What would you do?...Grandparent's House

Question

Hi All,

My grandparents are both retired and owe about $36,063 on their current house. As you might imagine their monthly note is only about $600. It will sell for no less than about $200k. I am looking for advice on the best ways (creative) to help my grandparents move into a new house. I figure with all of these creative ways to make money in real estate investing, I need to also be able to use it to help when buying primary residences as well. Some of my thoughts are as follows:

-I buy their next house and rent out the current one and they just rent it from me.
-They take out a Line of Credit to help with bills,etc - and then pay off the house...then rent it out.
-They deed the house to me (what's the best way to do this to avoid unnecessary taxes) and then I rent it out and they can look for their new house.

Your help & advice is greatly appreciated!

God Bless,

Tyra

Clyde Massengale · Answer

X-2
sure there might be someother creative solutions but without knowing all the details its hard to say what is the right solution.

Tyra General · Answer

To answer your questions:
We are not sure yet what their house would rent for. I have spoken to the realtor and will get these numbers soon. 
The $600 includes the taxes/insurance. 
They haven't found their new house as of yet.
They only wanted to pay off about $13,000 (vehicle)

Selling their old house and buying a new one is easier said than done in this market (DC Metro). This is by no means to suggest that it can't happen. However, the way the market is they may be better off renting it and holding on to it until they can get what the house is really worth. They can use the rental income to pay for their new mortgage. Me buying the house would just be an option if it was harder for them to get qualified for their new home. They have a lot of equity and so it could make sense for them to take out a line of credit it they wanted to...they were preparing to refinance (payments smaller) however there is no need to pay closing costs twice if they are ready to move within the next 6 months to a year. If there were more benefits to me owning the home than them, it may make more sense for me to own the home and just give them the rental income.
OGStilts, I and/or other family members will help them take care of any things that come up with the property. The plan is to do thorough research so we can help to avoid the problems that can come along with rental properties.

Thanks again for the feedback.

Jon Holdman · Answer

Why don't they just sell their old house, and use the proceeds to buy a new one?  Their house is worth what a willing buyer will pay.  Yes, it may have been worth much more a few years ago.  It might be worth that amount a few years from now.  Its more likely, in my opinion that, at best, it will be worth what its worth now a few years from now.  It may be worth even less.  It may be 10 years before its again worth what it was worth at the peak.

Further, you say they want to buy a new house  When you're buying and selling in the same market, you may take a hit on the sale side, but you're get a bonus on the buy side.  If rents are as out of whack there as they are in other places, it may be better just to rent.  Or buy something inexpensive they can fully pay for with the proceeds of the sale?

Jon

Chad B. · Answer

Good to hear your intentions are in the right place. I tend to agree with Eric here you should apply the K.I.S.S. method on this one. I still think my biggest concern with the rental approach (besides needing more information to see if the numbers would even work) can they afford to withstand some of the bad months that could come with a rental property. For example what if the rental were to sit empty for a month or two. What if the houses needed a major repair? These issues can usually be dealt with by a smart long term investor but I tend to think most retired elderly people are set on a strict monthly budget and a major pitful like the ones a rental can bring can really hurt them.

Good Luck.

Eric Foster · Answer

Tyra,

There are some missing variables that are needed to give you the best answers…

What would their $200,000 house rent for?
Does the payment of $600 include the taxes and insurance?
How much is their new house?
How much debt do they want to pay off?

What I meant by my comment of “Why take something so easy and make it so complicated?”… I guess I am not understanding why they don’t just sell the old house, buy a new one, and pay off their debts?... I am not understanding the benefit for renting the one house, you buying the next, taking out a credit line, deeding the old house to you…All that stuff was what I felt was complicating it…

More details would be helpful…

Tyra General · Answer

Thanks mitchnfreed & OGStilts. To answer some of your questions. I have nothing but the right intentions. I have no desire whatsoever to rip my grandparents off. I am in the works of scheduling meetings with a couple of financial advisors for us to figure out all the numbers and make the best decision possible. I've already spoken to a realtor who has been on standby for a couple of months and we have spoken about the best options. A LO might work, but we'll see once we look at all of the numbers and how much they would qualify for on their own.
My family is on board because they know I want what's best for my grandparents. If they were to rent the house, they would receive the rental income and use it to pay for their new house/retirement community residence. 
My reason for asking is that I don't want them throwing money away and figured other real estate investors may be able to chime in to help me consider some options that I may not have thought about. No ill intentions here at all. But thanks for standing up to the plate to at least state the ethical decision...some people need that.
EricFoster...it seems as if you may have had an experience with a situation like this or at least deem it to be very easy...so please offer your opinion. I don't see this as so simple and making it so complicated....which is my reason for asking for advice. I'm not an expert, but I do know how to ask questions. Please help me see where it is so simple....I'm listening.

God Bless!

Chad B. · Answer

I hope your intentions are good with this. By this I mean I hope you are truly helping your Grandparents and not taking advantage of them and trying to transfer their equity into your name. I don't say this to accuse you of doing this but because this recently happened to my own Grandmother by a trusted relative. We caught it but not before they helped themselves to about $200k she had in three homes. I won't get into all the details but it has destoyed a large portion of our extended family. If we hadn't caught it when we did she could of been left to live in a state assisted nursing home which are not good places to live.

If your intentions are good and you are just trying to secure your Grandparents future I commend you. I also would recommend you discuss any plans you have with any other relatives that would be interested in your Grandparents well being. Otherwise your relatives may get the wrong idea about your dealings and make your life very difficult in the future when you have some explaining to do.

As far as your question goes, I think your Grandparents might be best served seeking the advice of a financial advisor. Depending on their health it might not be in their best interest to be living in a house for the long term so why should they go out and buy a new house. They might be best served selling that house and taking that equity and investing it in a safer more liquid investment with the rest of their savings and getting into a retirement community or even an assissted living facility possibly in the near future. I don't think Real Estate is a good investment for the elderly as it is not very liquid and is a bit more of roller coaster than other investments especially if you don't know what you are doing. CD's and Bonds aren't as sexy as real estate but a good financial advisor can make your Grandparents savings last the rest of their life.

Hope I have helped by telling you about this little experience in my life and I wish your Grandparents a long healthy and enjoyable life.

Mitch Freed · Answer

Haha...agreed.

Mitch Freed · Answer

I like the first option.  Buy their next home and rent out the current.  Generate a cash flow from the current house...you didn't mention the size but it sounds like the monthly rent would cover the PITI.  Who would receive the rental income...you or your grandparents?  Or would you manage the rental and charge a small fee?

However, instead of them renting from you on the new house, you set up a lease option.  That way they have an equitable interest in the home and don't have to worry about getting financing until a year or 2 years from now...depending on the terms of the agreement.  You set the purchase price of the home at the inception of the agreement.

That is one option.  your thoughts?

Eric Foster · Answer

My thoughts are… Why take something so easy and make it so complicated?