Buying house for family -- make sense?

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inandout
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Buying house for family -- make sense?

Postby inandout » Sat Jan 19, 2013 12:13 pm

Hello all,

I am a longtime lurker and had a question. I have been thinking a lot about buying a house for my parents and one of my siblings to live in. I am thinking about a duplex in the 200-230k range.

Some background on me: I am 26 and make around 130k per year in a career I just started. I have a 5k emergency fund, and a credit card in case I lose my job. I have a little over 160k in student loans, which I am paying off at around 4,000 per month. Hoping to be done with them by late 2015 at my current pace. I don't contribute to a 401k yet because a lot of student loans are over 7% interest, and I think my money is best put to paying those down (guaranteed return). No car payment, other expenses around 2,000 a month.

My family is not in good financial shape, and never really has been. My parents are 64 and 58. They have little to no savings, old cars always in need of repair, no house, and make around 35-40k per year combined. They currently rent a house for about 800-900 per month while living paycheck to paycheck. The 64 year old is still waiting to take social security despite my bugging. I don't think they will ever have a real retirement. They usually owe me money -- around 1,000 right now, sometimes up above 2,000. Thankfully never higher.

My sister is 30, unmarried with one child, finishing up college, and makes around 25k per year. She lives with my parents. Hopefully she will be making 40k+ when she finishes school in 2014.

We live about 10 miles apart, but in the same city. I am currently wondering if it makes sense to pay the minimum on my student loans (800 per month) and save up to buy a house for them. I have been looking at two apartment duplexes around 200-230k. My parents could live in one unit and my sister the other. Then have them pay the mortgage and taxes through rent payments. Maybe in a few years my parents could live in one and I could rent the other.

The way I see it, I would have an investment while they would have a more affordable place to live. Win win? Asking for trouble? What do you think?

Bichon Frise
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Re: Buying house for family -- make sense?

Postby Bichon Frise » Sat Jan 19, 2013 12:52 pm

Other financial faux pas aside, I think you need to ask yourself if this is worth risking your relationship with your family.
Bichon Frise

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Re: Buying house for family -- make sense?

Postby Tightwad » Sat Jan 19, 2013 2:09 pm

Are you married? Are you willing to let your family mooch off you even more than you are now?

DoingHomework
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Re: Buying house for family -- make sense?

Postby DoingHomework » Sat Jan 19, 2013 2:12 pm

Hmmm, while there are a lot of issues here, I think the biggest ones are that you are not it great financial shape yourself. I would not even consider this until your loans are paid off.

A couple of worrying statements you made:

Credit card for emergencies - no! You need an emergency fund.

They can pay the mortgage in the form of rent - no! That does not help them at all. They are already doing that except it is someone else's mortgage instead of yours.

I understand that you are feeling well off and just trying to do something nice. And it is nice. And you are better off than most people. But until you get farther ahead of the loans you are not in a position to do this.

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Re: Buying house for family -- make sense?

Postby nelson » Sat Jan 19, 2013 7:45 pm

Don't do it. They're not in the streets and they'll only resent any help you give them (at least if you try to collect). Pay off your own debts. Then once that's done, you can decide the best way to help them financially. Do not expect any kind of repayment whatever you do.

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Re: Buying house for family -- make sense?

Postby TCstr8 » Sun Jan 20, 2013 7:30 am

Huh?

A $200,000 investment property would pan out something like:

$200,000 purchase price
Down Payment: $50,000 (2 unit investment property requires 25% down)
4% Interest Rate (ball parking it)
Property Taxes = $250.00 ???
Home Owners Insurance = $150.00 ??? (would be considerably higher because it is an investment property)

Monthly payment of $1116.12

So you would be coming out of pocket with $50,000 + closing costs + escrows and you would be raising their monthly "rent" payment by $200, and taking all the risk.

Bad decision if you ask me.
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inandout
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Re: Buying house for family -- make sense?

Postby inandout » Sun Jan 20, 2013 1:00 pm

Thanks for the help, everyone. I know it's a strange move, and wanted to get some feedback. A lot of concerns raised I did not even think of. Maybe it's something to consider in four to six years when I'm in my 30s. Not now.

What's odd is that I have a lot of friends with similar student loan burdens who only pay the minimum. It makes you think that you could be doing something else with your salary, like this idea. But student loan interest is so steep -- over 1,000 a month! I'll just keep attacking those for now.

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Re: Buying house for family -- make sense?

Postby Mario » Mon Jan 21, 2013 12:54 pm

I think the question I would ask myself in your situation is if I would be willing to write off a large portion of this amount off as a gift. I can't imagine I'd take all the available legal steps to protect my investment if my family tenants saw their finances go sour and became unable to pay on time...
http://debtblag.com

Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)

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Re: Buying house for family -- make sense?

Postby Mario » Mon Jan 21, 2013 12:56 pm

inandout wrote:Thanks for the help, everyone. I know it's a strange move, and wanted to get some feedback. A lot of concerns raised I did not even think of. Maybe it's something to consider in four to six years when I'm in my 30s. Not now.

What's odd is that I have a lot of friends with similar student loan burdens who only pay the minimum. It makes you think that you could be doing something else with your salary, like this idea. But student loan interest is so steep -- over 1,000 a month! I'll just keep attacking those for now.


Maybe they're counting on forgiveness after 25 years of IBR? In theory (important to stress that word) it isn't a bad idea to stretch it out
http://debtblag.com

Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)

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Re: Buying house for family -- make sense?

Postby partgypsy1 » Tue Jan 22, 2013 8:19 am

Do you have a job or are likely to move to a job that is government or of the type where your school loans will be forgiven? Then it makes sense to pay the minimum. If not, since you have a good salary, and student loans cannot otherwise be discharged (I don't think even in bankruptcy) might as well attack those suckers.

I know exactly how you are feeling. Sometimes I get the savior complex with my family too, though I am also not in such a financial position to provide them with a free/discounted place to live. What would help them? If you were in the future able to position yourself to give them discounted housing (by buying a house with an in-law suite, saving enough to put down a downpayment on a place for them, that would give them a heavy discount (say 500/month versus 1K) where it would NOT affect you financially.
It doesn't sound like the duplex would do that for you; you would have to borrow quite a bit of money, and it doesn't actually reduce the financial burden for your parents (unless they felt it was okay to stop paying rent, since you are the landlord).
So, either get your financial house in order so in the long term, 10 years from now (when they would need it most) you are in a position to offer them discounted place to stay, or help them out by gifting them say 500-1000 a year because that's all you can afford to help them, and leave it at that.

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Re: Buying house for family -- make sense?

Postby stannius » Tue Jan 22, 2013 1:08 pm

inandout wrote:The 64 year old is still waiting to take social security despite my bugging.


Why are you bugging him/her to take SS now? The longer s/he puts it off, the larger his/her monthly payment will grow. Is s/he in below average health for his/her age? Are they going into more and more debt every month, that a little extra from SS would prevent?

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frugalcoconut
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Re: Buying house for family -- make sense?

Postby frugalcoconut » Tue Jan 22, 2013 5:01 pm

Since you just started your career, I think that it would be good to concentrate on your own financial situation first. Beef up the emergency fund ... 5K wouldn't cover you for very long. You may want to save up in target accounts for other specific goals ... future vehicle purchase (in cash, not financed) or vacation (for just you, for you+family, or both) or your own house fund. With such a high salary (i.e. high tax bracket), you may actually get a decent return in tax savings + free employer match money by contributing just enough to max the employer match in your 401k which might make it worthwhile to do so despite the high interest rate on your student loans ... I'd be curious to know how your employer structures their match and whether there are any decent fund choices (e.g. with low expense ratios).

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Re: Buying house for family -- make sense?

Postby Mario » Wed Jan 23, 2013 12:33 pm

frugalcoconut wrote:Since you just started your career, I think that it would be good to concentrate on your own financial situation first. Beef up the emergency fund ... 5K wouldn't cover you for very long. You may want to save up in target accounts for other specific goals ... future vehicle purchase (in cash, not financed) or vacation (for just you, for you+family, or both) or your own house fund. With such a high salary (i.e. high tax bracket), you may actually get a decent return in tax savings + free employer match money by contributing just enough to max the employer match in your 401k which might make it worthwhile to do so despite the high interest rate on your student loans ... I'd be curious to know how your employer structures their match and whether there are any decent fund choices (e.g. with low expense ratios).


Not to mention that you may want to change fields... or go back to school for another degree... or start your own business in your current field.

Not that I'm saying you plan to do all these things, but you'd certainly have less flexibility to do them without hurting yourself financially.

I have some experiences with the latter..
http://debtblag.com

Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)

inandout
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Re: Buying house for family -- make sense?

Postby inandout » Sat Jan 26, 2013 10:46 pm

Thanks for your comments again.

My employer doesn't match our contributions. No idea why, but it was pretty common in my industry to get rid of the match during the recession. I haven't opened a 401k account because I'm focusing on student loans with 8% interest. I figure my return there is guaranteed and about equal to what I'd get in an index fund.

My e-fund is small I know, but I have been working for only four months. Since we got an 8% raise a few weeks ago, I'm feeling good about job security for now. I'm going to try to increase it $250 per month.

Unlikely I'll go back to school because I've just finished seven straight years, and I will be paying that off until at least 2016.

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Re: Buying house for family -- make sense?

Postby Paolo » Mon Jan 28, 2013 9:48 am

I'm actually in a similar situation myself - same age, parents too old to get a mortgage on their own and it makes sense to buy a property and have them pay the mortgage rather than rent from someone else.

It makes financial sense, as long as you can count on them to pay for living there.


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