Purchasing home with parents assistance. How to best split?

Buying & Selling Real Estate
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Purchasing home with parents assistance. How to best split?

Brittany H.
Boulder, CO · Member since 2017 · 4 posts · 1 vote

Hi everyone! We need your help!

We're looking to purchase a 3 bedroom condo in Boulder, Colorado. Seeing as it's very expensive here, we've considered asking my parents to invest in this home as well, and split the ownership. In addition to 50% ownership, they'd also have their own room to stay in whenever visiting.

We've never purchased a home so go easy on me!

Here are the details:

Listing Price: $600K / 3 bed / 3 full bath condo

What I'm considering: 

Parents would cover the 25% downpayment ($150K)

My husband and I would immediately put in $60K towards renovations. We would do most of these renovations ourselves.

My husband and I would be responsible for 100% of all maintenance/repairs/renovations for the lifetime of the condo ownership. 

We would split the monthly payment (P&I, HOA, Taxes, Insurance) 60% (us) and 40% (my parents).

When we sell the property, their initial down payment investment would be repaid first,  and then we split the proceeds 50% / 50%. 

Is there a better way to structure this? I want to make sure they see this as a great investment opportunity when we present it to them, so I need all the help/recommendations we can get.

If we purchased the condo tomorrow and the value dropped $100K next week, I would want to ensure that my parents recoup their initial investment of the downpayment, but I'm not sure how to properly word that. 

Thanks in advance! 

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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y

Michael, that's ridiculous and non constructive comments. You are a real estate agent and as such prioritising advertising for the POs business above providing realistic advice.  

10Reply
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  • Kathy C.
    Raleigh, NC · Member since 2014 · 54 posts · 17 votes
    7y

    How would the selling process go if the condo lost half it’s value in the next 3-5 years? Who will cover any large assessments if the occur? It seems like you’d like to buy as a personal residence. That’s a pretty hefty portion (40%) that your parents are paying for each month for 30 years. Would they be staying two weeks or longer out of each month? What if you couldn’t handle the living arrangement. I want to toss some negatives in there that maybe you should consider. 

    0Reply
  • Kathy C.
    Raleigh, NC · Member since 2014 · 54 posts · 17 votes
    7y

    Also, why not look into one bedroom places that you can afford yourself without the risk of family coming into the deal. 

    2Reply
  • Brittany H.
    OP
    Boulder, CO · Member since 2017 · 4 posts · 1 vote
    7y

    Thanks for the input! Yes, I definitely want to consider all possible angles, including the negative! 

    We could definitely afford to buy our own place outside of Boulder. But we'd really like to stay in Boulder if at all possible and also have room for our parents to stay when they visit us. 

    Historically, Boulder's appreciation is considerably higher and much more stable than surrounding areas. The city is landlocked and unable to expand out or up due to public lands. During the recession, the Boulder market only flat-lined while much of the country tanked. So as far as ROI goes, it's MUCH better in Boulder but starting prices are also much higher. It's a "safer" bet if the market does turn down again in the near future.

    Also, if our parents assisted with the down payment, we'd be able to take our savings and put towards massive renovations, quickly adding equity to the condo. 

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I think it is a bad deal for all involved. I see it as you taking advantage of your parents and buying a property beyond your means. I can not see any reason why they would even consider taking the risk of this investment. Take your own money and buy a place you can afford.  

    8Reply
  • Brittany H.
    OP
    Boulder, CO · Member since 2017 · 4 posts · 1 vote
    7y

    Thanks for being so helpful.
    I would never take advantage of my parents nor have I ever asked them for assistance. As hopefully soon-to-be grandparents, they've inquired about investing in a property in Boulder as well as having a room to stay in in our future home. We can't afford a 3-bedroom home so I simply wanted to offer an alternative scenario where a 3rd bedroom was viable for them. 

    1Reply
  • Rocco MontanaPro Member
    Real Estate Agent · Boulder, CO · Member since 2016 · 12 posts · 13 votes
    7y

    Thomas, that's a ridiculous and non constructive comment. I am a real estate agent in Boulder, house flipper, Airbnb owner, and multifamily investor.

    Brittany, you are correct that Boulder is a "safer" bet than almost anywhere in the country and it's VERY common for parents to help thier kids/grandkids with down payment assistance ESPECIALLY in a desirable, recession resistant market like Boulder (or Austin, San Francisco, Seattle, Portland, etc)

    Brittany, are you working with a realtor or lender you trust, that is local to Boulder? If so this is a great conversation to have with them. Congrats on the upcoming kiddo! 

    0Reply
  • Kathy C.
    Raleigh, NC · Member since 2014 · 54 posts · 17 votes
    7y

    I’m sorry but I find this too risky and feel like it would over extend you. (But I also don’t know any of your financials and this is definitely more of a personal finance thread!) Look at two bedrooms and get a pull out sofa for your parents. My reasoning is because I’ve personally seen his senerio Many times with fellow friends and my Own parents who bought with their parents. Yeah, that makes for great family dinners.... And this was in healthy markets with people saying the same things. You also didn’t answer any of the financial questions I brought up. Such as who is going to pay an assessment if it occurs? What if things happen and the market goes down or you need to sell and move. Who is responsible for bringing money to the table to close? 

    So since they inquired about investing ask them to buy an investment property for themselves and only themselves that they pick. You can then ask to rent it from them. If you need to move they can charge rent on the property and no splitting Is required. This is just such a red zone whenever you involve family - from experience. How do you feel about this? They can build equity, help family and get an investment property that they can do whatever with.

    2Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Michael, that's ridiculous and non constructive comments. You are a real estate agent and as such prioritising advertising for the POs business above providing realistic advice.  

    10Reply
  • Teague Anderson
    Rental Property Investor · Boulder, CO · Member since 2017 · 36 posts · 36 votes
    7y

    My mom helped me buy my first condo in Boulder.  But she helped because she comfortably could and didn't need the investment return.  Boulder has been a strong appreciation market, but townhomes/condos had an especially strong last five years (even higher than homes), and I feel like they're due for some plateauing.  If you're buying for the long term, then that won't be a problem, but maybe don't be disappointed if it's flat for the next 2-3 years.

    These are the conditions I feel like it a would be appropriate to buy with your parents:

    - Your parents contribute the down payment, but you pay everything else (PITI, HOA, and maintenance. If you can't afford that on your own, then you should look elsewhere. Like someone else said, live within your means. A huge monthly payment starts to feel like a burden really quick.

    - Your parents share in the upside, and the downside.  Real estate is risky, and it's not realistic or probably even possible for you to make up for a large loss.  With that being said, it's not highly likely a townhome in Boulder will take a big hit.  If it does, you just need to be prepared to wait it out.

    One other piece of food for thought: That first condo I bought had a train-wreck of an HOA. Within one month of buying it, they issued a special assessment of $5k that had to be paid monthly over five years, so there went our careful budgeting. Then, as soon as that special assessment was fulfilled, they had another one for $25k due immediately. These are payments, that if you fail to pay, they can put a lien against your property.

    The lesson there is research the HOA you're buying into. Make sure they have done a reserve study and have enough reserves to manage their long-term maintenance.

    With all that being said, I freakin love living in Boulder.  My wife and I live up on Shanahan Ridge and can walk across the street to open space.  There's actually a townhome for sale right by us.  2 bed/1bath with a. 1 car garage, $489k.  Fantastic location!

    Good luck

    4Reply
  • Brittany H.
    OP
    Boulder, CO · Member since 2017 · 4 posts · 1 vote
    7y

    Thanks Kathy. So my husband and I would cover any assessment charges as well as closing costs. If for some terrible reason, we lost our jobs tomorrow and couldn't make our payment, we'd move back to Wisconsin, live in a home we own there, and rent out the condo in Boulder. My parents would take all profits from renting. 

    And thank you so much Teague for the constructive criticism! I really appreciate the suggested plan and think we could totally make that work. But if the numbers don't add up, we'll definitely just stick with something smaller we can afford on our own. We're not trying to bankrupt ourselves over a space that won't be frequently used! And thanks for the heads up on the HOA. I'll definitely dig in deeper on that to have a better idea of what we'd be getting into. Great advice.

    0Reply
  • Scott Krueger
    Investor · Sycamore, IL · Member since 2014 · 6 posts · 7 votes
    7y

    The realtor from Boulder thinks it’s a great idea to spend over half a million dollars on a house in Boulder!

    5Reply
  • Rocco MontanaPro Member
    Real Estate Agent · Boulder, CO · Member since 2016 · 12 posts · 13 votes
    7y

    I appreciate the feedback, Scott, and Thomas, my POS business sees several happy people getting parental assistance in a desirable area. I recommended Brittany speak with people she's involved with already, not pushing my services. I'm happy to provide data on the strength of the Boulder housing market now, in the past decade, through the last recession, and the positive economic indicators for the future and Happy to provide it for free. I also work with several out of state buyers from places like North Carolina, Illinois, and a several other states that don't know about the local market, they see $600k condo and move on. Average home price in Boulder is closer to $1M and condos over $500k.

    Honestly, a $600k condo, plus HOA fees is probably the same monthly total cost of a SFR around $700k and will provide a historically safer return on equity than a condo.

    As a local professional I'm happy to offer some input after 13 years living in the market Brittany is inquiring about. Being full time investor and agent for 3+ years. And I'm happy to offer a beer/coffee/lunch in person to help review the dynamic and discuss options. Not to be your realtor or push my "POS" business. 

    1Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    7y

    If your parents want to help you out with the down payment and also have a spot to stay.... that’s fine. Tons of parents help their kids purchase their first home. Don’t try and construct this as an investment. It’s going to end badly for you and your family. (Most likely)

    3Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    When my wife and I got married we saved up money for our own down payment and when my parents came to stay, they stayed for free. The thought that my parents should pay for a place to stay at my home never crossed my mind. 

    Boulder is one of the most expensive places you could buy a home. I have friends who live 20 minutes outside Boulder and it is way more affordable, as in an actual house instead of condo for less money. Condos are a bad investment. They are the first to lose value during a recession and last to recover. A bad association can destroy your condo investment.

    Positioning this as an investment opportunity is ridiculous. If your parents do this, it is 100% parental welfare for a child who can't support themselves. Or maybe you can support yourself, but want a higher level life style than your income supports. Either way it is a gift.

    To look at this objectively, ask yourself this question. Would any (non related) investor make this type of investment? If your parents are wealthy and want to do this as a gift to you, that is their choice. Just don't convince yourself it is a good investment for them.

    As far as the actual financial agreement, consider the tax ramifications. If you plan to buy this owner occupied, they can't be on the title. If they are not on the title, then this is either a loan or a gift. Loan is subject to interest rate. Gift is subject to gift taxes. When you sell the profit is taxable for your parents. IRS watches money move and asks questions. 

    6Reply
  • Scott Anderson
    Rental Property Investor · AZ · Member since 2018 · 212 posts · 183 votes
    7y

    I bought a house with an extra bedroom for guests. Guess what I think of it now after only 3 years? HUGE waste of money. I’ve got 4 couches they could sleep on. I’ve got plenty of floor space for blow up mattresses. If they want privacy they can pay for a hotel. Why do I pay for their hotel fees 365 days a year?

    A Realtor should help you buy what you want, not tell you a bad idea is good and prod you toward it. 

    1Reply
  • Rocco MontanaPro Member
    Real Estate Agent · Boulder, CO · Member since 2016 · 12 posts · 13 votes
    7y

    All points are valid in those last two posts. You can get a huge house, yard, garage, prime location, whatever you want practically, for $600k in Longmont, Broomfield, Lyons. Alternatively, having an extra room you can rent, OR AirBnB which a bedroom, in a condo, in Boulder, that I own, makes an average of $2000/month. Just food for thought. 

    IT IS NEVER THE IDEAL SITUATION TO BUY FOR APPRECIATION UNLESS YOU HAVE A CRYSTAL BALL! 

    Buy investments for cash flow. I still think Boulder is a recession resistant market, that is MY OPINION but is backed by history, finally another disclaimer..... Past results don't Guarantee future performance.

    Good luck!

    0Reply
  • Matt Millard
    Lewisville, TX · Member since 2015 · 341 posts · 264 votes
    7y

    @Scott Krueger

    Lots of them in Texas too! I comment that being 2 hours from the city & paying $400k for a starter home with 3% property tax & Texas heat isn’t worth it!

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y
    Originally posted by @Rocco Montana:

    All points are valid in those last two posts. You can get a huge house, yard, garage, prime location, whatever you want practically, for $600k in Longmont, Broomfield, Lyons. Alternatively, having an extra room you can rent, OR AirBnB which a bedroom, in a condo, in Boulder, that I own, makes an average of $2000/month. Just food for thought. 

    IT IS NEVER THE IDEAL SITUATION TO BUY FOR APPRECIATION UNLESS YOU HAVE A CRYSTAL BALL! 

    Buy investments for cash flow. I still think Boulder is a recession resistant market, that is MY OPINION but is backed by history, finally another disclaimer..... Past results don't Guarantee future performance.

    Good luck!

    What I was getting at is they can buy a $300-400K house that they can actually afford. Her parents are not going to see any cash flow, just the opposite. They will outlay $150K and it will cost them $20,000 per year. So if they hold the property 5 years and it appreciates 6% per year, it will be worth $800K. After sales expenses they get $752K from the sale. They give her parents back their $150K and split the $2K. So her parents make $1000 after five years (0.006%). 

    It gets worse because they were paying $20,000 for five years, so they have another $100,000 into the property. Of course they got to use their room when they came to visit, haha. But even taking that into account, you could stay in a $200 hotel room 500 nights for $200. They would be way better off buying their own property and AirBNB when they are not there.

    If the parents want to give their adult child an allowance or gift, that is their choice. But nobody logical is going to agree this is an investment. 

    I agree Boulder is awesome. I was never arguing against that by the way.

    2Reply
  • Matt P.
    Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    7y

    @Joe Splitrock Joe is bringing the truth to this thread lol.

    1Reply
  • Mike McDermott
    Contractor · Carmichael, CA · Member since 2014 · 19 posts · 11 votes
    7y

    Better than asking here, you and your parents should separately engage real estate attorneys to structure this arrangement since it goes far beyond a simple case of parents helping the kids with a down payment, and it is simplistic to suggest that this arrangement is just that. As far as splitting the monthly fees, I would question sharing part or all of the HOA fees since some HOA fees are for services that are not necessarily related to maintenance, repair, and replacement. Gardening, security, housekeeping, snow removal, etc come to mind. These services are of value to the occupants but of little tangible value to investors.

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    7y

    @Brittany H.  if you talk about your parents investing in the ownership that means they would expect to make money on their investment.  They could make money two ways by cash flow or appreciation.  What you propose makes no money for them on cash flow and there is no guarantee of appreciation on the property.  For this reason it isn't an investment for them.  That said if they have offered to help that is something to work out with them.  If they talked about investing in Boulder discuss what they mean by that.  Are they looking  to buy a place and Airbnb it when they aren't there?  Are they looking to buy a straight out rental?  I think it is about what their goals are.  Until you know that you don't really know if you both have a common real estate goal.

    1Reply
  • Lori Greene
    Specialist · Huntsville, UT · Member since 2015 · 458 posts · 249 votes
    7y

    It's best to keep family and friends out of investments because if things go wrong it can strain your relationship. I once invested with a friend right before the market crashed in 2008. It caused a lot of tension between us. It wasn't that he was frustrated with me and he knew it wasn't my fault but it was so stressful for us both. And I felt so guilty getting him into that situation. We both got over it but I never partnered with close friends again.

    0Reply
  • Gabe Smith
    Rental Property Investor · Beverly, MA · Member since 2019 · 5 posts · 1 vote
    7y

    I’m from Boston, so I don’t know how things run in CO necessarily, but if this is your first house and you will be living there, shouldn’t you be able to qualify for a program with a smaller down payment? Lenders I’ve spoken with only use the 25% DP for investment properties, but owner-occupied properties have a few other options. I’ve communicated primarily with people in MA, but it seems like there should be some other options for first time home buyers. Good luck!

    0Reply
  • Kathy C.
    Raleigh, NC · Member since 2014 · 54 posts · 17 votes
    7y
    Originally posted by @Gabe Smith:

    I’m from Boston, so I don’t know how things run in CO necessarily, but if this is your first house and you will be living there, shouldn’t you be able to qualify for a program with a smaller down payment? Lenders I’ve spoken with only use the 25% DP for investment properties, but owner-occupied properties have a few other options. I’ve communicated primarily with people in MA, but it seems like there should be some other options for first time home buyers. Good luck!

     I think the issue is more they can’t afford the large home they want. Three bedrooms for a baby that doesn’t exist yet and for the future possible grandparents to stay. They are putting zero down and only have 60k they want to use for Renovations. They are also expecting the parents to pay for half of the monthly expenses. Even if they found a low downpayment option that would probably still limit them to a much smaller home. I have a few younger friends that can’t seem to understand the concept of buying what you can afford. They fully expect the parents to bail the money out i for they need a quick 10-50k. The train shes taking needs to slow down and work on needs vs wants and get realistic. 

    2Reply
  • George SkidisPro Member
    Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
    7y

    You never said whether or not this would be your home / primary residence or an investment property. It sounds like you will live here.

    If you are going to move in it changes the scenario. If you are living there and have stable jobs the value of the property in the short term is less of an impact. This becomes more important over time or if the economy changes drastically. Always remember our economy is dependent on short sighted politicians concerned only with their reelection and making the other party look bad. In truth our economy is currently only one selfish House vote away from total destruction.  A similar house vote could cost you your jobs.

    You can live in fear or live your lives. As a good daughter your responsibility is to take care of your parents in their old age. Would this loan, if lost, inhibit your ability to do that?

    So as long as you have the same discussion you presented here with your parents it should be ok.

    Now comes to the legal aspects. If you or your husband are found guilty of negligence the condo could be history. Ask a real estate / estate planning attorney to draft an ownership agreement that protects each of you from each other's negligence. Mom or Dad get sued, it should protect the Condo. You or spouse get sued it should protect your interests as well. In Illinois we use Land Trusts to accomplish this. You may need a business entity to accomplish the same thing in Colorado.

    Check with my friends at ICOR, the "Investment Club of the Rockies" for other ideas. 

    0Reply
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