Buying My First Property for My Parents

[night91]

Hi Guys,

Thank you for all of your help in these forums. It is very useful information. I wanted to get opinions, suggestions about my issue.

I am 3 years out of training making $180k and my wife is a 2nd year resident making $60K. We are still renting as we will move after my wife's residency is over. We are maxing out retirement accounts, have 20K in savings, about $100k @ 2.5% combined student loans remaining.

My question pertains to buying my parents a home! They are in a difficult financial position at the moment and want to move into a home. I offered to either buy them a condo. From the research I have done, I can either 1. Be a cosigner for their property 2. Make down payments on their property or 3. Buy property as an investment property and have them as tenants. My wife and I are still 2-3 years out to purchasing our own home. My questions are as follows:

1. Which option would be the best given my parents Credit score probably is not the best?

2. Who should I reach out to (CPA, lawyer, etc) and any recommendations?

3. Would buying my first property as an investment affect when I purchase my own house in 3 years?

I'm sure I have more questions but cannot think of it at the moment. But wanted to get your guys feedback. Any help would be appreciated. Thank you in advance and stay safe out there!

[CordMcNally]

The best option would be to not do what you’re thinking about doing. Why do you think they could afford to maintain a home that they can’t afford to buy? Gifting them money for a down payment is the best option of the ones you mentioned but let me be extremely clear, it’s a terrible idea. It sounds like you’ll be enabling them to continue on their path of bad financial decisions.

If you really felt the need to help them, having them qualify for a rental (apartment, home, condo, etc.) and then paying the monthly rent would probably be the best route but there’s still a lot of land mines with that option.

[jacoavlu]

They are in a difficult financial position at the moment and want to move into a home.

past matters a lot here, basically, why

it's one thing if mom worked two jobs to put you through college while dad was off fighting in the war and is now disabled because of that IED and their savings are all gone after they put your brother through rehab

or it's nothing like that, just dumb decisions

[Tim]

Rent. You can’t afford it in your current path. What you can do is add them as authorized users to your credit cards (without telling them). This will boost the credit score that allows them to rent on their own.
They need to live within their means. If a situation you feel obligated to assist for prior support or an issue, gift the money for the issue.

Do not under any circumstances participate in a purchase.
They have “needs” and “wants”. Don’t buy. No need for professional advice. You do not want to buy or be a landlord. Call them.

[abds]

I would recommend against it even if you were in a solid financial position to do it. But you’re not. So don’t make a bad decision and end up like your parents.

[Bmac]

Also, is your wife onboard with this idea? Like 110% onboard? If not, that’s another big reason to avoid doing this in addition to the ones noted above.

[drmka26]

I agree with the above that we need more info on WHY you need to buy your parents a new house. Why are they in a difficulty financial situation and why do they have a bad credit score?

I'll share my story. My family immigrated here when I was 12. My mother started working at a day-care a week after we landed. She would work overtime at every opportunity she got. My dad worked at the airport driving the go-cart between terminals. They have both been retired and now live with my brother. They spent every single penny on me and my siblings and have nothing for retirement. We are their retirement. They have zero debt and a better credit score than me. My brother's family is growing and they are outgrowing their house. I will be helping my parents/brother buy a bigger house as my brother does not earn as...much as a physician. Yes, I have $ problems like student loans, a mortgage etc etc but I didn't even think twice about helping them buy a bigger house.

You certainly don't have to tell us your reason or story. As long as you can justify it in your heart of hearts that it is the right decision.

[Tim]

I agree with the above that we need more info on WHY you need to buy your parents a new house. Why are they in a difficulty financial situation and why do they have a bad credit score?

I'll share my story. My family immigrated here when I was 12. My mother started working at a day-care a week after we landed. She would work overtime at every opportunity she got. My dad worked at the airport driving the go-cart between terminals. They have both been retired and now live with my brother. They spent every single penny on me and my siblings and have nothing for retirement. We are their retirement. They have zero debt and a better credit score than me. My brother's family is growing and they are outgrowing their house. I will be helping my parents/brother buy a bigger house as my brother does not earn as...much as a physician. Yes, I have $ problems like student loans, a mortgage etc etc but I didn't even think twice about helping them buy a bigger house.

You certainly don't have to tell us your reason or story. As long as you can justify it in your heart of hearts that it is the right decision.

I admire your parents and commend them on the excellent job the did in raising children.

[Bev]

1. I would want to see all of the financials....the whole picture...all accounts...what comes in and what goes out...
2. Before I spent a dime, I would want to be "in charge" of finances. That way you could hopefully fix the problem and come up with a plan. Obviously I don't know the whole situation, but it did not happen overnight.
3. I would involve other siblings, if possible. Everyone needs some skin in the game, not just those rich doctors who can afford anything (LOL).
4. My inclination would be to "rent" a place for them until I could figure out how to help for the long term. It will be long term. I would also want spouse on board and to realize it is for the long haul.
5. IMHO, one of the greatest gifts you can give your children is to be financially independent.

[artemis]

My thoughts:

Be a cosigner for their property

NO! NO, NO, NO! NEVER cosign a loan! You don't want to get stuck making payments on a property you don't actually own.

Make down payments on their property

This a better option than co-signing, as it limits your liability - but how will you feel if your parents lose the house later? There's a reason banks won't write them a mortgage, namely, they feel your parents are at too high a risk of default.

Buy property as an investment property and have them as tenants.

This would be the approach I would favor, as it's not pure charity. The house/condo would be yours, so you'd get at least some of the money back in the future. But I have to agree with the others: I don't think you can afford it right now. In a couple more years, yes, but not right now.

Would buying my first property as an investment affect when I purchase my own house in 3 years?

Of course it would. You might find you'd have to delay purchasing your own house for a while.

Edited: Forgot to add, I agree that you need to find out just why your parents are in such financial distress. It's one thing if they just got hit by unexpected bad fortune (job loss, medical bills, etc.), quite another if they are just bad with money. If you do decide to go ahead and either buy an investment property and let them be tenants or (God forbid) cosign a loan for them, make sure you can handle the mortgage payment completely on your own - because if your parents are bad with money, it's likely that's what you'll end up having to do.

And yes, your wife needs to be 200% on board with this.

[night91]

Thank you everyone for all of your honest responses! So a bit of background: My parents were never great with money so they have been renting for most of their lives. And I absolutely understand that this is a big risk on my part to do any of the above options. However, I just feel guilty not helping my parents out in any way I can after all they are the ones who raised me. It seems that the best option would be to buy a starter home/apartment in their name and help them whenever they need it. This can limit my liabilities and my guilt. Please let me know if anyone feels strongly against this decision. Thank you again for all of your thoughtful responses. Much appreciated!

[Anne]

Thank you everyone for all of your honest responses! So a bit of background: My parents were never great with money so they have been renting for most of their lives. And I absolutely understand that this is a big risk on my part to do any of the above options. However, I just feel guilty not helping my parents out in any way I can after all they are the ones who raised me. It seems that the best option would be to buy a starter home/apartment in their name and help them whenever they need it. This can limit my liabilities and my guilt. Please let me know if anyone feels strongly against this decision. Thank you again for all of your thoughtful responses. Much appreciated!

Why not just pay/subsidize their rent? Would be a smaller outlay right now when you are not in a great position yourself, is more flexible in the future, if the fridge or furnace breaks they will be turning to the landlord rather than to you for $ to fix it. You can see how that goes and if you can help them learn to be better with money, and then consider something like a house down the road.

[CordMcNally]

Thank you everyone for all of your honest responses! So a bit of background: My parents were never great with money so they have been renting for most of their lives. And I absolutely understand that this is a big risk on my part to do any of the above options. However, I just feel guilty not helping my parents out in any way I can after all they are the ones who raised me. It seems that the best option would be to buy a starter home/apartment in their name and help them whenever they need it. This can limit my liabilities and my guilt. Please let me know if anyone feels strongly against this decision. Thank you again for all of your thoughtful responses. Much appreciated!

It sounds like they should continue to rent. There is nothing wrong with renting.

[abds]

Thank you everyone for all of your honest responses! So a bit of background: My parents were never great with money so they have been renting for most of their lives. And I absolutely understand that this is a big risk on my part to do any of the above options. However, I just feel guilty not helping my parents out in any way I can after all they are the ones who raised me. It seems that the best option would be to buy a starter home/apartment in their name and help them whenever they need it. This can limit my liabilities and my guilt. Please let me know if anyone feels strongly against this decision. Thank you again for all of your thoughtful responses. Much appreciated!

I can't see how this is the best option. If you have to help them just pay their rent. Zero liability fr you. Fixed monthly cost for you.

[artemis]

It seems that the best option would be to buy a starter home/apartment in their name and help them whenever they need it.

No! If you buy a house or apartment for them, it should be titled in YOUR name, not theirs - and you should be 100% sure you can handle the mortgage payments even if your parents don't pay their rent. Otherwise you might as well throw your money away (because they WILL lose the house eventually, and be back in the same situation they are in now).

When you help people who are just plain bad with money, that help should come with a lot of strings attached. Otherwise you're just enabling their bad financial behavior, which is as much a favor as giving a recovering alcoholic a bottle of booze as a Christmas gift. Becoming their landlord is enough help. (And I agree that paying their rent for them is at this point in your career a better option for you than buying them a house. Save that for after you have your student loans paid off and own a house of your own.)