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Would you give money to close friends to live in same neighborhood?

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  • Would you give money to close friends to live in same neighborhood?

    We have close family friends (older husband/wife) that are essentially family (she's basically acted as a 2nd mother to my wife) who sold their previous home and are trying to move into the suburbs. As home prices have skyrocketed, they have so far been unsuccessful finding a new home and have been living with my family for several months which has actually been very beneficial for both parties (help with child care but not charging rent for instance). During this time, they've fallen in love with our neighborhood and their goal is that they want to move into the same neighborhood (~200 homes). I do not know their finances but from what they say, our neighborhood is at the top of their budget but they can still afford it. Their issue is that with the current market, homes are selling for much higher "than they should" and a few of the homes are then getting out of their price range by a relatively small amount.

    My spouse and I have had a discussion and we were debating about giving them money to allow them to get into the neighborhood. On surface level, posting this on a financial forum would likely receive a hard "no" but here are the competing ideas that are going through our heads.
    -We can afford it. We'd likely only be giving them 5-15k and it really wouldn't affect our financial future at all. While still early in my career, we have our financial ducks in a row.
    -It would be a gift, not a loan. I hate hate the idea of them owing money back as a loan so it would just be a straight gift.
    -Having them in the neighborhood walking distance would mean a lot to my wife and kids. In terms of happiness, I'd much rather spend 5k, 10k, or more to have them more in our lives in comparison to some other random home purchase. We care about this couple THAT much.
    -Am I doing them a "favor" (enabling them?) by giving them money to get in the neighborhood from a cash flow standpoint? As mentioned, I don't know their finances but they state they could afford the homes prior to the recent price surge over the past 6 months. So if some gifted money got them back to costs where the homes were selling pre-craziness, then supposedly a non issue.

    Would you do it if you were in my situation? And how much money would you be willing to give?


  • #2
    Most of the objections to gifting money to friends and family revolve around bailing out financially irresponsible ones. Personally, I think there are many cases where gifting money is not only ok, but appropriate.

    I'm going to point out a concern in another direction. Is $5 -$15K really enough. What you don't want to be doing is enabling them to buy a property that leaves them house poor. You need to consider their total costs of mortgage, taxes and maintenance.

    Aother concern, my ex-MIL was looking at buying a house about a football field away before we were even married. I was not supportive at all. Now mind you, I got along great with her and she absolutely adored me. However, do you really want your in-laws that close?

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    • #3
      My concern is enabling them to buy more house then they could afford. How are they determining their housing budget? Is it a number they calculated based on their income/debt or just what the lender is willing to let them borrow?

      You could just gift them the money no strings attached. if your gift is contingent on them buying a home near you that's too much pressure IMO.

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      • #4
        I think the issue here is that they "state" they can afford it. But do you really know that? Are they financially savvy? Seems like a recipe for disaster, to me. And if you are only gifting them 5-15k because this is the amount that it's over their budget, that makes me think even more so that they can't afford such a house.

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        • #5
          I’d expect most people would feel insulted by the gift. “You think you’re better than me? I can pay my own bills, thank you very much.”

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          • #6
            No!! Don't do it.

            It will forever change the relationship.

            There is no guarantee that you (or the older couple) will need to relocate in the future due to schools, job, divorce, health.....

            We all have to live within our means. You will enable them to purchase a home they can't afford.

            Encourage them to find a rental until they find a place they can afford.

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            • #7
              Don’t do it. Your parents are already gifting them rent/utility payments every month. Please explain in objective terms how your proposed gift amount is more than what your parents are already doing. If they can’t afford it with the gift that’s being given to them every month let them sink/swim on their own.

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              • #8
                Even the offer of money may change the relationship.

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                • #9
                  I don’t know the house prices you’re talking about, but the monthly payment on $500k vs $515k, is like $100. I would expect they would need more of gift.

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                  • #10
                    Originally posted by pierre View Post
                    I don’t know the house prices you’re talking about, but the monthly payment on $500k vs $515k, is like $100. I would expect they would need more of gift.
                    Yes. This is what I did not understand. How can 15k take you from not affording to affording a house. If they need 15k to be able to "afford" it, they shouldn't be buying it.

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                    • #11
                      Originally posted by pierre View Post
                      I don’t know the house prices you’re talking about, but the monthly payment on $500k vs $515k, is like $100. I would expect they would need more of gift.
                      Assuming it's the down payment. $10k more for down payment could potentially allow you to borrow $50-270k (20% to 3.5% down) more home.

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                      • #12
                        Originally posted by zlandar View Post

                        Assuming it's the down payment. $10k more for down payment could potentially allow you to borrow $50-270k (20% to 3.5% down) more home.
                        Well if they’re looking for a place and not paying rent they should be able to amass 10k more in little time on their own without a gift.

                        I don’t understand the magnitude either which is extremely insignificant in long term. Also the concept of “prices being more than they should be “ implies a crystal ball or that they’re going to decrease soon which seems to defy the conventional thinking.

                        hard no.

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                        • #13
                          Someone who is only $5k-$15k away from affording a certain neighborhood is likely not even close to affording the neighborhood.

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                          • #14
                            “essentially family (she's basically acted as a 2nd mother to my wife”.

                            There is a difference between “friends and family”. What bothers me the most is the underlying current of “trading”. You speak of the benefits of having them close. Your “gift” has expectations. This is an example of why family and money are really hard to separate. Unintentionally, expectations in the future are created.

                            I would really focus on your wife’s real perception of her responsibilities. Gift for some genuine need for a house 3 hrs away? Home owner’s deductible for storm damage? Heater/AC died? Heat waves and freezing temps turn these into emergencies.

                            The expectations will be as a “close” family friend, basically a second mother that as a lender of last resort you might step in.

                            It might be very appropriate financially, but the mutual benefit doesn’t sit well. A gift is no strings.

                            My spouse had an aunt that “was a second mother”. In no uncertain terms she felt full responsibility for her well being. And I got a bonus. She feels the same for her mom. It is possible to appropriate aid two mother roles.

                            Think long an hard before formally adopting a second mom. You are way past “close family friends” if you are discussing housing affordability. Regardless, make sure those expectations are dialed back if it’s truly a gift.

                            For my spouse, I had no choice. There is not a thing wrong with being generous. I doubt the second mom had expectations originally. Sharing good fortune is a nice gesture. Make up your minds. I personally feel that popping for some downpayment as a gift could be fine. No strings for this gift. You might move or whatever.

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                            • #15
                              I would be tempted to do the same thing to have close friends or family live nearby but unless you really know their financial situation, you could be helping them get into a financial mess.

                              The other issue is that you can’t predict anything in this housing market. Homes are all selling for 10-15% over asking price, ALL contingencies need to be waived or don’t even bother, they need to pay for pre-inspections out of pocket prior to every offer, expect 10-15 competing offers, some may be all cash.

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