To Grandmother's House We Go

[kork13]

I'll try to keep this short, but there's some background involved ... I'm mostly decided to have a part in this, just still deciding how to do it.

My paternal grandmother (now almost 98 y/o) has been living in southern Oregon for most of her adult life -- since probably 1965-1970. She's lived in her current house for last 15ish years, and though quite old, remains fairly healthy & as independent as might be possible... but even still, she does understandably needs a fair amount of assistance, especially due to her having lost a leg below the knee due to melanoma+flesh-eating bacteria. Mostly, she needs help to cook meals, do housework, and get driven around to appointments/events that she actively attends. A while back, her 2 daughters (my aunts) moved to her town to help care for her, one of them mostly living in the house with her. However, they are now done -- they basically told my dad "it's your turn". So he/they all collectively have agreed the best choice is to move my 98y/o grandmother cross-country to central Florida, where he has retired to. Fingers crossed that goes well...

In his 55+ community, the house 2 doors down from him is up for sale by the executor (daughter?) of a former resident's estate, and my dad intends to buy the (furnished) house for his mom to live in with some independence but close enough for them to care for her. The daughter is willing to sell it at a discount for $200k (vs $250k-$270k market value) if it can be a simple cash transaction.

He's got $100k in cash readily available, but doesn't want to cash out $100k from his retirement account (triggering huge taxes) to cover the rest. So this week, my dad asked me to help him but the house for her, which we're willing to do. Either as a 50% co-owner of the house, or we loan him the money & he pays us back over the next 5 years, $2k/mo (effectively a 5% interest rate).

Doing this will require us selling some taxable investments to pull together the cash. But for my grandmother, I'm happy to help. Besides, quite frankly, this may only be a somewhat temporary situation. As I've said, she's 98y/o & may not last more than a handful of years more .... Though her mother also lived to be 101y/o, and my grandmother's overall health & condition is better than my great-grandmother's was at this age. So you never know how it'll go, and we're of course happy to have her for as long as we can. Anyway, from a financial standpoint, this may not be the best possible use of $100k ... but especially if we go the co-owner route, we'd at least get the benefit of buying it below market value ... Then whenever my grandmother ultimately passes, it can become a rental property as well. Undetermined if Dad & I will collect a token rent (say, $500/mo) to not have the investment totally stagnant & getting at least a bit of an ongoing ROI while she's still living in the house.

We'll be using a real estate lawyer to handle the transaction, so we'll use his services to setup an appropriate agreement between my father & I to protect both of our interests. As I said, just not totally decided on how we want to go about it, whether as a loan or co-owner. Any thoughts/suggestions? Things to consider out incorporate?

To be clear, I'm doing one of these things -- don't bother telling me it's a bad idea (though I don't see it as a terrible mistake either). I'm going to help get my grandmother into a good situation to enjoy her remaining independence as long as feasible under the care of my father. I'm mostly just trying to decide how to go about it.

[james.hendrickson]

Kork, wait, what...did you grandmother pass away?

[kork13]

Kork, wait, what...did you grandmother pass away?

Sorry, no -- probably unclear because I accidentally hit "Post" too soon & had to edit it to add the full story. Grandma is still quite healthy as a 98y/o, besides the missing leg & associated mobility issues.

[riverwed070707]

This isn't a financial decision and I appreciate your boundary on it being non-negotiable. Few questions related to figuring out which financing option is best.

1) How's your relationship with your dad? Do you have siblings? How old is your dad? Sounds like he's in stable financial condition given he has 50% to put down in cash.
2) What's happening with grandmas current home? Are there any proceeds from that that can be put toward her new one? How are grandma's finances? Is she still covering her own expenses or does the family contribute?
3) What's the real estate and insurance situation in the part of Florida she's moving to? $200k is cheap anywhere right now - is there anticipated appreciation on the home?

Overall, I think either of these is fine, but I'd just make sure you have your legal ducks in a row and dad is clear on what your expectations are if he and/or grandma were to pass away. Have your name on the deed if you're half owner AND make sure your dad lists you as the beneficiary if something happens to him, especially if you have siblings. If grandma isn't contributing, her name doesn't go on anything - I'd even go as far as to have a lease agreement in place proving she's a tenant so there are no struggles with dad's siblings down the road. Have the attorney make you a first lien holder if you decide to lend the money instead. Have an exit plan for if dad decides he wants out at some point (whether grandma is still around or not) or can no longer take care of the property/grandma.

I don't feel like you stand to gain a substantial amount from either of these scenarios, but if landlording/real estate is part of your retirement plans, sounds like a great way to land a property you won't have to self manage for as long as dad is around and capable. If you hate the idea of being a landlord, lend the money instead, but know you're doing your fam a HUGE favor lending it at 5% -- it may not be a path you want to go down since its family, but it would be 100% equitable to lend the money at 5% AND take a cut of the equity (20-30%) when the home becomes a rental or sold.

[ua_guy]

Objectively, you're considering purchasing a rental property with a business partner who happens to also be a family member. Whether he cashes out investments, or you do, one of you is footing an unwanted tax bill. That may be leverage for some concession on the percentage of controlling interest in the property since the purchase is intended to provide housing for an elderly family member.

Or, you are considering providing a loan to someone (your father).

Subjectively, you have reached financial mastery to be able to do this for your family, and the world needs good people and a lot of creative solutions for the kinds of things that are happening as people outlive their retirement funds. Your grandmother and father are lucky to have you.

It may be that you will need to use the rental income to help your father later on. An important piece of this is understanding that the house will become yours when he passes. At least, in my opinion.

You seem to make good-natured and level-headed decisions, and going at this with a legal agreement and clear rules is the way. This is exciting! Obviously, if it were my situation, I'd go in as a business partnership, but maybe not as a loan to your father. At least as a partnership you have an asset, and it's something you can leverage as time goes on. As far as structure, is placing the home in a trust a consideration? Or maybe a business--but I'm much less familiar with doing that. At least with a trust, if your father passes, there should be no probate or other tie-ups.

[james.hendrickson]

Guys - I think its to Kork's credit that he is addressing the situation pro-actively. A lot of people worry and take no action - I do not see that happening this case. Good for you Kork.

[disneysteve]

I like and agree with the previous responses. It's great that both you and your father are in a position to make this happen one way or another.

I also want to know the financial picture for your grandmother. Does she have any assets? Does she own her home? What income does she live on? Is it just SS or does she have other resources?

I do not like the idea of lending your father 100K. It just introduces potential relationship problems. What happens in 6 months when the roof leaks and needs to be replaced? Will your dad come back asking for. more money to fix that so he doesn't have to cash out retirement funds? What will you do if for some reason he misses a monthly payment? Are you going to foreclose on your father and grandmother? Certainly not. I think going in as business partners to own the home 50/50 is cleaner from a relationship standpoint. Be sure all of the paperwork clearly states how all household expenses will be handled. That also includes deciding what grandmother's contribution will be based on her situation. And know how you are going to address all of the finances so that you both know that all bills are being paid in a timely manner.

Good for you both for doing this however it works out.

[kork13]

My grandmother's finances are modest, but not dire. I'm not privy to the details (fine with that, my dad does), but she's mostly reliant on SS + a small pension + dwindling savings (30+ yrs of retirement will do that). Enough to live on assuming no major housing/utility costs to cover, but not luxurious. She currently lives in a mobile home community, and if she has an ownership stake (unclear to me), it's only worth $25k or so.

My relationships with my dad & 2 brothers are all just fine. We're a bit distant by virtue of me being in the military & moving so often, and none of us are ones to pick up the phone for a chat. But we all get along well. Not terribly concerned about rising them getting upset by me going in on this with my dad -- neither of them have much interest in the real estate game, and I think only my middle brother might even have the financial ability to do something like this.

I appreciate everyone's perspective & advice. The more I think about it, I think I prefer the co-owner route (and I know my father does). I agree the relationship seems healthier as a partnership vs. Dad being in serious debt to his son. We definitely need to figure out how to formally structure it to protect both of us fairly, as well as how the ongoing costs of taxes, insurance, maintenance/repair, etc. will work. I didn't think about a trust, but that might be a good option to consider.... Otherwise I'd probably err toward getting it treated as a business partnership entity, probably set it up as an LLC for good measure.

ETA: Just to verify no concern from my brothers about fairness, I wrote to them asking their opinion. As expected, my youngest brother immediately said "Glad you can get a good deal out of it!" (After laughing about his financial inability to play in that ballgame -- he's still establishing himself as a career airline pilot, not yet 'making the big bucks'). I expect a similar response from my middle brother, though I'd be happy for him to join in too if desired.

[disneysteve]

The more I think about it, I think I prefer the co-owner route (and I know my father does). I agree the relationship seems healthier as a partnership vs. Dad being in serious debt to his son.

Dave Ramsey often says that when you lend money to a family member, it makes Thanksgiving dinner taste different. He's not wrong. Suddenly you see your dad buying a new car or taking a cruise and think, "Gee, if he can do that why can't he repay the loan?"