I was hoping you pros out there might be able to give me a strategy that would help my mom stay in her house.
She owns the house free and clear but the house is very big, the RE taxes are high, the upkeep is high (inground pool) and the value of the house (approx 500k) is the bulk of her net worth. She is also living alone and is 60 years old.
She does not want to sell, but she doesn't really have enough cash to live on for the rest of her life without selling. Her plan is to sell the house and buy a condo which won't have the upkeep or all the yardwork.
Should she look in to a reverse mortgage? Are there any other cost effective options she might have to use the equity in the house to support her living there?
She won't be eligible for a reverse mortgage until she is 62. She could put the kids on title and then you can look for a small cash out loan, say 100K with all of you on the note. She can use the loan to make the payments and live on, but be careful not to blow it.
Then at 62, she can do a reverse mortgage and it will payoff the existing mortgage. When you shop for the cash out loan, tell the lender of your plan. Good luck
Her plan to sell seems sound. Why would she want to stay I'm a big, expensive-to-maintain house? Selling and putting the money into annuities would give her income for life and less worries about maintenance. If she moves into a community of people with similar situations, she will have a bunch of new friends. As she ages, at some point she will likely have to move into a different living situation. My grandma is now 92 and we moved her from her house to an independent living community about 10 years ago and it was a very positive change.
Now, if you and your siblings want the house, you should look at buying it from her. That would give you the house and her the money.
What is the yearly cost of the pool? Water, utilities, care? Have you considered having it demolished? To do that here (Arizona) costs about $5k depending on the situation. You may, depending on local and state laws, simply have several drainage holes drilled in it and filled in.
I strongly suggest not getting a condo. A condo may be not expensive to purchase, and does not have the (personal) responsibility for yardwork or upkeep, but has many many other problems, including people above, below, and on each side, possibly making lotsa noise.
Read the hoa site here to get an idea of a few of the problems faced by condo owners.
They do include high, and increasing yearly, dues, lack of maintenance of buildings and property, problems with plumbing from a neighboring unit damaging yours and the board resisting and denying any responsibility, owners not paying dues so there is no money for repairs, so her dues will go higher to make up for the lack, and many others.
google terms like condos and problems, hoa owner problems, problems with hoas, etc.
The purchase of many condos is pretty low. The cost of living in them is not necessarily, and condos are often harder to sell because of all the problems.
Though I would also suggest that she NOT buy into an hoa, with single family houses, a smaller single family house would, in my opinion, be much better for her. Hiring someone to do yardwork as needed for a smaller place may be do-able, and may not be needed every week or every month. If she needs to hire a housekeeper, maybe that will not be so much with a smaller place, either.
Maybe simply economizing on things will help.
Is she eligible for any local tax breaks due to age or marital status or health? Here, widowed and disabled get (small) tax breaks. If low income, some utility companies offer lower rates. Of course, these would be availale if she were in a smaller house, too.
A few last words on condo associations and home owner associations/any kind of association: they are CORPORATIONS. She would never own the property, would always have to follow rules set up by others, and pay them to police and enforce rules probably already paid for in her taxes. If she misses paying dues, they can lien the property and huge problems can follow, including foreclosure.
Look into it carefully.
I am glad to have found this question. Unfortunately, my family will be facing this situation in the near future with my mother-in-law. I am looking forward to reading all of the advice.
I think a condo might be a possibility for our family. In this area, some condos are set up more like town homes so people living on all sides would not be an issue. Sure there are disadvantages, but they must be weighed against the individual purchaser's situation. However, it is very important to educate yourself about the HOA and condo rules to make sure you are ok with the rules and regulations. In the end, the condo may provide some security to have other people living in the complex and an opportunity for socializing.
On that note, independent living would also be a great alternative if there were places where younger individuals lived. These communities are set up for 55 and older individuals, but my experience is that the average age is closer to 75 - 80 in my mother-in-law's area.
She really likes the idea of a 55+ community. There's one in Florida that she loves, but she doesn't want to move away from my brother and I (Massachusetts). I'm also considering the idea of finding a smaller, distressed property in her town that she can pick up cheap, doing a live-in flip for 2+ years and then maybe she'd be ready to move to Florida
Ahh, that's a tough one. Your mother is definitely not the only one dealing with these kind of conundrums. To be honest, reverse mortgages bring a certain degree of negatives to the equation (the bank usually makes a profit on it at the owner's expense). Has she considered making some minor renovations and renting out her basement as a suite? That could cover a large portion of the property taxes.
I have a suggestion that would produce a good ROI and allow your mom to have a nice income every month. However, it would take some hard work and due dilligance would be needed to make sure the numbers work!
If it were my mother, I would take out an equity loan and separate the home into apartment rentals. This would require some work but the payoff could be worth it - I would personally do it if the numbers looked promising :) Good luck, I look forward to seeing what you end up deciding ! :D
more out of the box thinking: Can the pool be rented/leased to a local group who would be responsible for holding insurances and all upkeep? Maybe even a nearby apartment housing owner as an incentive for people to rent his apartments? A local private club, social or church group? A local shool or college, for sports training? A local hospital or community older folks/senior citizens as a place for their clients to exercise or do rehab of various kinds?
Sounds silly, I'm sure, but who knows? It may be easier/ much less expensive to lease a place like that than build one.
Welome to the BP retirement and financial planning site!
Sounds to me like your mother, at the ripe old age of 60 DOES NOT WANT TO MOVE but would like to HAVE MORE MONEY.
Now we have mom moving and a richer mom who will get hit with gains from the sale!
Depends on what the underlying motives are here.
If mom does not want to stay there, seller finance it, that gives her an income and cash to move on. At 60 she would probably have a better deal taking the annuity income from a sale than a reverse mortgage, the only positive to the RM is that she stays in the home, she has to stay in the home.
Putting mom in a low priced home sounds like a way to put her in something cheap and keep the money available for all kinds of purposes, like helping the kids. She would have more maintenance on some dump.
Unless mom is disabled or has been declared incompetent and is not on her death bed, she is probably capable of figuring out her own future. Sounds like someone thinks 60 is old.
My dad is 84, still does real estate deals, mows his own yard, cleans out the gutters (when I don't know when he does it) maintains his own home and drives to St. Louis for the weekend with his LADY FRIEND! You might wait awhile to sell that house!
She, IMO, should consider the annuity income.
And she could also just rent. She could also rent out part of the house as mentioned for some extra money, but I sure wood screen that tenant!!!
DT,
This question is more complex than it appears to be on the surface. Ultimately, the appropriate question is, "What is your mother trying to achieve?". Then you can answer the question appropriately. Based on the quote below, it sounds like she really wants to stay and the real problem is not enough money to pay for the house.
There are many options for this situation and I definitely think you are smart for brainstorming with us for ideas.
Here are my thoughts....
The first question I would have is how much does she need to stay in the house if that is what she really wants to do? If the taxes, upkeep, and a little spending money add up to 15K a year, just an example, she may be able to draw some of the equity and find a conservative investment that will return her what she needs. For example, if she draws out 200K and finds an investment returning 10% annually, she will have the 15K she needs plus 5K to play with. In this market it shouldn't be too hard to find a 10% return; however, I urge you to be very careful who you get in bed with.
If you want to get real aggressive...maybe you take 200K and start flipping homes and go for a much higher return 20-30%. This will involve more skill obviously; however, when you have money you can get a lot of real estate investing done.
(***My caviat...IF YOU DON'T KNOW WHAT YOU ARE DOING YOU CAN ALSO LOSE A LOT OF MONEY TOO...SO I AM ONLY ADVISING THIS IF YOU HAVE SOME KNOWLEDGE OR EXPERIENCE. I'd really hate to see you guys get hurt over this)
Your mom is still very young at 60 and can still do a lot of real estate in the next 20+ years.
Another big question I would have is what would her desire be in the next 5 years? 10 Years? Will she eventually sell to be closer to family? If so, then you have to start looking at all the factors like....will interest rates be going up in the next 5-10 years? No one can answer this with certainty (if they say they can...they're lying); however, most arrows point to YES....
So now you will be selling an EXPENSIVE HOME down the road when money will be more expensive....which might equal less buyers or a forced reduction in price.
Right now interest rates are LOW LOW LOW...so that should help her decision on wether to sell now or not.
She can sell the property with some money down and create a note which will give her some income for some time (one of my personal favorites)...again, not something that should be done without professional help. This may provide a greater return than a CD, Money Market fund, or Annuity.
I am in agreement with Jon in that why would you want all that headache if it's just you; however, I also know that telling a MOTHER to sell her house and memories in the house etc. is a very very difficult thing to do.
Bottom line is you have to sit down and ask her in a perfect case scenario what would you like? Then get to work solving the problem of how to get her exacty that.
Make sure she makes the decision armed with the proper knowledge...my mother was in a similar situation not too long ago and my brother told her to sell and buy something smaller...etc. She did what he told her and years later, as she got even older :), she wishes she had kept it for cashflow and kinda sorta blames my brother for "telling" her to sell it. LOL...my poor brother! It comes up from time to time at reunions :)
Little did she know her youngest, and by far favorite son ;), would grow up to be a professional RE Investor. Today I would have given her completely different advice...oh well.
Lastly, as for the condo deal....the Golden Girls seem happy. My wife makes me watch that every night...oh what I do in the name of love.
I am so sorry for the long post, but as I told you...it's more complex than it seems. I hope I have given you food for thought!
I've been thinking a lot about the idea of a seller financing her house for a couple reasons.
One is the steady income stream of course. The other is that there's lots of new construction near her and her home was built in the 70's. Her master bedroom and master bath are much smaller than today's buyer wants and I think it could really hurt her ability to sell for top dollar. Her plus is that she has pretty much the best lot within a couple mile radius. Set back, cul-de-sac, private with woods and up against a golf course. All the new construction homes are very nice, but they are all McMansions on top of one another.
I think she could command a better price of she financed it, especially with the stringent lending criteria happening right now.
Seller financing should not be viewed as adding value, because it does not, especially in that price range. It also braodens the market for more potential buyers. The advantage is that you defer the gains from the sale and your equity is earning a higher rate than you would probably get on a similar investment. It is a great annuity income for retirement.
Man....this is more a phone call answer than a forum post (because there is so much to it) but I'll do my best....
The RIGHT answer is going to ensure that your decision is strategic in accomplishing a specific goal.
POINT - Most of the people buying the "McMansions" do not have a problem qualifying.....
FinanceExaminer is right in that OF will only broaden your buyer pool and YOU are right too in that going OF will allow you to get more...mostly because you are demanding a premium for offering a buyer something they can't get unless they go this route.
When you start playing in the Owner Finance world (which is one of my specialties) you may not draw A+ candidates... the "steady streem of income" may not always be as "steady" as we would all like. Make sure if you go this route you get a really really qualified candidate...especially in that price range.
Also, I would recommend that you pull equity out and sell on a wrap in second position....don't jeapordize all your mom's equity with someone who has possibly proven they are not bank lendable....
Be prepared to make payments on the first if your buyer fails to make payments to you...this will aoid the first foreclosing on the property...again...put you guys in a bad situation...
Use a small local bank and let them know about the wrap and get approval....because if you wrap and the underlying bank finds out and freaks...they may call your note due....oh and if you sell it...it's no longer yours so you can't refi it if you don't own it.
Lots to consider....but I can't stress enough that the decision has to be made to accomplish a specific end in mind.
I really hope that made sense. If not...ummmm...sorry!
You can always tell a preditory type seller finance type when they want a premium price for offering financing. It absolutely under no circumsatnces what so ever adds value to the real estate and you will find that out when they have to refinance and the appraiser doesn't say..."oh, this was seller financed, let me add value to taht deal"! That has never happened my any registered appraiser. Seller financing is exactly as I said. I'm not going to argue, but I don't allow people to be mislead.
You won't ever see me saying, contact me for more details or this should be done on the phone. Consider the motives on any site when you're getting advice. IMO, marketing a service does not belong in a thread where someone is seeking advice.
Mark, nothing personal, I see it's your 6th post here, we just frown on slef promotion while giving opinions or advice, especially the under the radar type. Everything can be discussed in the forums. Good luck
Sorry, I just get my dander up when information is given out with a marketing spin
Lots of interesting suggestions here on how mom might become a real estate investor. Is that something mom wants to do? Perhaps, but I'd guess she does not.
Nevertheless, there's a underlying point. Mom is in a weak position financially. She's 60, which is quite young. She is likely to live into her 80's, possibly into her 90's. That's 30 plus years. You say the bulk of her net worth is this $500k house. If she had this in liquid form, the 4% rule of thumb would apply. That is, she can spend 4% of her assets per year and not run out of money. That's an annual income of $20,000. A $500k life annuity would currently give her closer to $30,000 a year. At some point maybe she can also collect social security. She needs to adjust her living situation to live on that income.
Or, she needs a job. I'm assuming she doesn't have one, but there's no basis for that assumption. If she does have income, shes in a better position. If she doesn't, then it may be disheartening to suggest she get one. But the choice might be to get a job, be supported by you and your siblings, or live on $20-30k. The reality is that if this house is her only asset, she's not very well prepared for retirement.
Without better understanding her situation and goals it's impossible to give good advice. But based on what you've said staying in this house seems difficult.
No offense taken and I completely understand what you mean; however, I must point out that I never asked anyone to call me or "self promoted". I simply stated that this is not an easy answer and there are a lot of things to be discussed to arrive at the right answer. It's hard to give a legitimate answer buy just seeing a little forum post here and there. What I meant is it's a long answer (and quite frankly I don't type that fast)
Remember, he asked for advice from the PROFESSIONALS...so I feel it's important to give PROFESSIONAL advice.
As for the 6 posts thing....well, I am new to BP; however I have been posting on forums for years....just not this one. I started investing in 99 and have A LOT of experience to share with newbie and seasoned alike. Trust me...there isn't anyone out there thay knows everything. I know a lot of the "big guys" personally and they are usually very good a one thing and have some knowledge about other things.
So, FinanceExaminer, I understand what you meant in your post and that you are just being protective of the community which is a GREAT thing....but no self promotion here. Just trying to offer great advice that will help the readers.
Let's just make sure we don't try to kill the good guys either by being a little too accusatory.
Amigos?....Amigos!
Mark
P.S. Please reread my post...I never stated to over value the property in any way (which is what you are alluding to)...as a matter of fact that is not the right thing to do and will usually just bite you in the end...because they can't refi for what they owe you when that time comes (potentially). What I meant by a premium is like DT stated...he could get top dollar. He is absolutely correct. I sell homes every month in a soft market and because they are OF I can get market value and I don't have to discount my product. BUT I DON'T RECOMMEND overinflating the price of your home just because there will not be a bank involved with OF therefore no appraisal. I don't believe that is ethical, but that's me.
Okay, great, being a professional is more than wearing a suit and saying one is, the content of your advice will be judged harder if you are preceived to be an expert and even harder if you claim to be one. I see you say you began in 99, I started about twenty years ahead of you but you might see where I am comming from if you review my profile and work history. It really ticks off many here and I do come accross as being egotistical sometimes, but I have good reason to be. LOL! Good luck..
