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  • How to help parents move closer?

    I'm mid-career with stable income and only debt is our mortgage. My parents would like to move closer to us (closer to grandkids, more accurately), but probably can't afford a house nearby. The recent surge in real estate values has made this somewhat worse. What is the best way to help them? I'm more than willing to simply give them the extra money needed, but I doubt they would accept a large gift like that. If I loan them the money I believe they have to pay me a reasonable interest rate and it might affect their ability to get a mortgage. Can we create a legal arrangement in which I give them some of the money to buy a house and then recapture that same amount + increase in value when they sell? Is that still considered a loan? Would it be easier to buy a place myself and then allow them to rent it? Anyone else have similar arrangements?

  • #2
    I would purchase a home and have them pay you monthly rent.

    Look at homes that are one story (or at least a master and laundry room on the first floor) and have a garage which could eventually accommodate building an indoor ramp.

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    • #3
      tough situation.

      i'd have a glass of wine w/ your spouse and really hear them out before entering into an extended financial relationship with your parents.

      whatever you do hear i would make it a gift not a loan.

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      • #4
        they could just rent a house. renting is not a mortal sin!

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        • #5
          Originally posted by triad View Post
          they could just rent a house. renting is not a mortal sin!
          This is a "huge mental block" with some people. So large that the person will actually acknowledge that "renting" is tremendously better choice in some situations but they can't accept being a "renter".
          Renting in their mind is associated with moving and transient population that has such a negative emotion that they just cannot accept it. To them, they worked their tail off to climb the ladder and prefer moving down a rung than going to the bottom. It is not really based on numbers or logic. Just an emotional implant. Explore that with your parents. Moving is a PITA so be sure you plan on being a long term landlord is there is an aversion. The safest choice is to buy the house and rent it to them, just make sure the spouse is committed to a long term plan.

          It is the same as choosing a house with space from neighbors as opposed to a condo or hi rise, personal preference.

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          • #6
            Originally posted by Bev View Post
            I would purchase a home and have them pay you monthly rent.
            Tim is right about the resistance to renting in some people's minds. You may be able to sell them on this idea by phrasing it to indicate that by doing this they are actually helping you by increasing your net worth. The money they get from the sale of their current property can help fund their old age, and by renting from you they are helping you build your own net wealth through ownership of a second property which you can retire to later, or rent to others after they pass away.

            A lot of elderly parents won't raise a finger to help themselves, but they will jump through flaming hoops to help their kids.

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            • #7
              Originally posted by topher View Post
              I'm mid-career with stable income and only debt is our mortgage. My parents would like to move closer to us (closer to grandkids, more accurately), but probably can't afford a house nearby. The recent surge in real estate values has made this somewhat worse. What is the best way to help them? I'm more than willing to simply give them the extra money needed, but I doubt they would accept a large gift like that. If I loan them the money I believe they have to pay me a reasonable interest rate and it might affect their ability to get a mortgage. Can we create a legal arrangement in which I give them some of the money to buy a house and then recapture that same amount + increase in value when they sell? Is that still considered a loan? Would it be easier to buy a place myself and then allow them to rent it? Anyone else have similar arrangements?
              We are somewhat in a similar pickle, but fortunately for us we are in the a LCOL upper midwest area. Our solution for both privacy and good use of funds is to buy in a nearby (1.5-2 hours drive) resort town, which parents from both families can use 50% of the time, and it is under short-term rental 50% of the time (realistically that's closer to 20-30%, but that still easily covers carrying costs). We are going in 50/50 and paying cash. But the real estate market is CRAZY right now, everywhere that's even remotely desirable gets snapped up within days often above asking price.

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              • #8
                My friend bought a house and rented it to his parents for exactly this reason. His parents liked it because it freed up their cash from the sale of their home to use as they needed and they also saw it as helping their son build wealth.

                My own father recently passed away -but when he was sick and we thought he was going to get better, he agreed to move closer to one of us and planned to rent, he said he didn't want to own real estate anymore at his age. You might be surprised that your parents will like the idea.

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                • #9
                  Originally posted by artemis View Post

                  Tim is right about the resistance to renting in some people's minds. You may be able to sell them on this idea by phrasing it to indicate that by doing this they are actually helping you by increasing your net worth. The money they get from the sale of their current property can help fund their old age, and by renting from you they are helping you build your own net wealth through ownership of a second property which you can retire to later, or rent to others after they pass away.

                  A lot of elderly parents won't raise a finger to help themselves, but they will jump through flaming hoops to help their kids.
                  I hadn't thought of phrasing it this way. So true about parents wanting to help their kids.

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                  • #10
                    Originally posted by MPMD View Post
                    tough situation.

                    i'd have a glass of wine w/ your spouse and really hear them out before entering into an extended financial relationship with your parents.

                    whatever you do hear i would make it a gift not a loan.
                    Agree 100% that spouse should be a part of the decision and it should be a unanimous vote.

                    As for the rent v loan, if OP is the only child, I’m ok with a gift with the knowledge that it will eat into his/her lifetime unified credit. If the spouse has other siblings, the benefit of the loan is that it becomes an asset of the estate and the heirs don’t all get to inherit a share of it at death. Of course, the parents can stipulate in their LWTs that house goes to OP, but LWT’s can be changed and the surviving parent can remarry.
                    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                    • #11
                      Originally posted by topher View Post

                      I hadn't thought of phrasing it this way. So true about parents wanting to help their kids.
                      I've thought about this perspective for a few days. It's interesting think about. I don't have anything really to add, but it's been through provoking for sure. Thanks artemis

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                      • #12
                        We've been fortunate to have both sets of parents wanting to be near us/grandkids and fortunate enough to help with the HCOL of San Diego. We tackled in two different ways.

                        1. Bought condo and lease to parents at 50% market rate. Straight costs for them and no up front payments needed. -- Subsidized lease essentially. All upgrades split 50/50 and maintenance is ours to keep.

                        2. Sold their home and all funds into wife's name and bought single level home and kicked in 200k. Parents pay for all mortgage/insurance/upkeep fees.

                        --each arrangement factored in the parents' preference and state-of-mind on living in the space -- condo - rent/lease/own. #2 situation works in wife's name cause only child. Hindsight would have kept in parents' name and step up benefit and now locked into a 1031 situation on that home.

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                        • #13
                          Originally posted by jfoxcpacfp View Post

                          Agree 100% that spouse should be a part of the decision and it should be a unanimous vote.

                          As for the rent v loan, if OP is the only child, I’m ok with a gift with the knowledge that it will eat into his/her lifetime unified credit. If the spouse has other siblings, the benefit of the loan is that it becomes an asset of the estate and the heirs don’t all get to inherit a share of it at death. Of course, the parents can stipulate in their LWTs that house goes to OP, but LWT’s can be changed and the surviving parent can remarry.
                          This is the reason the house we keep for the MIL is in the name of my spouse. She is committed to take care of her mom in the last few years at any expense.
                          Having 6 siblings is not a path she wants to choose. We ran into this with the passing of one of her brothers with 5 years of "emotional stress" more than financial stress caring for him. She also cared for an elderly aunt (actually lived with us and was a blessing in raising 2 kids). Care giving is hardly ever "split responsibilities". If you think a rental property is "passive income", add on the care of the "tenants" and there is a huge underestimate of the responsibility.
                          "I was there all last week" seems to equate to "5 years" in siblings minds. I point this out not to put down the siblings, they simply think a parent and a house take care of themselves. At that time, educating them is perceived as a grab for inheritance. Too many unknowns. If it is your choice, do not think "partnership" or "shared responsibilities" with family will be easy. Keep the finances separate as much as possible. The only "shared" I would consider would be a "monthly contribution" to make up for a shortfall of cash. Be prepared for some to back out. Their thought is "you can afford it, we can't". Your spouse needs to be 100% on board and expect the worst.
                          It greatly impacts your judgement of other family members. Money and family typically end poorly when mixed.

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                          • #14
                            We helped with down payment and kicked in to help with mortgage payment monthly, but home in Mom's name.
                            This has a few advantages and disadvantages:
                            1. We definitely had to have the paperwork in her will to make sure the condo goes to us upon death. That is done and my siblings know/understand that we own that.
                            2. She may end up moving in with myself/siblings on a rotating basis as her health declines, so we may end up selling it soon with the market so high. Nice part, all that we have helped with will go into a promissory note and be paid to us at escrow (along with the rest of the mortgage). The capitol gains will be ta free up to $250K. She will then hand over all the $$ to us and we will file a 709 form for taxes which makes this exempt from gift tax (part of her estate).
                            3. If we keep it (don't sell), the paperwork will allow a step up in basis for us upon death.
                            4. Biggest Disadvantage: If she needs long term care, they will look back the last 5 years and come after that $$ to pay for it. Likely my siblings and I would not want my mom in a medicaid type living facility but something to keep in mind.

                            It's hard.... good luck.

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                            • #15
                              Originally posted by jfoxcpacfp View Post

                              Agree 100% that spouse should be a part of the decision and it should be a unanimous vote.

                              As for the rent v loan, if OP is the only child, I’m ok with a gift with the knowledge that it will eat into his/her lifetime unified credit. If the spouse has other siblings, the benefit of the loan is that it becomes an asset of the estate and the heirs don’t all get to inherit a share of it at death. Of course, the parents can stipulate in their LWTs that house goes to OP, but LWT’s can be changed and the surviving parent can remarry.
                              Thanks for the feedback. Spouse is definitely on board. I have 2 siblings and don't anticipate a fight over inheritance, but weird interactions happen after a death in the family. I hadn't considered that siblings may be entitled to money gifted to parents. Just to clarify, if I gift money to my parents, it would eat into the lifetime unified credit that I am able to inherit from them? I don't think we will be anywhere the current threshold, but it seems kinda backwards.

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