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Alternatives to parents selling childhood home

Posted Nov 22 2022, 01:02

My parents are on the verge of retirement (unfortunate timing) and I'm trying to think outside of the box for them with their current retirement strategy. Right now they own a 4BR/4BA home in central PA as their primary residence, which has been fully paid off, as well as owning a 4BR/3BA vacation home near Bethany Beach, DE (about 10 years into that mortgage). The vacation home is where they plan to retire, but they want to renovate it to be more livable year round vs just for summer months. Because of the amount of INSANE renovations they want to do on the vacation/retirement property (some justifiable, some over the top), they intend to sell their primary residence to pay for the renovations. To me, this is the mindset I would expect from their generation, but I wanted to present them a potential alternative and wanted to get your thoughts on how you might handle the situation...

There are likely several options they have, but the one I'm considering bringing up to them is this:

1. Make minor renovations to the primary residence (it's pretty well updated as is)

2. Cash out refinance the primary residence

3. Clean out old furniture/belongings and refurnish what's been cleared out

4. Rent as an MTR (location has 4 major hospitals in 15 min driving distance and strong MTR demand)

5. Use leftover funds to pay for renovations

There's a lot behind these steps so I'll try to summarize the numbers below:

Step 1. Maybe needs $5-10k in updates to flooring in certain rooms, bathroom upgrades, etc. 

Step 2. Conservative estimated value of $550k, so after a 75% cash-out refi would give them about $390k cash after closing (estimated 5%). With about $412k remaining on the mortgage at 7% interest, PITI would be about $3350 with $100 annual HOA fee.

Step 3. Some furniture is outdated/worn and needs replacing for MTR listing

Step 4. Based on the comps on FurnishedFinder in the area, I believe this house could rent for about $4k/month, conservatively. I would offer to manage the property for them and send them the profits to cover for the equity they lost out on by not selling. If they're not comfortable with taking on that debt I could potentially get them to "subject to" the mortgage to me. Ideally it would be cash flowing about $600/month

Step 5. The quotes they've received on their renovations have come in between $500-700k on the vacation home (a home which was purchase for $575k, so WOW, but at the same time it's appreciated almost $500k since the purchase). While the $390k from the refi doesn't cover the entire reno cost, it covers a significant portion. It should be noted they both also have 401k and other funds, for living off of but I did not take those funds into consideration here. It should also be noted that these reno quotes were taken about 1 year ago when demand was higher for contractors, so that cost could potentially come down if reassessed or concessions are made on the renovations. 

I'm sure I'm leaving out details or not considering certain things, so I wanted to share this with the community to see if there is a possibility for my sister and I to keep our childhood home within the family while still helping my parents toward a happy retirement! All alternatives welcome, I'm not beholden to my initial strategy. Thank you in advance

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JD Martin
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JD Martin
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ModeratorReplied Nov 22 2022, 02:00

Financially speaking, neither your plan nor their plan makes any real sense. There's not enough cash flow there in your plan for the amount of principal that's being locked up, and in their plan they are just blowing the money on hookers and coke, metaphorically speaking. 

That said, it sounds like they want to enjoy the financial windfall that they've managed to put together rather than do what makes the most financial sense. From that angle, you don't really have a good argument. I don't know how old they are, but it sounds like they were reasonably prudent in stocking away money at least old-school way. 

If you want to appeal to their sense of finance, I would probably focus on their age and not outliving their money. That said, it seems obvious to me that while it may not be what you want to see, selling the primary is the way to go since they're going to walk with 500k tax free and only pay  long-term capital gains tax on the 50k overage. That's assuming the 550k value is after RE and closing costs. 

What are the reasonable chances of you buying the house at a fair market value? Or buying it at a reduced value now with a balloon payment due later? That might be an alternative. But with that alternative it would probably have to make sense for you to live in it.

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Replied Nov 22 2022, 03:44
Quote from @JD Martin:

Financially speaking, neither your plan nor their plan makes any real sense. There's not enough cash flow there in your plan for the amount of principal that's being locked up, and in their plan they are just blowing the money on hookers and coke, metaphorically speaking. 

That said, it sounds like they want to enjoy the financial windfall that they've managed to put together rather than do what makes the most financial sense. From that angle, you don't really have a good argument. I don't know how old they are, but it sounds like they were reasonably prudent in stocking away money at least old-school way. 

If you want to appeal to their sense of finance, I would probably focus on their age and not outliving their money. That said, it seems obvious to me that while it may not be what you want to see, selling the primary is the way to go since they're going to walk with 500k tax free and only pay  long-term capital gains tax on the 50k overage. That's assuming the 550k value is after RE and closing costs. 

What are the reasonable chances of you buying the house at a fair market value? Or buying it at a reduced value now with a balloon payment due later? That might be an alternative. But with that alternative it would probably have to make sense for you to live in it.


Thanks for the response JD. I see what you're saying - $600 a month doesn't make up for a $160k difference (minus the 50k capital gains). I reasonably could buy and move into the house myself because my W2 is fully remote and I could afford it/potentially house hack it, but my significant other is dependent on the area we live in for her W2/schooling and this would be a 2.5 hour move to an area less advantageous to her career. Something to consider for sure though

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Eliott Elias#2 All Forums Contributor
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Eliott Elias#2 All Forums Contributor
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Replied Nov 22 2022, 07:18

Keep it in the family, owner finance it from your family or assume the mortgage and give them a lump sum in cash. Take over all payments and add the value yourself to it 

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Kang-Li Cheng
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Kang-Li Cheng
Replied Nov 23 2022, 14:28

I have been in a similar situation before. Personally I think it's a terrible idea to try to manage your parents' finances IF thats' going to lead to a lot of strain in the relationship. If your relationship with them is good and you can discuss options with them then I'd suggest a couple of things...

1) Get new quotes from contractors on the renovations, maybe that's something you should get involved in (or not!). ~600k on renovations is insane. Sorry but that's my instinctive response. Talk to your parents about paring down the wishlist while you're at it. Also where are your parents going to live while that much work is going on? 

2) You and your sister should offer a lump sum first. Then take over the mortgage, rent out the house. Room by room if you need to get higher cash flow and have time to manage. It's actually not that hard to do room by room if you screened well and look for the right kind of persons. Or just regular LTR. Send your parents the profits and then some per month. 


It's an unfortunate situation for the kids. Looks like your parents essentially planned their retirement around selling the family home, so this sounds like a tough situation on many levels, not just financially. But if you really want to save the house, appeal to their sense of nostalgia and see if they will work with you on this. Best of luck.

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Caroline Gerardo#3 Buying & Selling Real Estate Discussion Contributor
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Caroline Gerardo#3 Buying & Selling Real Estate Discussion Contributor
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Replied Nov 23 2022, 15:12

There is no "take over the mortgage" @Kang-Li Cheng no assuming the mortgage @Eliott Elias

no "subject to"

If you cannot demonstrate experience two years managing other real estate how can you honestly tell your parents who you love this is a financial plan?

Cash flow does not seem worth the risks.

If you can qualify to purchase the house and finance as a rental then they are off the hook and get the full cash value. Say they sell for $520000 you have 20% down your payment PITI will be $3462 plus any HOA (not sure where you got your payment from) Then go ahead and manage as you desire.

Other options:

Use a HELOC of $100000 on PA to fix up the Bethany Beach home. No more than that. Then when they sell pay it off and keep the savings to live off principle.

Look at a reverse mortgage for the Bethany Beach house. They are expensive but no payment, only pay tax and insurance. If one dies the other can reside there as long as they live.

Go spend a month in the winter in Bethany Beach BEFORE they decide to do anything. North-east storms aren't fun.

Before they do anything they need bigger advice about the pensions/ssi they will receive; how much $ in 401k; how much they need for the next thirty years to pay whatever they plan. If the Bethany Beach house is two story it might not be the right long term choice to spend a large amount of money. Are they thinking about an elevator and heated driveway? Are they ready for hurricanes? 

I share the instinct you want to keep the PA house and all it's holiday memories in the family. Could it be rented as is for a year without improvements just cleaning while they try out living full time in Bethany Beach? With a professional manager?

Problem is: it is easier to get a loan BEFORE they retire as income is higher.

Also my guess is reason to retire suddenly is health. How far will they be from those who can help?

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Eliott Elias#2 All Forums Contributor
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Eliott Elias#2 All Forums Contributor
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Replied Nov 23 2022, 22:04

Keep the home and let it accumulate cash flow and wealth. Cash out refi and get the cash tax free

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Replied Nov 24 2022, 11:05

@Caroline Gerardo Good suggestions. I meant take over the mortgage as in "pay it for your parents" not actually assume the mortgage. Maybe from a lender's perspective that's not a good idea but if it's in the family then I feel more ok with it.

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Replied Nov 25 2022, 06:52
Quote from @Caroline Gerardo:

There is no "take over the mortgage" @Kang-Li Cheng no assuming the mortgage

no "subject to"

If you cannot demonstrate experience two years managing other real estate how can you honestly tell your parents who you love this is a financial plan?

Cash flow does not seem worth the risks.

If you can qualify to purchase the house and finance as a rental then they are off the hook and get the full cash value. Say they sell for $520000 you have 20% down your payment PITI will be $3462 plus any HOA (not sure where you got your payment from) Then go ahead and manage as you desire.

Other options:

Use a HELOC of $100000 on PA to fix up the Bethany Beach home. No more than that. Then when they sell pay it off and keep the savings to live off principle.

Look at a reverse mortgage for the Bethany Beach house. They are expensive but no payment, only pay tax and insurance. If one dies the other can reside there as long as they live.

Go spend a month in the winter in Bethany Beach BEFORE they decide to do anything. North-east storms aren't fun.

Before they do anything they need bigger advice about the pensions/ssi they will receive; how much $ in 401k; how much they need for the next thirty years to pay whatever they plan. If the Bethany Beach house is two story it might not be the right long term choice to spend a large amount of money. Are they thinking about an elevator and heated driveway? Are they ready for hurricanes? 

I share the instinct you want to keep the PA house and all it's holiday memories in the family. Could it be rented as is for a year without improvements just cleaning while they try out living full time in Bethany Beach? With a professional manager?

Problem is: it is easier to get a loan BEFORE they retire as income is higher.

Also my guess is reason to retire suddenly is health. How far will they be from those who can help?

Hi @Caroline Gerardo,

Yes it is 3 stories in DE so elevator is a must in the reno, which I totally agree with. New windows/doors and wind resistant siding as well because it's a drafty house in the winter/storms, which I can also agree with. It's things like adding sqft to guest bedrooms that are already decent sizes and significantly changing the layout of the main floor just to add more cabinet space to the kitchen as things that I don't understand the value in accomplishing.

Ultimately, they are about 3 years from retiring. They spend about every other weekend at the house now year round, so they are familiar with the weather patterns and comfortable enough being there then. 

While their wishlist is large for the reno, I'm at least seeing if they'd consider doing some of the project in piecemeal because like @Kang-Li Cheng mentioned, they still need a place to live while the reno is ongoing, so accomplishing some of the project before they move from PA would help with that.

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Colleen F.
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Colleen F.
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Replied Nov 25 2022, 12:26

@Andrew Basom Encourage them to start with plans and bids for the Delaware house reno then when the reality cost of that reno is in front of them let them decide what to do. It is their house. You can really only decide your actions in response to theirs. The house is their nest egg.

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