simply give her the down payment as a gift.

Oh, and say: "Thank you for giving me such a wonderful start in life."

mouses
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Re: Buy house for retired mother?

Post by mouses » Mon Jul 23, 2018 12:55 am

Livehard1234 wrote:
Sun Jul 22, 2018 12:17 pm
Thank you all for your responses. Very helpful. Some additional context.

My mother lives in the HCOL city in which we grew up, but now all her family has moved away to even higher cost of living areas. She is isolated and lonely, and has wanted to move closer to family for a long time, particularly as grandkids have started arriving. The house I want to buy would be her dream home and is something I want to do for her. We grew up lower middle class with patched clothes and my father working 3 jobs at a time, including janitor work. My parents sacrificed a lot for us and my mom's tireless effort, budgeting, and focus on ensuring we got a great education both at home and in the schools of our choice is a big reason why we are now making 10X what I ever thought possible. She is also good with money and things will only be tight because she would be moving to a higher cost of living area (we are in a tech center).

I agree that renting an apartment or buying a condo might be more prudent. I will evaluate those options though she would prefer a single family with a patio, and the house we are considering looks right into the woods. We also considered just buying it outright and not having her pay us anything, but she prefers to help as much as she can and likes the idea of it being an investment for us rather than charity (though we did also buy her a car). If things ever got tough for her, we would just cover the difference.

Thanks again for the help and the kind words.
I can really relate to this. Your Mom sounds great, like my parents. I would say, go for whatever makes her happy. I am slightly older than she is and taking care of a house is not quite a burden, but I sure notice it more than I did. The good news is you can probably hire most everything out, including weeding the garden. And you and your wife will be there to give her advice and maybe even handle larger house issues.

I would make sure the house is "accessible." Grab bars in the bathroom, wide enough doorways, etc.

Be sure to make financial provisions for her in case something happens to you.

mouses
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Re: Buy house for retired mother?

Post by mouses » Mon Jul 23, 2018 1:01 am

Jack FFR1846 wrote:
Sun Jul 22, 2018 1:57 pm
I didn't mean that she had a spending problem or anything at all mean towards your mother. $75k is a lot for a single person anywhere in the US.

I know that if my kids were out of the house and wife decided to move to Europe by herself, I could easily continue to live in my 2800 sq foot house on 13 acres outside of Boston and and rent a new Jag every 2 years on $75k a year. Heck, we currently spend less than that now, if I were to exclude all the tuition money we spend. Outside tuition, we spend $50k a year (we as in family of 4).
Semi-near Boston, and you aren't hit with major property taxes and insurance costs? Are the kids even living at home, if you're forking out for tuition?

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TomatoTomahto
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Re: Buy house for retired mother?

Post by TomatoTomahto » Mon Jul 23, 2018 5:08 am

mouses wrote:
Mon Jul 23, 2018 1:01 am
Jack FFR1846 wrote:
Sun Jul 22, 2018 1:57 pm
I didn't mean that she had a spending problem or anything at all mean towards your mother. $75k is a lot for a single person anywhere in the US.

I know that if my kids were out of the house and wife decided to move to Europe by herself, I could easily continue to live in my 2800 sq foot house on 13 acres outside of Boston and and rent a new Jag every 2 years on $75k a year. Heck, we currently spend less than that now, if I were to exclude all the tuition money we spend. Outside tuition, we spend $50k a year (we as in family of 4).
Semi-near Boston, and you aren't hit with major property taxes and insurance costs? Are the kids even living at home, if you're forking out for tuition?
We are outside Boston, on a somewhat larger piece of land. Our property taxes, alone, eat up most of Jack’s 50k.

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Re: Buy house for retired mother?

Post by Jags4186 » Mon Jul 23, 2018 6:17 am

Do you have siblings are and they comfortable with this situation? Regardless, I would let your mom buy the house and then give her a monthly allowance to cover the housing expense. You want to be in a position where you’re sending her money every month not having her send you money. Remember, if you own the house all of the issues are yours and you may or may not have the time or inclination to deal with them. If your mom owns the house she takes ownership of any problems that arise. You’ll likely end up paying for the issues, but not have to worry about the minutia.

For example, if you own the house and the water heater leaks at 2am the call will be to you for you to deal with. If your mother owns the house and she calls at 2am you can say “I think you should call a plumber.”

Another issue having her own the House helps with is in the unfortunate situation you are no longer able to assist her, the onus to make new living arrangements is on her. “Mom, I can’t afford to send you $2k a month anymore, we’re going to have to do something different” can not become a situation where you’re evicting her.

These are all worst case scenarios but they can and do happen to the best intentioned people.

DC3509
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Re: Buy house for retired mother?

Post by DC3509 » Mon Jul 23, 2018 7:29 am

Jags4186 wrote:
Mon Jul 23, 2018 6:17 am
Do you have siblings are and they comfortable with this situation? Regardless, I would let your mom buy the house and then give her a monthly allowance to cover the housing expense. You want to be in a position where you’re sending her money every month not having her send you money. Remember, if you own the house all of the issues are yours and you may or may not have the time or inclination to deal with them. If your mom owns the house she takes ownership of any problems that arise. You’ll likely end up paying for the issues, but not have to worry about the minutia.

For example, if you own the house and the water heater leaks at 2am the call will be to you for you to deal with. If your mother owns the house and she calls at 2am you can say “I think you should call a plumber.”

Another issue having her own the House helps with is in the unfortunate situation you are no longer able to assist her, the onus to make new living arrangements is on her. “Mom, I can’t afford to send you $2k a month anymore, we’re going to have to do something different” can not become a situation where you’re evicting her.

These are all worst case scenarios but they can and do happen to the best intentioned people.
Why is this the better outcome financially -- especially if he is likely to end up paying for this stuff anyway? If he owns it, all of these expenses are deductible plus a phantom depreciation expense. Heck, he could likely legitimately deduct all of his travel to go see his mother at the house as he would also be checking in on the rental. At his income level, these are major considerations. If he gifts it, nothing is deductible. For people on this Board who spend a lot of time figuring out how to take advantage of every deduction -- Backdoor IRAs, HSAs, etc. -- this seems like a total no-brainer to me.

delamer
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Re: Buy house for retired mother?

Post by delamer » Mon Jul 23, 2018 10:50 am

gotester2000 wrote:
Mon Jul 23, 2018 12:35 am
I am surprised that people think that living in retirement community is better than living with family - old people need company of young and kids as well - it is another case if family doesnt want to live together - to each his own.

Two working parents plus kids in school all day?

That kind of life can be pretty isolating for an elderly person.

No to mention the dynamics of one of the parents living with an in-law.

But to each family its own, as you say.

JoeRetire
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Re: Buy house for retired mother?

Post by JoeRetire » Mon Jul 23, 2018 10:57 am

delamer wrote:
Mon Jul 23, 2018 10:50 am
gotester2000 wrote:
Mon Jul 23, 2018 12:35 am
I am surprised that people think that living in retirement community is better than living with family - old people need company of young and kids as well - it is another case if family doesnt want to live together - to each his own.
Two working parents plus kids in school all day?

That kind of life can be pretty isolating for an elderly person.
I can't imagine why living with people who love you (even if they are busy) would be more isolating than living alone.

I'm not saying that it would be preferable or even workable for everyone, but many multi-generational families have wonderful lives. The elder parent can still have all the benefits of a retirement community - friends, socialization, etc.
Last edited by JoeRetire on Mon Jul 23, 2018 10:59 am, edited 1 time in total.

Jags4186
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Re: Buy house for retired mother?

Post by Jags4186 » Mon Jul 23, 2018 10:58 am

DC3509 wrote:
Mon Jul 23, 2018 7:29 am
Jags4186 wrote:
Mon Jul 23, 2018 6:17 am
Do you have siblings are and they comfortable with this situation? Regardless, I would let your mom buy the house and then give her a monthly allowance to cover the housing expense. You want to be in a position where you’re sending her money every month not having her send you money. Remember, if you own the house all of the issues are yours and you may or may not have the time or inclination to deal with them. If your mom owns the house she takes ownership of any problems that arise. You’ll likely end up paying for the issues, but not have to worry about the minutia.

For example, if you own the house and the water heater leaks at 2am the call will be to you for you to deal with. If your mother owns the house and she calls at 2am you can say “I think you should call a plumber.”

Another issue having her own the House helps with is in the unfortunate situation you are no longer able to assist her, the onus to make new living arrangements is on her. “Mom, I can’t afford to send you $2k a month anymore, we’re going to have to do something different” can not become a situation where you’re evicting her.

These are all worst case scenarios but they can and do happen to the best intentioned people.
Why is this the better outcome financially -- especially if he is likely to end up paying for this stuff anyway? If he owns it, all of these expenses are deductible plus a phantom depreciation expense. Heck, he could likely legitimately deduct all of his travel to go see his mother at the house as he would also be checking in on the rental. At his income level, these are major considerations. If he gifts it, nothing is deductible. For people on this Board who spend a lot of time figuring out how to take advantage of every deduction -- Backdoor IRAs, HSAs, etc. -- this seems like a total no-brainer to me.
So you’re saying buying a $550,000 house and then renting it significantly below market value is going to make him come out ahead vs making up the cost of life difference out of his own pocket? OP is proposing putting down $300,000 and taking out a $250,000 mortgage. Let’s assume his PITI is $1800/mo on a 30 year 4.25% fixed mortgage. Let’s assume the unit would rent for 1% of it’s value, or $5500/mo. He is forfeiting $44,400 in rental income and let’s just use a CD return of 3% on the $300,000 downpayment or $9,000/yr. Does OP intend to support his mother to the tune of $53,400/yr?

Could his mother get by if he gave her *half* of that as a cash gift each year? If OP wants to buy a property he should rent it out to someone else and then use the income from the property to support his mother. That would make better sense to me. Or even better yet, renting a very nice place and letting someone else deal with any and all of the headaches. When the time comes that the unit is no longer needed you simply walk away.

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