Elderly Parent's Home In Need of Major Repairs

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Erehdam
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Elderly Parent's Home In Need of Major Repairs

Post by Erehdam » Sun May 26, 2019 10:44 pm

Hello! This is my first time posting on this forum and looking for insight so here goes. My retired dad lives out of the country for his retirement but has had a home in the Washington DC area for the past 29 years. The house is roughly 2400 square feet. He has 11 more months on the mortgage until it is paid off. He has made it abundantly clear to my 2 siblings and I that he does not want to sell the property for a couple of reasons: a) he wants to use the basement (about 700 sq ft) as a place to stay when he comes to the US and b)he would like to pass it to his children upon his demise. The problem is that it is an older house that needs quite a few major repairs (new roof, new central air) and needs to be updated to current standards cosmetically. He would like to make the necessary changes but does not want to take on another loan in order to do so because he is debt averse. My siblings and I are all in agreement that we want to help him but are trying to figure out the best way to go about doing this without using too much of our own cash. Our initial thoughts were to have him take out a HELOC with us as cosigners, make all the necessary repairs/updates, rent out the upstairs portion, and use the proceeds from the rent to pay off the HELOC as quickly as possible. Does this sound like a good idea or are there better alternatives?

Side note: My dad is in overall good health and has no major medical conditions or functional limitations. The house is in an upper middle class neighborhood in DC. Rent in the area for 2 bedroom apartments go for $2800/month

carolinaman
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Re: Elderly Parent's Home In Need of Major Repairs

Post by carolinaman » Mon May 27, 2019 7:17 am

I am assuming no one lives in the house presently. How will your father feel about renting it out? I am guessing he may not like that.

First, I would develop a list of repairs and upgrades needed to the house. Some things, like a new roof or HVAC, need to be done as the need arises. Others, like remodeling or creating the modern look, are nice to haves. I would not do those unless there was a clear benefit when selling or renting. Experts say that people only recoup a percentage of the remodeling cost for bathrooms and kitchens or other remodels when selling. IMO, it is unwise to do those now.

There is another group of things like cleaning, fresh paint and yard cleanup that are low cost if you do them yourselves. These can make a big difference in the homes appearance and also increase the market value when sold. I suggest focusing in this area to keep the home well maintained, deal with major items like roof/HVAC as the need arises and do not remodel unless it is DIY with low cost.

Bacchus01
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Bacchus01 » Mon May 27, 2019 7:38 am

Seems like your father wants to burden you with a house that’s falling apart.

If he wants to give it away, why not give it away now?

fru-gal
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Re: Elderly Parent's Home In Need of Major Repairs

Post by fru-gal » Mon May 27, 2019 7:48 am

I think it makes a difference whether you and your sibs are emotionally attached to this house.

When you say your Dad uses the basement to live in when he is in the US, do you mean he plans on moving back long term, he stays for a couple of weeks periodically, he stays for a year or two periodically?

Why is he planning on living in the basement, is the upstairs a wreck, or occupied?

He must be paying a mint in property tax and insurance. Does the insurance company know the house is unoccupied? I believe that affects premiums.

A new roof may be necessary to protect the house structurally. While no one is living in the house, the AC seems optional.
Last edited by fru-gal on Mon May 27, 2019 7:52 am, edited 1 time in total.

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Kenkat
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Kenkat » Mon May 27, 2019 7:51 am

Taking out a HELOC is getting another loan. I don’t know why you would need to co-sign unless he can’t qualify on his own. You could rent it out but that makes you responsible for dealing with all of that - if you are ok with that, the best course of action might be to have your father take out a HELOC or equity loan in his name only, make only necessary repairs and rent out the home.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by sergio » Mon May 27, 2019 8:01 am

Four words: low cost index funds

gd
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Re: Elderly Parent's Home In Need of Major Repairs

Post by gd » Mon May 27, 2019 8:41 am

Old people often lose the ability to accept changes needed with age and circumstances, and are sometimes perfectly happy to let others go crazy trying to give them a life exactly as they'd wish it regardless of practicality. Decide what you all can do and how far you're willing to go to accommodate him before he needs to start accommodating old age. Make sure all 4 people have complete clarity about what those boundaries are. Starting point-- "pass [on the house] to his children upon his demise".

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cheese_breath
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Re: Elderly Parent's Home In Need of Major Repairs

Post by cheese_breath » Mon May 27, 2019 9:23 am

gd wrote:
Mon May 27, 2019 8:41 am
Old people often lose the ability to accept changes needed with age and circumstances, and are sometimes perfectly happy to let others go crazy trying to give them a life exactly as they'd wish it regardless of practicality. Decide what you all can do and how far you're willing to go to accommodate him before he needs to start accommodating old age. Make sure all 4 people have complete clarity about what those boundaries are. Starting point-- "pass [on the house] to his children upon his demise".
+1
How often does he come back to the country? How long does he stay before going back out of country? What is the house worth? Is it worth it to keep the house so he can sleep in the basement once in awhile?

How about this. Tell him to sell the house, use the proceeds to rent something when he comes, and leave whatever's left to you and siblings when he dies. Don't cosign on a HELOC unless you're prepared to pay off the loan.
The surest way to know the future is when it becomes the past.

Small Savanna
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Small Savanna » Mon May 27, 2019 9:35 am

It's too bad he won't sell it. Any single family home in a nice neighborhood near DC is probably worth $500K or more (more if in good condition). Even with the mortgage paid off, the cost for taxes, insurance, utilities and minor maintenance will probably average about $1K per month. If he sold the house he could invest the money, rent an efficiency apartment for use when he is in the states, and probably come out better from a cash flow point of view, without the hassle or risk of managing a property from outside the country. Why does he want to leave you the house rather than money? Is there a chance any of you would ever live in the house?

OK, that's the logical answer - if he won't agree to that, then trying to get it fixed and rented is probably a decent plan B. A rented house is less likely to fall apart or become a blight on the neighborhood than a vacant house. A HELOC is a reasonable way to finance the repairs, but it will have to be in his name since he is the owner. For you to cosign or loan him money doesn't seem like a good idea to me, because then you're on the hook if something goes wrong. Giving your parents financial support when they are in actual need is honorable, but taking a financial risk just because your father is stubborn doesn't seem like a good idea.

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Bogle7
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Money first

Post by Bogle7 » Mon May 27, 2019 9:42 am

Here is are 2 financial questions to ask:
How much would the house sell for if it was in good+ condition?
How much would it sell for as a scraper?

dbr
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Re: Elderly Parent's Home In Need of Major Repairs

Post by dbr » Mon May 27, 2019 9:49 am

Probably he or you should pay cash for essential repairs and forego cosmetic upgrades.

A HELOC is a loan, so where does that stand relative to not wanting debt? You could raise money with a HELOC on your own homes, but that would not appealing, I would not think.

Renting is an option under any circumstances. Why is the house not rented already? I doubt leaving a house vacant is a good idea in any neighborhood.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by mhadden1 » Mon May 27, 2019 9:59 am

Erehdam wrote:
Sun May 26, 2019 10:44 pm
Our initial thoughts were to have him take out a HELOC with us as cosigners, make all the necessary repairs/updates, rent out the upstairs portion, and use the proceeds from the rent to pay off the HELOC as quickly as possible. Does this sound like a good idea or are there better alternatives?
I would not want to own rental house while living abroad, especially if I did not plan to move back to it. Neither would I want to become an unpaid property manager/investor. Keeping the house might work out ok though, perhaps by using a management company. The devil is probably in the details, regarding dad's age and financial situation, the house value and needed repairs, etc. If the house is rented the use of the basement might be a problem.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

quantAndHold
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Re: Elderly Parent's Home In Need of Major Repairs

Post by quantAndHold » Mon May 27, 2019 10:06 am

Do any of the kids actually want to inherit the house, or would they be happier inheriting the sales proceeds, minus whatever he’s spent in the meantime. Kids propping up dad so that he doesn’t have to sell the house is another definition of “house poor.”

Is the house sitting empty?

Do any of the kids want to live in it now? A kid moving in and having their “rent” go towards repairs, possibly might solve the problem. But someone needs to want the house. But don’t co-sign a HELOC, unless you want to be paying on it after he dies.

If nobody wants the house, it might be time for a frank discussion with dad. It would be cheaper for him to rent an apartment or AirBNB for the time he stays in the US than continuing to keep the house.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by dbr » Mon May 27, 2019 10:08 am

I know expats who do very well owning not a house but a condo in a building that is maintained by the association rather than being on the individual owner. It is a fine place to stay but does not have all the property burdens of a single family home on a lot.

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Watty
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Watty » Mon May 27, 2019 10:15 am

Erehdam wrote:
Sun May 26, 2019 10:44 pm
My retired dad lives out of the country for his retirement but has had a home in the Washington DC area for the past 29 years.
One issue with selling it now would be that he would likely not qualify for the homeowners capital gains exclusion so he could have a huge tax bill if he sells it.

If he keeps it until he dies then it would go to the estate at a stepped up cost basis and the capital gains taxes would not need to be paid.

Not selling it could actually make a lot of sense.

It was not clear to me if the upstairs was rented out or not but somehow having the property rented, or partially rented, makes a lot of sense so that the rent could at least cover the property maintenance and taxes.

delamer
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Re: Elderly Parent's Home In Need of Major Repairs

Post by delamer » Mon May 27, 2019 10:27 am

I’d check with a real estate attorney about the HELOC.

Is co-signing for a loan against a property that you don’t own possible?

Who is going to be responsible for arranging for the initial repairs and handling the renters?

What happens of your co-signing siblings drops dead, the property doesn’t have a renter for a few months, and the others can’t afford to keep up the payments?

Can your father access the basement without intruding on the renter’s space?

How do your spouses feel about such an arrangement?

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F150HD
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Re: Elderly Parent's Home In Need of Major Repairs

Post by F150HD » Mon May 27, 2019 10:38 am

.... have him take out a HELOC with us as cosigners, make all the necessary repairs/updates....
"us" - this doesn't sound like a great idea to me. in the event 1-5 (?) people are on a loan, then one loses a job (and cannot pay) or dies etc (or a family spat occurs), sounds like a headache waiting to happen.

maybe he should transfer home ownership now and the owner (you) allows him to live there in basement when he wants etc. On the back end (after he passes) sounds way easier to deal with.

JoeRetire
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Re: Elderly Parent's Home In Need of Major Repairs

Post by JoeRetire » Mon May 27, 2019 10:39 am

Erehdam wrote:
Sun May 26, 2019 10:44 pm
The problem is that it is an older house that needs quite a few major repairs (new roof, new central air) and needs to be updated to current standards cosmetically. He would like to make the necessary changes but does not want to take on another loan in order to do so because he is debt averse.
So he should use his assets to pay for the repairs if he doesn't want a loan.
My siblings and I are all in agreement that we want to help him but are trying to figure out the best way to go about doing this without using too much of our own cash.
Why should you use any of your own cash? It's not your house.
Our initial thoughts were to have him take out a HELOC with us as cosigners, make all the necessary repairs/updates, rent out the upstairs portion, and use the proceeds from the rent to pay off the HELOC as quickly as possible. Does this sound like a good idea or are there better alternatives?
A HELOC is a loan. You said your dad does not want to take on another loan. So presumably, this wouldn't be viable.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by CAsage » Mon May 27, 2019 10:53 am

Is the house safe, as in not being further vandalized? I would for sure keep it to inherit for the stepped -up basis and sell it then. In the meantime, keep a good roof and maintain the exterior so it will not deteriorate. You can decide how much to fix up when you want to sell it....
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Re: Elderly Parent's Home In Need of Major Repairs

Post by cheese_breath » Mon May 27, 2019 10:56 am

Erehdam wrote:
Sun May 26, 2019 10:44 pm
He would like to make the necessary changes but does not want to take on another loan in order to do so because he is debt averse.
There's a difference between "like to" and "want to". If he doesn't "want to" badly enough to do what's necessary to pay for it himself, then leave it as it is. Because he doesn't "want to" take out a loan isn't reason enough for you kids to do it.
The surest way to know the future is when it becomes the past.

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changingtimes
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Re: Elderly Parent's Home In Need of Major Repairs

Post by changingtimes » Mon May 27, 2019 11:03 am

You might also want to post about this on the real estate forum at DC Urban Moms and Dads. They can tell you a lot more about value, the current market, what's worth doing and what isn't, with a whole lot of knowledge (along with some snark, so be prepared) about the DC-area real estate biz, which as you know can vary depending on location.

https://www.dcurbanmom.com/jforum/forums/show/50.page

No need to register--everyone posts anonymously. And even if you don't post, browse the forum for more info.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by frugalecon » Mon May 27, 2019 11:13 am

CAsage wrote:
Mon May 27, 2019 10:53 am
Is the house safe, as in not being further vandalized? I would for sure keep it to inherit for the stepped -up basis and sell it then. In the meantime, keep a good roof and maintain the exterior so it will not deteriorate. You can decide how much to fix up when you want to sell it....
Is it really so obvious that it is better to wait for the stepped up basis? There are a lot of costs to owning property, so that needs to be considered, plus the opportunity cost of what the funds would earn in an alternative investment. The math isn’t so obvious to me, but maybe I am missing something.

I would counsel selling. But my view is colored a bit by watching my FIL’s portfolio of deteriorating property investments generate no income and lots of costs. He is past the point where he can handle it, but he refused to sell, and none of the kids have the bandwidth to take care of it.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by dbr » Mon May 27, 2019 11:18 am

frugalecon wrote:
Mon May 27, 2019 11:13 am
CAsage wrote:
Mon May 27, 2019 10:53 am
Is the house safe, as in not being further vandalized? I would for sure keep it to inherit for the stepped -up basis and sell it then. In the meantime, keep a good roof and maintain the exterior so it will not deteriorate. You can decide how much to fix up when you want to sell it....
Is it really so obvious that it is better to wait for the stepped up basis? There are a lot of costs to owning property, so that needs to be considered, plus the opportunity cost of what the funds would earn in an alternative investment. The math isn’t so obvious to me, but maybe I am missing something.

I would counsel selling. But my view is colored a bit by watching my FIL’s portfolio of deteriorating property investments generate no income and lots of costs. He is past the point where he can handle it, but he refused to sell, and none of the kids have the bandwidth to take care of it.
It isn't obvious to me either. We don't even know what the capital gain is or the tax situation of the investor. If the outcome is that the property is going to be vandalized or let deteriorate to the point of demolition selling would be better. Of course, those are extremes so judgement is needed. I have personally observed loss of half the value of a house due to neglect by an incompetent person, so the scenario can be real.

If the house were rented there would be income and also you can't rent if you don't maintain the property at least to minimum standards. Of course tenants can damage a property as well.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by 8foot7 » Mon May 27, 2019 11:42 am

JoeRetire wrote:
Mon May 27, 2019 10:39 am
Erehdam wrote:
Sun May 26, 2019 10:44 pm
The problem is that it is an older house that needs quite a few major repairs (new roof, new central air) and needs to be updated to current standards cosmetically. He would like to make the necessary changes but does not want to take on another loan in order to do so because he is debt averse.
So he should use his assets to pay for the repairs if he doesn't want a loan.
My siblings and I are all in agreement that we want to help him but are trying to figure out the best way to go about doing this without using too much of our own cash.
Why should you use any of your own cash? It's not your house.
Our initial thoughts were to have him take out a HELOC with us as cosigners, make all the necessary repairs/updates, rent out the upstairs portion, and use the proceeds from the rent to pay off the HELOC as quickly as possible. Does this sound like a good idea or are there better alternatives?
A HELOC is a loan. You said your dad does not want to take on another loan. So presumably, this wouldn't be viable.
+500. It’s his asset and he has the means. Why are trying to shoulder an expense he isn’t willing to incur even though he is able?

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Re: Elderly Parent's Home In Need of Major Repairs

Post by mariezzz » Mon May 27, 2019 3:25 pm

When does he plan to return to the US? Is anyone living in house now? Sounds like no. What's the hurry to make all these changes now? Once he moves back, he could make the decisions - perhaps with some oversight/advice from children.

New roof cost? Is new roof absolutely necessary in next year or 2? Or is it just getting old-ish? Is it leaking? Once the mortgage is paid off, he could just put equivalent funds into a bank account for a while to cover a new roof.
New central air is not necessary right away if it's functional right now - you'd want to think about the possibility of a new furnace at same time.
Cosmetic updates could wait - I doubt the potential rent would be reduced by enough to make it worthwhile to take out a loan for them.
Lots in relevant info missing from OP, if advice is to be relevant.

As others have said, HELOC is a loan.

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Erehdam
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Erehdam » Mon May 27, 2019 3:43 pm

carolinaman wrote:
Mon May 27, 2019 7:17 am
I am assuming no one lives in the house presently. How will your father feel about renting it out? I am guessing he may not like that.

First, I would develop a list of repairs and upgrades needed to the house. Some things, like a new roof or HVAC, need to be done as the need arises. Others, like remodeling or creating the modern look, are nice to haves. I would not do those unless there was a clear benefit when selling or renting. Experts say that people only recoup a percentage of the remodeling cost for bathrooms and kitchens or other remodels when selling. IMO, it is unwise to do those now.

There is another group of things like cleaning, fresh paint and yard cleanup that are low cost if you do them yourselves. These can make a big difference in the homes appearance and also increase the market value when sold. I suggest focusing in this area to keep the home well maintained, deal with major items like roof/HVAC as the need arises and do not remodel unless it is DIY with low cost.
Thank you for the ideas!

He is in agreement with renting it out. He lives a comfortable retirement by his standards and really wants to keep the home for now as a family wealth building tool. The housing market in DC continues to rise and will likely continue as Amazon is building a headquarters in the area. Asking price for homes in the area are 500+ “as is” and 750+ remodeled

The idea would be to upgrade the kitchen and bathrooms to justify the rent for the area

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Erehdam
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Erehdam » Mon May 27, 2019 3:47 pm

Bacchus01 wrote:
Mon May 27, 2019 7:38 am
Seems like your father wants to burden you with a house that’s falling apart.

If he wants to give it away, why not give it away now?
He could. However it would still need some upgrades in order to maximize its value. The COL in this area continues to rise

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Erehdam
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Erehdam » Mon May 27, 2019 3:52 pm

fru-gal wrote:
Mon May 27, 2019 7:48 am
I think it makes a difference whether you and your sibs are emotionally attached to this house.

When you say your Dad uses the basement to live in when he is in the US, do you mean he plans on moving back long term, he stays for a couple of weeks periodically, he stays for a year or two periodically?

Why is he planning on living in the basement, is the upstairs a wreck, or occupied?

He must be paying a mint in property tax and insurance. Does the insurance company know the house is unoccupied? I believe that affects premiums.

A new roof may be necessary to protect the house structurally. While no one is living in the house, the AC seems optional.
For rental purposes he thinks the upstairs is much nicer. The upstairs is fine, but dated. He comes back for a few weeks about once every three months

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Erehdam
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Erehdam » Mon May 27, 2019 3:58 pm

cheese_breath wrote:
Mon May 27, 2019 9:23 am
gd wrote:
Mon May 27, 2019 8:41 am
Old people often lose the ability to accept changes needed with age and circumstances, and are sometimes perfectly happy to let others go crazy trying to give them a life exactly as they'd wish it regardless of practicality. Decide what you all can do and how far you're willing to go to accommodate him before he needs to start accommodating old age. Make sure all 4 people have complete clarity about what those boundaries are. Starting point-- "pass [on the house] to his children upon his demise".
+1
How often does he come back to the country? How long does he stay before going back out of country? What is the house worth? Is it worth it to keep the house so he can sleep in the basement once in awhile?

How about this. Tell him to sell the house, use the proceeds to rent something when he comes, and leave whatever's left to you and siblings when he dies. Don't cosign on a HELOC unless you're prepared to pay off the loan.
Based off some real estate sales in the area, he could probably sell the home for about 450k as is. But the rental market in a nice neighborhood in the DC area is at least 2k/month.

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Erehdam
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Re: Money first

Post by Erehdam » Mon May 27, 2019 4:02 pm

Bogle7 wrote:
Mon May 27, 2019 9:42 am
Here is are 2 financial questions to ask:
How much would the house sell for if it was in good+ condition?
How much would it sell for as a scraper?
Looking at market rates the house would probably sell for >800k if updated

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Re: Elderly Parent's Home In Need of Major Repairs

Post by cheese_breath » Mon May 27, 2019 4:17 pm

Erehdam wrote:
Mon May 27, 2019 3:52 pm
...For rental purposes he thinks the upstairs is much nicer. The upstairs is fine, but dated. He comes back for a few weeks about once every three months
So as a potential renter how would you feel about walking on eggshells a few weeks of every three months so you don't tick off the owner in the basement on one of his surprise visits?
The surest way to know the future is when it becomes the past.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by spammagnet » Mon May 27, 2019 4:39 pm

Erehdam wrote:
Mon May 27, 2019 3:43 pm
Thank you for the ideas!

He is in agreement with renting it out. He lives a comfortable retirement by his standards and really wants to keep the home for now as a family wealth building tool. The housing market in DC continues to rise and will likely continue as Amazon is building a headquarters in the area. Asking price for homes in the area are 500+ “as is” and 750+ remodeled

The idea would be to upgrade the kitchen and bathrooms to justify the rent for the area.
Since he's willing to rent it out, that makes it an income property investment decision. He could be more amenable to a renovation loan if presented in terms of positive cash flow with the loan (improved, with high rent) or without (unimproved, with lower rent).

Do not consider that approach unless it makes sense with net cash flow AFTER the expense of a property manager. He's not there to manage it and, eventually, won't be able to manage it even if he is there.
Last edited by spammagnet on Mon May 27, 2019 9:06 pm, edited 1 time in total.

spammagnet
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Re: Elderly Parent's Home In Need of Major Repairs

Post by spammagnet » Mon May 27, 2019 4:43 pm

Erehdam wrote:
Mon May 27, 2019 3:47 pm
Bacchus01 wrote:
Mon May 27, 2019 7:38 am
Seems like your father wants to burden you with a house that’s falling apart.

If he wants to give it away, why not give it away now?
He could. However it would still need some upgrades in order to maximize its value. The COL in this area continues to rise
So, he gives it to you and siblings, you wrap it up in some kind of business contract, borrow the money to renovate it for sale, then split the net after sale and any applicable taxes?

NotWhoYouThink
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Re: Elderly Parent's Home In Need of Major Repairs

Post by NotWhoYouThink » Mon May 27, 2019 5:04 pm

What if he lives 25 more years? What if he has a stroke next year and needs 5-10 years of skilled nursing care?

Taking on the maintenance and upgrades on a house you don't own, for an indefinite time period, seems like a bad plan. He's asking you to put money into betting on the local housing market. Which might keep growing faster than the CPI, or might crash. Or something specific with the zoning or HOA might complicate things. And you have all 4 siblings/heirs, with their very different financial situations and rehab experience/opinions trying to coordinate all this.

This isn't a gift, it's a job offer. Turn it down.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by rj342 » Mon May 27, 2019 5:13 pm

Different situation, but with my dad we ended up all having to Just Say No, and pull back.

He was incredibly stubborn and making very bad choices, but still had his wits so could not get declared incompetent.
There was no money for greedy children to fight over, rather he was in a dysfunctional, deteriorating living situation he would not fix even though he had a decent federal pension, because he just couldn't let go of things even though there was no actual value.

Maybe repairs and renting could work BUT
1) Why should you assume responsibility for any debt for his asset?
2) If rented, he's not here, so who would manage all those headaches? One of you? Even if hire a mgt co to do so day to day, someone has to stay on top of them to keep them honest. Do you want that burden?

Sometimes you have to form a united front and draw a line in the sand.

He should liquidate the thing and remove a source of stress and headaches in the family -- some which would be on you after he's gone.

adamthesmythe
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Re: Elderly Parent's Home In Need of Major Repairs

Post by adamthesmythe » Mon May 27, 2019 8:51 pm

Three people making decisions about renovations and rentals. One of them overseas. What could go wrong?

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Nate79
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Nate79 » Mon May 27, 2019 9:11 pm

I would not participate in your dads horrible choices. The rental rate is horrendous for the value you can sell ($2k/month on a $450k home). You are likely over estimating the value of the fixed up home or under estimating the cost to renovate. It is rarely such a big payback.

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Erehdam
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Erehdam » Tue May 28, 2019 2:28 pm

Just wanted to update everyone. Had a talk with my accountant, and after listening to some of your thoughts and speaking as a family, he will sell it (after taking out a Home Equity Loan to do the repairs). Reason being is that he is eligible to receive up to 500k tax free without having to pay taxes on it. As was mentioned, he could then invest the earnings in the market and live off a 3-4% withdrawal rate for housing purposes when he does visit the US. If he fixes it and then rents it out, he automatically loses the 500k tax benefit (and would have to pay capital gains + state + net investment tax if he were to change his mind and sell). Thanks for the input!

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cheese_breath
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Re: Elderly Parent's Home In Need of Major Repairs

Post by cheese_breath » Tue May 28, 2019 6:43 pm

Hope this isn't too intrusive, but did he and your mother his wife live in the house 2 out of the last 5 years? And is he filing jointly with your mother his wife in 2019? That's the only way I know where he could exclude $500K in capital gains from his income. If there's something else I'd like to know about it.

edit: Rashly assumed father's wife was OP's mother. Corrected text to read "his wife"
The surest way to know the future is when it becomes the past.

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Erehdam
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Erehdam » Tue May 28, 2019 10:55 pm

cheese_breath wrote:
Tue May 28, 2019 6:43 pm
Hope this isn't too intrusive, but did he and your mother his wife live in the house 2 out of the last 5 years? And is he filing jointly with your mother his wife in 2019? That's the only way I know where he could exclude $500K in capital gains from his income. If there's something else I'd like to know about it.

edit: Rashly assumed father's wife was OP's mother. Corrected text to read "his wife"
She did. She passed away over the holidays

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cheese_breath
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Re: Elderly Parent's Home In Need of Major Repairs

Post by cheese_breath » Wed May 29, 2019 7:19 am

Erehdam wrote:
Tue May 28, 2019 10:55 pm
cheese_breath wrote:
Tue May 28, 2019 6:43 pm
Hope this isn't too intrusive, but did he and your mother his wife live in the house 2 out of the last 5 years? And is he filing jointly with your mother his wife in 2019? That's the only way I know where he could exclude $500K in capital gains from his income. If there's something else I'd like to know about it.

edit: Rashly assumed father's wife was OP's mother. Corrected text to read "his wife"
She did. She passed away over the holidays
I'M sorry. This adds more meaning to why he didn't want to sell the house.

Edit: Again not meaning to be intrusive, but I assume you mean over the holidays in 2019. Edit deleted.
The surest way to know the future is when it becomes the past.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by JGoneRiding » Wed May 29, 2019 9:07 am

I am dealing with estate where the estate is essentially the house. I am sure the step up basis is nice tax wise but other than that it's a total pain compared to what ot would be if all I had where stocks and bonds!

If neither sibling is going to try and buy out the other and live there by far and away the best thing is to sell. Remind him this is a kindness to you both.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by JoeRetire » Thu May 30, 2019 7:08 am

Erehdam wrote:
Tue May 28, 2019 2:28 pm
Had a talk with my accountant, and after listening to some of your thoughts and speaking as a family, he will sell it (after taking out a Home Equity Loan to do the repairs).
I guess the moral of the story is, even if someone is abundantly clear about something, they could still change their mind.

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Watty
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Re: Elderly Parent's Home In Need of Major Repairs

Post by Watty » Thu May 30, 2019 8:02 am

Erehdam wrote:
Tue May 28, 2019 2:28 pm
he will sell it (after taking out a Home Equity Loan to do the repairs).
It would be good to talk to several real estate agents before deciding which repairs are necessary to sell the house. There are a couple of problems with doing the repairs unless there is something like a furnace that is not working.

1) You rarely get 100% of your money back when you sell the house.

2) When you start a repair it is very likely that it will go over budget and additional problems will be found.

3) You will be tempted to do them as inexpensively as possible. I have seen a house where an wannabe flipper replaced a dated but functional kitchen with a cheap kitchen. Buyers were not fooled and they could not sell the house at a good enough price to break even so they ended up keeping it as a rental property.

4) Your taste may be different than a potential buyer. There was a house in my neighborhood where they put in new carpets to get it ready to sell. The first thing the buyer did before they moved in was to tear out all the carpets to put in hardwood floors. :oops:

5) It will delay putting the house on the market. He could likely get the house on the market by the middle of June if only minimal repairs/cleaning are done so he could still catch the prime selling season. If he gets into significant repairs he might not get the house on the market until the fall which might be a bad time to sell a home in DC. Building is booming and contractors are very busy now so he will have a hard time getting a good price and getting the work scheduled anytime soon. At least around here it sounds like good contractors are scheduling work at least six months out.

6) As long as everything is functional, or can be made functional, there are regular buyers that will buy a house if it is priced right. My first house was badly dated and had things like avocado green countertops about 20 years after avocado green was in style. The house was at the very top of my price range so I could not have afforded it if the seller had put a new kitchen into it. I was then able to remodel the kitchen about five years later doing most of the work myself when I had the time and money. Buying a house like that was the only way I could afford to buy a house in that area.

7) The longer a house is held the more chance that "Murphy's law" will strike and something like a water heater will fail or a pipe will break which could be a major problem if no one is in the house.

Be sure to talk to lots of agents since some of them will be a lot better with dealing with houses that have some issues. A risk is that some real estate agents will suggest that you do a lot of improvements so the house will sell faster which will make their job easier but might actually result in the seller netting less cash.

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Re: Elderly Parent's Home In Need of Major Repairs

Post by Bongleur » Thu May 30, 2019 4:58 pm

Erehdam wrote:
Tue May 28, 2019 2:28 pm
Just wanted to update everyone. Had a talk with my accountant, and after listening to some of your thoughts and speaking as a family, he will sell it (after taking out a Home Equity Loan to do the repairs). Reason being is that he is eligible to receive up to 500k tax free without having to pay taxes on it. As was mentioned, he could then invest the earnings in the market and live off a 3-4% withdrawal rate for housing purposes when he does visit the US. If he fixes it and then rents it out, he automatically loses the 500k tax benefit (and would have to pay capital gains + state + net investment tax if he were to change his mind and sell). Thanks for the input!
Have you considered making a formal loan to him for the repairs & charging nothing or the same as the finance company? Keep the interest $$ in the family.

Since my Mom's house is already rented, have to wait to inherit before selling to get the step-up and sell without any taxes.
Rental agent says renting this ~$2600/mo house is harder because of dated kitchen & baths -- but renovating them has no return.
So exactly what to update beyond obvious repairs is a tricky question. Or even to sell "as is."
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