Parents want me to pay off their mortgage in exchange for title

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Jack FFR1846
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Jack FFR1846 » Tue Apr 21, 2020 9:38 pm

learntogrow wrote:
Tue Apr 21, 2020 4:22 pm
Jack FFR1846 wrote:
Tue Apr 21, 2020 3:11 pm
You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.

Seems a little harsh...

If he is in a position to be able help out his parents where it’s not financially draining to him is not only a potentially nice thing to do but a really nice deal in the future for him to own a property over double what he paid
Not harsh.

viewtopic.php?f=2&t=246709&p=3875923#p3875923

OP's parents' business has sucked all their money, loses money. No income. That's why I call it a hobby. OP has been giving them money and can't do it anymore.

From another thread, OP expects to be laid off.

So in short, parents have no money to pay for anything. Lives off charity from OP. If they give OP the house, they still have no income, no job and a business that sucks money out of them.

I stand by my suggestion.
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TN_Boy
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Re: Parents want me to pay off their mortgage in exchange for title

Post by TN_Boy » Tue Apr 21, 2020 10:06 pm

Lynx310650 wrote:
Tue Apr 21, 2020 2:57 pm
I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
I don't have an opinion on the legalities.

What I don't like about this plan is that ..... it ain't a plan. They are having trouble making ends meet so they come up with a scheme to live rent-free by essentially selling you the house for less than market value.

Okay, fine, they've solved the "pay the mortgage problem" by using you as a buyer and throwing away their home equity. Is giving up over 300k in home equity a smart financial move?? This strikes me as desperation. They don't want to admit to neighbors and friends they can't afford the house. I wouldn't want to admit that either, but well, that's where they are.

Now how will they pay for food, clothes, cars, car repairs, healthcare, utilities ..... And by the way, surely you know how stuff like property taxes, repairs, etc for the house is going to "work out." You'll be writing checks for those things.

Your parents are showing that they cannot support themselves, at least not in the style they would like. That doesn't mean they are bad people. But unless they have a plausible way to pay the bills themselves, what you are doing is throwing your money down their drain. You should think really hard about how much damage to your finances you can handle.

Your parents would be much better served by you helping them find a way to support themselves at some level without bailouts from you.

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eye.surgeon
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Re: Parents want me to pay off their mortgage in exchange for title

Post by eye.surgeon » Tue Apr 21, 2020 10:23 pm

Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Sandtrap » Tue Apr 21, 2020 10:40 pm

whodidntante wrote:
Tue Apr 21, 2020 4:07 pm
If your parents need money, give them money with no expectation of anything in return and no restrictions on how it is used. Owning their house sounds like a bad idea. The house might be coming to you someday anyway, at least what they didn't need to extract from it, which might be everything.
My son has had the same experience (and offer) with his in-laws.
They sold thier home and downsized. Financial problems continue.
Either pay off loan and continue monetary support forever or don’t go down that road. This is a tough call.
Even if they sold and downsize you still may end up subsidizing.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by femmefire » Tue Apr 21, 2020 11:12 pm

I belong to another forum of very different variety. This will cause you serious relationship issues if you have a spouse and children in the future and your parent’s irresponsible finances take a dime away from your family, especially your children.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by EFF_fan81 » Tue Apr 21, 2020 11:33 pm

eye.surgeon wrote:
Tue Apr 21, 2020 10:23 pm
Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
I don't think most people on this forum could throw down 180k with no financial consequences. I'm not an eye surgeon, that's a years worth of income for me and probably 2-3 for many others here.

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btq96r
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Re: Parents want me to pay off their mortgage in exchange for title

Post by btq96r » Wed Apr 22, 2020 12:00 am

Lynx, I took the time to ready through your other posts on the topic. This being your third thread on it, you're watching the train wreck in slow motion. I feel for you, man. This can't be easy as a son. But the situation just has so many red flags, and seems like giving an alcoholic one more drink, hoping they'll head to rehab come the morning.

Did you ever find out if their business is structured as an LLC? That's a huge factor in it all. Are they asking for this gift so they can continue to throw money into the furnace and burn it away? Or is this money for some kind of exit strategy?

There are also the myriad issues with your being their landlord. In their early 60s, you hopefully have 30some years more left with them around, which will tie up the home for a great long while, giving you a very illiquid asset no matter what the market is like. At that point, the "investment" is way less attractive to me. What about if they want to do something to the house you might not agree with? You're probably gonna be walking around it every time you're there tabbing up the repair bill when they pass, resenting their ability to maintain it at some level. You might not think so, but I think it'll be impossible not to as the years add on.

This is a great deal for them, especially if they don't squander the money into the dead business. At best, they get a free home for the rest of their lives, remove all the risk from their side, transfer it to you, and prevent you from having the chance to take advantage of what would legally be your property if an opportunity presents itself. This "deal" is anything but. You're being asked to be their lifeline and save them from the consequences of their own actions. But it's your parents, so I get why this is even a consideration....just don't delude yourself into thinking it's over if you sign the paperwork. At that point, you're just getting onto their merry-go-round, and you wouldn't be able to get off.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by TN_Boy » Wed Apr 22, 2020 8:14 am

eye.surgeon wrote:
Tue Apr 21, 2020 10:23 pm
Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
I think you are completely missing the point of the "heartless" responses.

First a minor point -- 180k is a lot of money unless you are pretty wealthy. "Most of us" is probably incorrect. If you have 2M in the bank, we are talking almost 10% of net worth, which I think is a lot. And it's not just 180k. The OP will almost certainly be on the hook for thousands every year in property taxes and repairs.

The major point is this, which I said above "Your parents are showing that they cannot support themselves, at least not in the style they would like"

Should the OP commit to completely supporting them? This plan only addresses the mortgage payment problem. Not utilities, food, everything else.

Turn it around. Suppose the OP was the parent and his son couldn't support himself. How much money should the OP throw at the son before sitting down and saying "son, you must live within your means."

Helping family does not mean blindly going along with every desperate suggestion made by family in trouble.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by NotWhoYouThink » Wed Apr 22, 2020 8:36 am

Helping a drowning person does not mean letting them pull you down with them. OP needs to conserve his financial strength to be able to provide the support his parents will surely continue to need.

That means a hard "no" on paying off the mortgage in return for the house.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by alfaspider » Wed Apr 22, 2020 9:15 am

eye.surgeon wrote:
Tue Apr 21, 2020 10:23 pm
Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
If OP wants to help them, the current proposal isn't the only way to do it. If the house would be inherited anyways, then this is essentially just a gift of $180k with the potential for poor tax consequences to boot. It could be structured as a mortgage refinance instead (for example) with the OP giving them a mortgage for $180k and then providing a forbearance, or OP could pay the mortgage while they get back on their feet.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by Jack FFR1846 » Wed Apr 22, 2020 9:55 am

eye.surgeon wrote:
Tue Apr 21, 2020 10:23 pm
Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
This might be fine for someone with millions saved and a high paying job. Go look at the OP's previous posts over the year. I have not dug in much, but have found:

He's going to be laid off.
He has been giving parents money for a while but cannot afford to continue.
Has a JD degree but is not a lawyer.
Has a family of his own.
Parents' refuse to accept business failure and continue to put money into the business while working and getting nothing back.

I'm sorry, but I think the son here would indeed put himself and his family in the poor house doing this. The parents need to stop this business/hobby and get jobs working for others. I didn't catch how old the parents are but have seen many Boglehead posts like this where parents are in their 50's. *edit...I went back and the OP's parents are in their early 60's* If that's the case, there are jobs out there for them. Getting minimum wage will bring in more money than the failing business that is costing them money to run with no wage whatsoever.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by bloom2708 » Wed Apr 22, 2020 9:59 am

+1 for N-O, No.

I sound like a parent. Nothing good would come from paying off the mortgage. How would one pay for a second house? Taxes, insurance, utilities, repairs/maintenance?
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Re: Parents want me to pay off their mortgage in exchange for title

Post by deltaneutral83 » Wed Apr 22, 2020 10:07 am

eye.surgeon wrote:
Tue Apr 21, 2020 10:23 pm
Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
LOL. This cannot be a serious post. You think $180k is "most of us could afford this" type of money?

OP, if you examined this situation nationally, I am certain you will find that less than 50% of these situations work out well, and probably fewer than 10% of these cases end up going exactly as you planned. $180k is the tip of the iceberg. The best move for all involved would be to tell them to live what they can afford, and they can no longer afford to live in this home, time to downsize. If you get to the point where "most of us could afford" and throw down a couple hundred grand or they're situation changes for the better 2-4 years from now, by all means go ahead back to the former standard of living.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by willthrill81 » Wed Apr 22, 2020 10:09 am

TN_Boy wrote:
Wed Apr 22, 2020 8:14 am
First a minor point -- 180k is a lot of money unless you are pretty wealthy.
Just to put it into perspective, it's roughly the median net worth, including home equity, for all 65-69 year olds.
TN_Boy wrote:
Wed Apr 22, 2020 8:14 am
And it's not just 180k. The OP will almost certainly be on the hook for thousands every year in property taxes and repairs.
Bingo. If the OP could be reasonably assured that the $180k would be the end of him helping his parents financially, it might be plausible. But that is absolutely not the case. Their 'business' is continuing to hemorrhage money, and there is every reason to believe that they will need more and more of what Thomas Stanley (author of the Millionaire Next Door books) referred to as economic outpatient care.
TN_Boy wrote:
Wed Apr 22, 2020 8:14 am
The major point is this, which I said above "Your parents are showing that they cannot support themselves, at least not in the style they would like"

Should the OP commit to completely supporting them? This plan only addresses the mortgage payment problem. Not utilities, food, everything else.

Turn it around. Suppose the OP was the parent and his son couldn't support himself. How much money should the OP throw at the son before sitting down and saying "son, you must live within your means."

Helping family does not mean blindly going along with every desperate suggestion made by family in trouble.
100% agree. The parents have not learned that they must provide for themselves and live within their means. They are not disabled and certainly capable of earning a wage in the market. That will almost certainly result in a dramatic reduction of their spending and changing their lifestyle, and change is usually perceived as being painful, but it's necessary.

In the same way that it's not good for parents to forever bail out their children's financial mistakes, it's not good for children to forever bail out their parents'. Helping the parents continue to engage in their bad financial behavior is not really helping them at all.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by pennywise » Wed Apr 22, 2020 10:34 am

I think there are two very different issues being debated here:

1. The financial aspects of a proposed sale/arrangement between parents and adult child

2. The decision as to whether and/or how much an adult child should, can and will financially support parents who need ongoing funding

It's not surprising that there is the 'no way no how this is a terrible deal' camp v. the 'I'd do this for my parents in a heartbeat' team. Both have right on their side, and both are debating very different perspectives. OP, based on this and previous discussions, is clearly wrestling with issue #2 and no doubt will be for many years or decades to come since his parents are in their early 60s.

I'm sure OP is well aware this proposed sale means that once he is the owner he will then also be responsible for all the ongoing upkeep and fiscal responsibilities--the property taxes, maintenance etc will 99.9% likely end up being far more than whatever imaginary profit there might be in the distant future when the surviving parent goes. Which as mentioned may easily be 30-40 years away.

And of course behavioral finance being what it is, his parents are never, never, never going to view him as the owner in anything but name for the house THEY bought and live in. He will instead be their dutiful son (not even a landlord) who will ensure their house stays in good shape so they can live there forever without worrying about how to pay for it. That doesn't mean they are bad people, it just means it is more an issue of family dynamics instead of a financial transaction.

Also in terms of family dynamics, that balance is unique to each family and based on cultural, personal and logistical/fiscal factors that make each situation one only that the family involved can decide-actually one that only the family member asked to provide funding can decide.

Doesn't mean not to do it, simply important for OP to stay aware he is answering question #2, not #1, to his parents' satisfaction and his own financial abilities.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by Jack FFR1846 » Wed Apr 22, 2020 10:47 am

pennywise, you've pointed out the great divide here. I'm trying to be Mr. Practical. My take.....

Parents continue to flush money down a business that makes no money. So in essence, they have no jobs.
OP would have to put more than his entire net worth into buying this "bargain" of a house. I honestly believe that every banker they go to for the mortgage is going to throw them out.
Those saying that I'm heartless or that the OP should absolutely do this.....let's put it into perspective as I think many of you have a lot of money. Let's change up the numbers. YOUR parents come to you and say that you can buy out their home for the cost of the mortgage. It's 18 Million dollars. Ok, so now is that something that you would just pay and move on?
Beyond that, who will pay ongoing costs. OP is about to be jobless. So no job....supporting his own family....supporting parents who may actually continue to flush money down that business. Is that a viable situation? Parents in their early 60's, so this could easily continue for 25 years.

I'm sorry. Just no. A big, Captain Obvious....just no.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Ron » Wed Apr 22, 2020 10:49 am

So you are going to pay for your own (possible) inheritance?

Got it!

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Re: Parents want me to pay off their mortgage in exchange for title

Post by afan » Wed Apr 22, 2020 11:09 am

Jack FFR1846 wrote:
Wed Apr 22, 2020 9:55 am


This might be fine for someone with millions saved and a high paying job. Go look at the OP's previous posts over the year. I have not dug in much, but have found:

He's going to be laid off.
He has been giving parents money for a while but cannot afford to continue.
Has a JD degree but is not a lawyer.
Has a family of his own.
Parents' refuse to accept business failure and continue to put money into the business while working and getting nothing back.

I'm sorry, but I think the son here would indeed put himself and his family in the poor house doing this. The parents need to stop this business/hobby and get jobs working for others. I didn't catch how old the parents are but have seen many Boglehead posts like this where parents are in their 50's. *edit...I went back and the OP's parents are in their early 60's* If that's the case, there are jobs out there for them. Getting minimum wage will bring in more money than the failing business that is costing them money to run with no wage whatsoever.
This is critical information. If it is true, then the OP needs to extricate from financing the business. OP should encourage the parents to sell the house and get regular jobs that do not require them to finance or run a business. They should get reliable income, drastically lower their expenses, and get back on their feet.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by sawhorse » Wed Apr 22, 2020 11:34 am

I have no opinion, but one thing that crossed my mind is what happens down the road if you want to or need to sell the house while they are still alive. Have you discussed that?

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Re: Parents want me to pay off their mortgage in exchange for title

Post by 8foot7 » Wed Apr 22, 2020 11:36 am

Obviously this is not a good deal for either the OP or his parents.

I wouldn't have immediately written off the request if, however, his parents' business was generally profitable, an asset worth having, and this black swan of a pandemic temporarily put them in a really bad spot. If his parents owned a hotel, let's say, that had done very well and provided a great living for a while, but because of the virus, demand went to zero essentially overnight and now 45 days in they need some help, then this might not be an immediate no.

There aren't many people in the world I'd do something like what is proposed in the original post for, but my parents and my children make up pretty much that entire circle. If their s*** hit the fan in a bad way, and what they had was salvageable and would return to a serviceable normal, I'd look for whatever way I could to help, and if this deal was the best way to help, then I'd do it. (There would probably be other, better ways to help than this. But if after looking at all options this was the best one, I'd pull the trigger.)

But it sounds like his parents' "business" is a black hole into which they pour money every month. No reason to keep throwing good money after bad.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by NotWhoYouThink » Wed Apr 22, 2020 12:01 pm

OP, the other thing to remember is that you can't "make" your parents (or anyone else, including your kids) do anything. You can offer advice, you can offer conditions on the help you provide, but if they are sufficiently determined to keep going down a path to ruin you can't stop them.

You can decide what you will do, and the stronger your financial position the better you will be able to help them when/if they finally hit bottom.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by snowman » Wed Apr 22, 2020 12:05 pm

Jack FFR1846 wrote:
Wed Apr 22, 2020 9:55 am
eye.surgeon wrote:
Tue Apr 21, 2020 10:23 pm
Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
This might be fine for someone with millions saved and a high paying job. Go look at the OP's previous posts over the year. I have not dug in much, but have found:

He's going to be laid off.
He has been giving parents money for a while but cannot afford to continue.
Has a JD degree but is not a lawyer.
Has a family of his own.
Parents' refuse to accept business failure and continue to put money into the business while working and getting nothing back.

I'm sorry, but I think the son here would indeed put himself and his family in the poor house doing this. The parents need to stop this business/hobby and get jobs working for others. I didn't catch how old the parents are but have seen many Boglehead posts like this where parents are in their 50's. *edit...I went back and the OP's parents are in their early 60's* If that's the case, there are jobs out there for them. Getting minimum wage will bring in more money than the failing business that is costing them money to run with no wage whatsoever.
I read this whole thread and was kind of in-between, seeing both sides of the argument. This new info changes equation, I wasn't aware of it. That's the problem with many threads on BH - you are given very limited, and sometimes even conflicting info. And many times, there is no follow-up from OP when requesting additional info. Feels more like venting than seeking advise. Must be really hard on him right now. Does he have any siblings? That would add totally new twist to the whole thing.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by VeganBH » Wed Apr 22, 2020 12:58 pm

Lynx310650 wrote:
Tue Apr 21, 2020 2:57 pm
I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
Everyone's relationship to their parents is different as is their financial situation. I can add, based on my own (and DH) experience:
We did do something similar, in a time of need for my mom. Dad passed away, then a serious health issue, and a job loss followed - making her life awful. DH and I weren't rich (but 10-years into our professions, we were definitely doing fine financially) - and we could afford to help. We decided we could either pay her rent, or buy a modest home for her to live in - and hopefully recoup costs down the road (when it was time to sell). She found the perfect modest/affordable home, moved close to friends, and enjoyed some of her best 8-years of her life. When she passed away, we actually took a loss on the house - a real bummer - but WE LOVED doing this for her.. Honestly, we only regret not doing it sooner - just helping out more financially, as we could afford to. Fortunately, my DH was 100% on board - which could be an issue if not the case. And nearly 20 years later, the financial impact was, for all intents and purposes, insignificant.

One thing to consider: We were able to claim mom as a dependent for tax purposes - which helped a little bit. Something to consider.
Good luck with your decision.
"Until we extend our circle of compassion to all living things, humanity will not find peace."​ ~ Albert Sc​hweitzer

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Re: Parents want me to pay off their mortgage in exchange for title

Post by ponyboy » Wed Apr 22, 2020 2:14 pm

Thats not adding up. Why would you need to pay off $180k for them to live there rent free? Couldnt you simply start paying the mortgage each month, until they are back on their feet?

It doesnt make sense why you would need to drop $180k.

Not to mention, if its in your name, you're responsible for the property taxes. You can have whatever you want in writing with your parents, if they refuse to pay property taxes, guess who loses the home?

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Re: Parents want me to pay off their mortgage in exchange for title

Post by snowman » Wed Apr 22, 2020 2:55 pm

ponyboy wrote:
Wed Apr 22, 2020 2:14 pm
Thats not adding up. Why would you need to pay off $180k for them to live there rent free? Couldnt you simply start paying the mortgage each month, until they are back on their feet?

It doesnt make sense why you would need to drop $180k.

Not to mention, if its in your name, you're responsible for the property taxes. You can have whatever you want in writing with your parents, if they refuse to pay property taxes, guess who loses the home?
He doesn't need to, this is his parents' proposal. I can only assume, based on limited info provided, that it's really good deal for his parents: they immediately fix their cash flow problem, they don't have to sell and move, they can live there forever rent-free, they eliminate the risk of declining property value, and the risk of foreclosure for non-payment. Lots of problems solved.

If there are future issues like maintenance and property tax payments, they can always count on their son to be understanding if they need financial help - after all, it's his property now, and he is not going to kick them out of the house. The only way to entice someone to do that is to offer transfer of title to their name. Son thinks he is getting good deal - he only pays 180K for an asset worth 550K. Win-win all around!

There many different ways to solve this problem, some already outlined by other posters, but that's not what OP's parents are proposing.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by Sandtrap » Wed Apr 22, 2020 4:01 pm

VeganBH wrote:
Wed Apr 22, 2020 12:58 pm
Lynx310650 wrote:
Tue Apr 21, 2020 2:57 pm
I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
Everyone's relationship to their parents is different as is their financial situation. I can add, based on my own (and DH) experience:
We did do something similar, in a time of need for my mom. Dad passed away, then a serious health issue, and a job loss followed - making her life awful. DH and I weren't rich (but 10-years into our professions, we were definitely doing fine financially) - and we could afford to help. We decided we could either pay her rent, or buy a modest home for her to live in - and hopefully recoup costs down the road (when it was time to sell). She found the perfect modest/affordable home, moved close to friends, and enjoyed some of her best 8-years of her life. When she passed away, we actually took a loss on the house - a real bummer - but WE LOVED doing this for her.. Honestly, we only regret not doing it sooner - just helping out more financially, as we could afford to. Fortunately, my DH was 100% on board - which could be an issue if not the case. And nearly 20 years later, the financial impact was, for all intents and purposes, insignificant.

One thing to consider: We were able to claim mom as a dependent for tax purposes - which helped a little bit. Something to consider.
Good luck with your decision.
That's great that you were able to do that. :D
Yes. In the long run, these things looked at in a "big way" can work out well.

Congratulations.
j :happy
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Re: Parents want me to pay off their mortgage in exchange for title

Post by NotWhoYouThink » Wed Apr 22, 2020 4:22 pm

VeganBH wrote:
Wed Apr 22, 2020 12:58 pm

Everyone's relationship to their parents is different as is their financial situation. I can add, based on my own (and DH) experience:
We did do something similar, in a time of need for my mom. Dad passed away, then a serious health issue, and a job loss followed - making her life awful. DH and I weren't rich (but 10-years into our professions, we were definitely doing fine financially) - and we could afford to help. We decided we could either pay her rent, or buy a modest home for her to live in - and hopefully recoup costs down the road (when it was time to sell). She found the perfect modest/affordable home, moved close to friends, and enjoyed some of her best 8-years of her life. When she passed away, we actually took a loss on the house - a real bummer - but WE LOVED doing this for her.. Honestly, we only regret not doing it sooner - just helping out more financially, as we could afford to. Fortunately, my DH was 100% on board - which could be an issue if not the case. And nearly 20 years later, the financial impact was, for all intents and purposes, insignificant.

One thing to consider: We were able to claim mom as a dependent for tax purposes - which helped a little bit. Something to consider.
Good luck with your decision.
What you did was kind, but not remotely similar.

Helping your parents is a good thing, but not all parents need the same help. For instance, you could pay for their experimental cancer treatment, which would be great. But only if they had cancer for which an experimental treatment could be purchased.

OP's parents have problems that an infusion of money will amplify rather than solve.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by illumination » Wed Apr 22, 2020 4:33 pm

Could you (or with your spouse) a just gift the annual mortgage payment to them every year? And then when they pass, you inherit it the house outright and get the stepped up cost basis? Is there a reason they want the house not in their name and in your name? Most states protect a primary residence in any sort of bankruptcy or lawsuit.

You obviously can't kick your parents out of this house if you own it, buying it outright sort of obligates you to provide them with this home until they pass.

If you just gift an amount equal to a mortgage, it at least buys you time to figure things out. If they need to downsize and won't, it's easier to just stop gifting then to formally evict them from the home.

A lot of this depends on what your financial condition is and if this is going to jeopardize any of your financial goals. If you both can't afford this house, the answer is to not put yourself in the equation.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by VeganBH » Wed Apr 22, 2020 5:15 pm

NotWhoYouThink wrote:
Wed Apr 22, 2020 4:22 pm
VeganBH wrote:
Wed Apr 22, 2020 12:58 pm

Everyone's relationship to their parents is different as is their financial situation. I can add, based on my own (and DH) experience:
We did do something similar, in a time of need for my mom. Dad passed away, then a serious health issue, and a job loss followed - making her life awful. DH and I weren't rich (but 10-years into our professions, we were definitely doing fine financially) - and we could afford to help. We decided we could either pay her rent, or buy a modest home for her to live in - and hopefully recoup costs down the road (when it was time to sell). She found the perfect modest/affordable home, moved close to friends, and enjoyed some of her best 8-years of her life. When she passed away, we actually took a loss on the house - a real bummer - but WE LOVED doing this for her.. Honestly, we only regret not doing it sooner - just helping out more financially, as we could afford to. Fortunately, my DH was 100% on board - which could be an issue if not the case. And nearly 20 years later, the financial impact was, for all intents and purposes, insignificant.

One thing to consider: We were able to claim mom as a dependent for tax purposes - which helped a little bit. Something to consider.
Good luck with your decision.
What you did was kind, but not remotely similar.

Helping your parents is a good thing, but not all parents need the same help. For instance, you could pay for their experimental cancer treatment, which would be great. But only if they had cancer for which an experimental treatment could be purchased.

OP's parents have problems that an infusion of money will amplify rather than solve.
Not sure I agree, but you are certainly entitled to your opinion. The OP was asking for opinions - I provided mine - and added context.
The cliff-notes (of my opinion): IMO, not all decisions need/should be based on doing what is "financially optimal."
"Until we extend our circle of compassion to all living things, humanity will not find peace."​ ~ Albert Sc​hweitzer

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Re: Parents want me to pay off their mortgage in exchange for title

Post by VeganBH » Wed Apr 22, 2020 5:18 pm

Sandtrap wrote:
Wed Apr 22, 2020 4:01 pm

That's great that you were able to do that. :D
Yes. In the long run, these things looked at in a "big way" can work out well.

Congratulations.
j :happy
Thanks - yes, we are blessed.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Tamarind » Wed Apr 22, 2020 5:31 pm

OP, I reviewed your past posts on the evolution of this situation. Your parents have spent 3 years digging themselves an increasingly deep hole. In 2017 the business was operating at a loss but they were keeping it going with a $100k inheritance. In 2018 they had taken out a HELOC and asked you for money. In Dec 2019 they were finally ready to close up shop when their lease ended in May. They have contemplated selling their house more than once.

I expect if it hasn't already that COVID will put the very last nail in the business's coffin. This is a great occasion to let the landlord know they are insolvent and going out of business effective immediately.

Your parents are very frugal, living on $24k annually aside from "housing costs" which are actually the servicing of their business debts. If they sell their home promptly to an actual buyer and move to a low cost area, they will do well on SS and the amount they can take from the house proceeds.

Your other posts show someone trying to get ahead and achieve life's milestones despite a challenging series of circumstances. You want to buy a house. You want to have kids and save for their future. You don't have $180k to spare and you can't afford this.

It's admirable to help your parents even if it doesn't make business sense, but I don't think that's what's going on here. I worry about the impact it would have on your life if you add this financial burden to your load.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by BarbBrooklyn » Wed Apr 22, 2020 11:08 pm

Lynx, I went back and read some of your other posts.

You and your wife are aggressive savers. You don't own a home and it doesn't appear that you have kids yet.

Your parents, for whatever reason, are poor money managers. They are NOT realistic about business matters and it doesn't sound like they are being forthcoming about their finances (mortgage balance, HELOC, inheritance, business debt).

They are asking you to use your down payment money to buy THEIR house. Which you don't get to live in. They are asking you to mortgage your future.

If you and your wife have the wherewithal to support them, do so in monthly payments that you pay directly to mortgage or wherever. I would not count on them acting wisely with a large pile of cash.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by pennsylvania211 » Thu Apr 23, 2020 10:47 am

TxAg wrote:
Tue Apr 21, 2020 9:25 pm
Jack FFR1846 wrote:
Tue Apr 21, 2020 3:11 pm
You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.
Bingo!
Yep, has the right mix of gunpowder and oxidizer in this deal. Could blow up and damage your relationship with them permanently.

I love my family and therefore would never mix family, money, and future expectations in any combination. Never even just two out of three.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by CFM300 » Thu Apr 23, 2020 12:07 pm

AlphaLess wrote:
Tue Apr 21, 2020 8:32 pm
in fact, unless your small business grows into medium business (25+ employees), that small business is a hobby.
Please define "hobby." I know people who net hundreds of thousands of dollars per year running businesses with less than 25 employees. Some are sole proprietors and have been operating for a decade.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by ychuck46 » Thu Apr 23, 2020 1:45 pm

[/quote]
Hehehehe, oh is he going to pay for this "deal". Until you've dealt with financially dysfunctional parents there's no such thing as a "deal" with them. It's a black hole with no return other than heartache. And it's always your fault. BTDT.
[/quote]

You are spot on. As others have stated there are a myriad of considerations here - siblings, the age of the parents, etc. But regardless the parents are stretched to the maximum and have only one asset, the house, which will no longer be theirs. How are they going to live? My guess is that they will have to have their hands out many more times with this son. Better they take whatever equity is left from the sale of the house and rent a small place until they can get on their feet. This good son is asking for a world of hurt if he goes through with this scheme by the parents.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by KNMLHD » Thu Apr 23, 2020 2:09 pm

Thinking of possible alternatives...

Could you and your spouse gift each of your parents money - lets say each spouse gives a parent $15K ($60k total) that goes against principal of the mortgage, and then your parents recast the mortgage to get lower payments.

Would that help the situation at all? Of course they could always open a HELOC negating the effect, but throwing it out there as an option.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by milktoast » Thu Apr 23, 2020 2:41 pm

KNMLHD wrote:
Thu Apr 23, 2020 2:09 pm
Thinking of possible alternatives...

Could you and your spouse gift each of your parents money - lets say each spouse gives a parent $15K ($60k total)
That’s what I was thinking about as well.

If OP can afford it, seems cleaner to just gift them enough to cover monthly mortgage. Ideally by direct payment from a new bank account in their name. And if they decide to compensate via will, that’s a nice thank you.

Complicated schemes just seem more likely to cause heartache.

I offered this to a troubled sister. But in the end she refused, because it only covers her housing and she didn’t want a clean transaction- she wanted money for alcohol.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by Jack FFR1846 » Thu Apr 23, 2020 2:42 pm

KNMLHD wrote:
Thu Apr 23, 2020 2:09 pm
Thinking of possible alternatives...

Could you and your spouse gift each of your parents money - lets say each spouse gives a parent $15K ($60k total) that goes against principal of the mortgage, and then your parents recast the mortgage to get lower payments.

Would that help the situation at all? Of course they could always open a HELOC negating the effect, but throwing it out there as an option.
They don't have that kind of money. When the OP is laid off (see a previous thread), they're going to need what they've saved to live on themselves.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by TN_Boy » Thu Apr 23, 2020 2:48 pm

Jack FFR1846 wrote:
Thu Apr 23, 2020 2:42 pm
KNMLHD wrote:
Thu Apr 23, 2020 2:09 pm
Thinking of possible alternatives...

Could you and your spouse gift each of your parents money - lets say each spouse gives a parent $15K ($60k total) that goes against principal of the mortgage, and then your parents recast the mortgage to get lower payments.

Would that help the situation at all? Of course they could always open a HELOC negating the effect, but throwing it out there as an option.
They don't have that kind of money. When the OP is laid off (see a previous thread), they're going to need what they've saved to live on themselves.
Right, and it seems like the problem is that the parents don't have a way to support themselves. Solving the mortgage payment issue isn't solving the real problem.

I think the OP needs a plan titled "How my parents can support themselves without needing a bunch of money from me"

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Re: Parents want me to pay off their mortgage in exchange for title

Post by MathWizard » Thu Apr 23, 2020 3:02 pm

Lynx310650 wrote:
Tue Apr 21, 2020 2:57 pm
I wrote about my parents' financial issues before, their small business is in absolutely dire straits now.

Their primary (and only) asset is their primary residence. Comparable sales were about $550k prior to the pandemic. They owe about $180k.

My parents made me the following proposition. I pay off the $180k for them, they hand over the title of the house in entirety to me. I let them live there rent free for the rest of their lives. We'll work out stuff like property tax, maintenance, etc.

I don't know what the legal (esp tax) implications of this would be, and I'm not sure if this would be an optimal financial move for either party. I could scrounge up the 180k in cash if need be and pay it off. It's an interesting chance to own something "worth" over 500k and pay 180k for it, but at the same time I wouldn't be drawing any income off of it.

Wanted to get the opinions of this forum on such a deal.
My brother and his wife did a similar deal for her widowed mother.

She had a small farm + farmhouse, but little income.

They bought the farm from her by making payments monthly, she stayed in the house, and
use the payments as income.

They ended up paying for the agreed upon time to pay off the sale while she was still living.
My brother and SIL continued the payments, since the MIL still needed the money.

After her death, my SIL's siblings accused my brother of cheating them out of their inheritance
(even though they did not help out their mother). So no good deed goes unpunished. He planned to sell it,
but will now let his kids inherit the farm and they can sell it, since there will be far fewer family entanglements then.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by snowman » Thu Apr 23, 2020 3:35 pm

MathWizard wrote:
Thu Apr 23, 2020 3:02 pm

After her death, my SIL's siblings accused my brother of cheating them out of their inheritance
(even though they did not help out their mother). So no good deed goes unpunished. He planned to sell it,
but will now let his kids inherit the farm and they can sell it, since there will be far fewer family entanglements then.
That's precisely why I asked OP if he has any siblings. There is no answer as of yet.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by Jags4186 » Thu Apr 23, 2020 3:45 pm

eye.surgeon wrote:
Tue Apr 21, 2020 10:23 pm
Surprised how many heartless responses there are to this question. Many if not most of us could afford to do this with little to no consequences financially. I’d do it in a heartbeat and not look back. Some things are more important than dying rich most especially the well being of my parents. I wouldn’t go to the poorhouse over it but that doesn’t sound like the situation here. My business partner did this very thing for his in-laws.
I'm sure an eye surgeon could afford to do this with little consequence. Most are not in that position. If the OP is in a position to subsidize his parents he should do it with a check each month to help cover their basic living expenses. If between the parents' assets and income and the amount of the subsidy by the child aren't enough to sustain the current lifestyle then the parents need to downgrade lifestyle. It's that simple.

OP, if you give the parents $180k they will be looking for more money in 5-10 years.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by michaeljc70 » Thu Apr 23, 2020 4:01 pm

A lot of good points have been made. What if the business continues to decline? Are you going to pay their car loans and living expenses too? The way you said "scrounge" up the money seems like it would be somewhat of a burden (you asked about saving more/reducing your 401k contributions in another thread). I don't think the comment about them living above their means is off or harsh. That doesn't mean you cannot help them out. I wouldn't want to do this exact scenario though for many of the reasons listed above the top ones being:

-Could be imputed rent on your income
-May get stuck paying repairs, property taxes, insurance, etc.
-Liability. You are basically operating a rental even though it is family
-If siblings are in the picture they may resent it
-Your parents may come to resent it as they are doing this out of desperation it seems. (If it is such a great deal for you, it is a bad deal for your parents who are in dire financial shape).

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Re: Parents want me to pay off their mortgage in exchange for title

Post by AlphaLess » Thu Apr 23, 2020 5:13 pm

CFM300 wrote:
Thu Apr 23, 2020 12:07 pm
AlphaLess wrote:
Tue Apr 21, 2020 8:32 pm
in fact, unless your small business grows into medium business (25+ employees), that small business is a hobby.
Please define "hobby." I know people who net hundreds of thousands of dollars per year running businesses with less than 25 employees. Some are sole proprietors and have been operating for a decade.
If the sole purpose of your small business is to provide goods and services that a W2 employee can also provide, then this is not a small business.

Take two people: A and B. A performs services for a company, and gets paid on W2. B is a 'small business' owner providing the same services. B does not own and operate a small business, in my opinion.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by CFM300 » Thu Apr 23, 2020 5:41 pm

AlphaLess wrote:
Thu Apr 23, 2020 5:13 pm
CFM300 wrote:
Thu Apr 23, 2020 12:07 pm
AlphaLess wrote:
Tue Apr 21, 2020 8:32 pm
in fact, unless your small business grows into medium business (25+ employees), that small business is a hobby.
Please define "hobby." I know people who net hundreds of thousands of dollars per year running businesses with less than 25 employees. Some are sole proprietors and have been operating for a decade.
If the sole purpose of your small business is to provide goods and services that a W2 employee can also provide, then this is not a small business.

Take two people: A and B. A performs services for a company, and gets paid on W2. B is a 'small business' owner providing the same services. B does not own and operate a small business, in my opinion.
None of that addresses your original claim, which was if a business doesn't have 25 employees, then it's a hobby. My dentist is in a practice with three other dentists and they employ about eight people. Are they pursuing a hobby? Also, if the small business owner is pursuing a hobby, then could the same be said for the equivalent W2 employee? I'm not objecting to your small vs. medium classification. Just the "hobby" part.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by willthrill81 » Thu Apr 23, 2020 6:18 pm

Jags4186 wrote:
Thu Apr 23, 2020 3:45 pm
OP, if you give the parents $180k they will be looking for more money in 5-10 years.
Given their history of hemorrhaging money, I think that you're being extremely generous with that estimate. I'd give them 2-3 years at most.
“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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Re: Parents want me to pay off their mortgage in exchange for title

Post by BH_RedRan » Thu Apr 23, 2020 7:02 pm

Regarding definition of hobby:

The general rule is that if you have not turned a profit in at least three of the prior five years, the IRS will categorize your business as a hobby. I think it is different for horse related stuff for some reason.

There is no rule about <25 people being a hobby or if you could get a W2 income for the work etc. My own business, a single member LLC is an example. I make a good profit each year, could do similar work as an employee, have to register my LLC annually to my state as a business, IRS lets me take business pass-through deduction and so on.

As to the OP's original topic:

I suggest avoiding the idea of purchasing the house. If only because family related loans and business dealings can be stressful under the best of circumstances. There is no dealing in a "business like manner" with families. There are too many emotions and relationships that make it impossible to compartmentalize. The situation described looks like it could get very messy very quickly.

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Re: Parents want me to pay off their mortgage in exchange for title

Post by bayview » Thu Apr 23, 2020 7:14 pm

I would suggest paying their monthly mortgage payments (do NOT give them a year’s worth in advance) with a clearly-defined exit date (12 months, etc.), noting that this is to keep them afloat in order to sell their house and move to something sensible.

They seem to have a massive disconnect with reality in terms of what they want (feel they need) vs. what they can handle. There is not an iota of chance that they will suddenly pull themselves together and become good Bogleheads after OP wrecks his and his family’s own financial security.

I would take care of my mom to the best of my ability. BUT:

Taking care of her does not equal propping her up in some financial fairyland. Fortunately, she was both frugal and far-sighted and has no financial worries whatsoever.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Re: Parents want me to pay off their mortgage in exchange for title

Post by JonnyDVM » Thu Apr 23, 2020 7:16 pm

learntogrow wrote:
Tue Apr 21, 2020 4:22 pm
Jack FFR1846 wrote:
Tue Apr 21, 2020 3:11 pm
You know the right answer here. Your parents need to sell the house and take what they get, wind down the hobby of a business and rent a 1 bedroom apartment.

All these shell games of they sell to you and they live there and you collect no rent is going to bite you and bite you hard.

Seems a little harsh...

If he is in a position to be able help out his parents where it’s not financially draining to him is not only a potentially nice thing to do but a really nice deal in the future for him to own a property over double what he paid
It is not harsh. OP has posted about his parents before. They are in bad financial shape with a failing business they cannot let go of. Do you really think them asking for big financial favors is going to end with buy our house and let us stay here for free? OPs parents should absolutely sell the house move to a smaller place and stop sucking their child into their own financial problems imo.
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Re: Parents want me to pay off their mortgage in exchange for title

Post by Sandi_k » Fri Apr 24, 2020 4:31 pm

We don't know if the parents are delinquent on the mortgage already. I suspect they are, and they are asking for the "sale" to their kid as a way of avoiding foreclosure.

No way would I do this, especially if I was expecting to be laid off soon.

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