Buying a House to Rent to you Parents

9 Replies

I haven't dove head first into throwing money at real estate. So far, I've only found it appropriate to learn, and look out for AFFORDABLE deals (that haven't manifest themselves yet). I make a middle class income and haven't settled in the BEST financial budgeting situation. But i have DECENT CREDIT (+750 Score). I have my own +$300k mortgage and a family I'm responsible for. Now, I've been propositioned to help my parents purchase a house because rent is raising hundreds of dollars a year at their current residence. First I panicked, then I thought this could be an opportunity. Not soon after, I began to think of all the doubts. THE RISK. If I found the right place, we could make their $7k/month income work, but what if the most unfortunate were to happen and they died. I'd be left with a mortgage I definitely could not afford.

As you can see, I haven't crunched the numbers yet, because the idea is still emotional. If anyone has any advice to clear this cloudy situation, I would be grateful. Thanks.

@John J.

Well to address your mindset I think you are missing a huge factor in your fear of RISK as you have called it.

The biggest question you you need to ask is, how many millions of dollars will I miss out on if I do not begin my investing career.  To me that is WAY more risky than handling some tenant issues.

As far as your parents as renters I think that is a BAD idea!  First off the whole reason they want to move is because rents  are going up. That is a great thing for the landlord in the market rents are increasing! So next year when rents go up again are you going to be able to jack them up on your parents or continue to subsidize their lifestyle because they cannot afford the place... 

what if the stop paying.... you gonna evict them... if you chose not to will Christmas gatherings still be the same? 

Don’t rent to your parents...  but you should find a deal that cashflows and buy it! 

Listen to the podcast that came out this week. It’s got tons of nugets in there for you. 

With 7k a month, why don't they buy their own house?

I rent to my parents, but they are somewhat deadbeats and on top of that there's some filial piety cultural stuff I have to deal with-- essentially, I rent to them knowing I am subsidizing their lives.

You can balance it out by buying a multi-unit with decent returns. That way, if they are like my parents, you won't feel like you're not earning something on your cash with the returns from other renters.

Can they not find a rental on their own? I think it is wise to consider family dynamics. I am not saying you should not do it, just saying you should be honest about who your family are and what is likely to happen (that includes being honest about who you are too), then decide if you are ok with that or not. I would have zero issue renting to a family member and would actually love to, though I am also assertive and would set it all up the right way too. I could see this ending badly for the wrong person in the wrong family.

I will say it straight out....don't do it.

Owning is more expensive than renting. Move them to a less expensive rental apartment. Having a 7K income they must be living beyond their means and should have plenty of room to down size.

Do not get involved with a home purchase. That is not investing. If they can not afford it on their own tell them they are sol.

Originally posted by @Von S. :

With 7k a month, why don't they buy their own house?

I rent to my parents, but they are somewhat deadbeats and on top of that there's some filial piety cultural stuff I have to deal with-- essentially, I rent to them knowing I am subsidizing their lives.

You can balance it out by buying a multi-unit with decent returns. That way, if they are like my parents, you won't feel like you're not earning something on your cash with the returns from other renters.

 A little history, my mother or both parents (IDK) had to file bankruptcy because they bought a $250k home back in 1999 - 2000 and refinanced themselves upside down. My parents were not financially literate or very business savvy. Now they make around 7k a month through multiple income streams. One of which is being a payee for two individuals who they support. With that said, it is my mother, father, nephew and two Adult Men (their payees) sharing an apartment. I don't think I could do the deal unless there was something coming back to MY family for the risk we'd be taking, even if it's $600 net profit a year after maintenance.

@Merritt Steinbach , I do have to do some real inventory on what I know I can handle, and what I think it's likely they can handle before I get too caught up in this type of decision. Why they can't get another rental, it may be hard to find a place that can fit the lot of them (See previous Post) and be affordable in the current Los Angeles market.

Sounds like a situation that is co dependant and results in a bad situation for all.

Maybe time for them to rethink where they live. Get them out of the LA market.

@John J.

As long as you are going in knowing that it is a gift you are giving and expecting to give more like @Von S. then I say go for it. If you believe that somehow it is a business decision and you will end up in the positive at the end, then I think you may be disappointed.

Just my thoughts and I hope it works out the best for you.

@Mike Cumbie I don't think I'm comfortable gifting hundreds of thousands of dollars worth of real estate. The only way I think me and my family would be ok with going in with something like this, is that it be a business or investment opportunity. So the likely disappointment is a frightening idea to keep me from pursuing this.

I have no other income then the paycheck I get from working. So to over-leverage myself for a gift seems unacceptable at this point in my life.

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