1st investment opportunity - rental to family?

6 Replies

Hello all, long time reader first post.

I've been looking for my first real estate property for a while, but now something came up within the family I'm considering. My grandma currently rents out a senior housing apartment, so another close family member wants to partner up and buy a condo for her to rent. Doing the math, she could cover all the costs but it wouldn't really cash flow but very little. Yes, I realize there are better deals to be made out there; but for my first investment property it seems like a pretty safe way to get my feet wet. Thoughts?

Thanks in advance,

@Daniel Smith

Unless your grandmother has been complaining to you that she hates her current apartment, can't stand the people or what have you, I would personally leave her where she is. These senior apartments are set up to make life easier for seniors. They know seniors are on fixed income so the rent price tend to be cheaper and if not, most times the amenities like gym, laundry, electricity or gas are already included in the rent. 

With a condo, you now have to worry about not only the mortgage but HOA fees separate from gas and electricity. So yea, you right, your cash flow is going to take a hit. You are just starting out, you want as much cash flow as possible. Why? Not just because you want to make profit but it's also a small buffer against Murphy's law. A plumbing issue here, a broken appliance there and soon enough you will find yourself in a hole.

Besides, have you not ever heard of not mixing family with your business? As innocent as this plan of yours is, it can quickly blow up in your face horribly if you are not careful. Pretty soon Thanksgiving and Christmas dinners don't end up the same because either you or grandma got screwed.

Find a better deal some where with complete strangers as tenants. That way, you don't mind dragging their sorry butt to court instead of sweet ole grandma.

You want to continue enjoying her tasty pies this Thanksgiving and Christmas don't you?

Plus... I would never rent to my own grandmother.  That's cold.  I'd get the family together to pay the rent for her, but @Brian Adzadi is right.  Senior homes are frankly much better.  My grandmother lived in one for years before she passed, and she loved it (we paid for it, she did not).  She had her group of friends and everything was much more convenient than if she lived on her own.  They usually have call buttons throughout the apartment in case she falls or has other issues, and professional (technically) staff that can help her in an emergency.  Don't mix business with family.  IF she really wants out of where she is, get the family to chip in together to take care of her.  She's your grandmother!  Then invest in something that will actually make money for you (to help pay for grandma's rent)

Safe for who? I totally agree with @Brian Adzadi leave grandma where she is. Most seniors that are living in retirement communities like it for the companionship they get. It's one of the few places they can find people of their own age to talk with. Aside from that, they're usually much safer than an apartment and offer more security. Do what's best for your grandma, not for your investment strategy.

Thanks for all the feedback. Maybe I should have prefaced my question with more backstory considering the more personal nature of the replies. Of course, I only have the best intentions with this for my grandma, and yes she wants out of her current unit and often talks about wishing she never sold her old house. She's not your typical "grandma", she goes out, is independent, drives to meet her friends for lunch and dinner, etc. 

Her only income is from social security and small pension, and the thought behind it is simply to use it to pay for a small condo instead of paying rent to some other person. It's not like we would be bilking her life savings here. I'm not sure I follow the reasoning of the family paying rent for her? Wouldn't it make more sense to take a small hit every month or zero cash flow, buy a condo for her, and have the SS and Pension pay the mortgage?

Also keep in mind that unless she dies suddenly, there will come a day when it is no longer safe for her to drive. Then she will be more isolated since she will not be able to drive to meet friends for lunch. It may later get to the point where it is not safe for her to live alone in your property and you are considered evil by some family members for wanting to encourage her to live somewhere where she can have help with her activities of daily living. Some family members will agree that she needs help and can’t continue her current living arrangement and it will causes you problems since some family members may expect you to take action. She would be better off living in a senior community with support around.! If her apartment is not in such a community then encourage her to move to one. Even if she moves into your place it will not erase her regrets of selling her house. That can’t be undone and is emotional for many people as they age.

Also from a financial standpoint this property will not cash flow so you will lose money if problems arise with the property such as needing a new roof, plumbing problems, etc. These issues are bound to happen.

I would suggest learning more about real estate so that you are more comfortable with becoming a landlord. Then purchase a property that will cash flow and rent to a stranger whom you screen first. This will allow you to make money in real estate while also preserving family relationships.

@Daniel Smith

After giving us the backstory, I was about to agree with you and say go ahead, until @Amy Beth put out her logic. Your grandmother is independent but does not mean she will be independent forever. Advance aging will come and her usual activities may become limited, she will start needing help and support groups. You will not be at the condo when she falls or has any kind of accident.

It would be kind of foolish to take her out of an already safe environment to a place not as accommodating to her age, something happens and you guys start thinking of ways to put her back into senior assistance facility.  Even if she wants out of her current apartment, help her get out but to another senior apartment that she may like, not a condo.

God forbid, she dies suddenly. You are now stuck with a low cash flowing property that you are going to want to sell in order to acquire a more cash flowing one.

Why not start with a great cash flowing property from the very beginning? Why put yourself in a predicament where you are going to have to restructure your investment some time later in the future?