Aging Parents: Multigenerational Home or Get'em A Small Ranch?

Question

Fortunately, I actually like my parents. I'd actually enjoy having them live downstairs in the finished basement apartment —if I only had one.

My parents live 7 minutes from me in a rental house. They're at an age where they need a little more support —mostly financially. Plus, it's silly to see them pay someone else's mortgage, especially now that the landlady is raising rent. How can I turn this situation into a wise investment for both me and my parents?

I'm looking at 2 options:

OPTION A: Purchase a larger home with a full basement "apartment." Ideally, they'd have their own space attached to my home, their own kitchen, etc.

Pros:

* They'd pay me rent and we'd share some expenses
* I can count them as dependents for tax purposes
* they'd always be available to babysit/dogsit/housesit when I'm away and I'd always be there for them if they need me-especially as they get older

Con:

* I'd have to buy a larger home and assume a larger mortgage in a good school district. While their rent would help pay the mortgage, what happens if I lose my job or they pass away? (Let's assume they don't have life insurance.)

OPTION B:

Buy them a modest little ranch house and have them pay me rent. They already live in a rental very close to me. The only difference is they'd be paying ME rent and we could control the cost for what works for us.

Pros:

* They still have the dignity of their own space.
* We'd be keeping money in the family (as an investment property) instead of them paying someone else.
* I could take advantage of the Family Opportunity Mortgage authorized by Fannie Mae and Freddie Mac and get lower interest rate and down payment.

Cons:

* It's another house: separate utilities, things that break, liabilities, etc.* We would have not have the benefit of basically living together (looking out for each other, etc.)

So.. Can anyone with more experience than me in Real Estate Investment offer an opinion:

What's riskier? Taking on a larger mortgage with one multi-generational home or buying a separate house where they can be tenants in an eventual investment home?

Thanks to all the smart people sharing their experience here. :)

April L. · Answer

As for Option 3:

I've thought about adding on to my current house. But decided that it would be more trouble.

I live in an HOA swim / tennis community. While, I do have a fairly decent backyard, I think they they rules about adding guest suites.

I could add an additional bed / bath and share a kitchen, but I don't think that's a good option for us. My parents are still in good shape and they like their space.

Thank you

@Scott Mac and @Anna Watkins

Joseph Firmin · Answer

Hi @April Lentini! You asked for opinions here, so at the end of the day it is really a gut call on your part as both have merits. From your post, it sounds like you'd rather have the basement/attached dwelling unit option. As a parent and investor, I can understand it completely and that' the option I'd choose for life-simplicity and peace. The liabilities will still be there in a basement and additional appliances, etc., but being under the same roof and property minimizes other expenses like taxes, overall maintenance and... babysitters. :) There are ways to minimize the mortgage payment if that is a major hangup of yours. I'd consider looking into a 1st lien position HELOC instead of a traditional mortgage. I'd be happy to explain more, but it is a great strategy if you have equity and positive cash flow each month. Check out Replace Your Mortgage. Happy to help!

Matt Devincenzo · Answer

Builders are considering this. Lennar has an entire subdivision here in San Diego that is being constructed with SFR and ADUs standard, and I believe has plans to roll them out nationwide. The HOA will dictate no AirBNB/short term and residents can choose multi-gen housing or to rent to a long term tenant to supplement income. So maybe take a bit more time to look in your area...Lennar is national so they may be doing the same near you...maybe not based on the market, but it can't hurt to investigate a bit more.

As far as how to decide this now...your options are presented in light of them 'paying rent', which is fine IMO. But as far as the decision process goes I'd ignore it. Meaning let's pretend tomorrow your parent(s) broke a hip, lost their job and HAD to move in with you. Would 'rent' be a consideration? Of course not; but that is the unspoken situation you're in some way trying to avoid or mitigate (which is a good thing). If that were to occur you would be forced to deal with it ASAP and not necessarily be able to choose the best option.

So back to reality; what is the best option that you could choose and would be viable without them paying rent and with them needing local specific care from you? I think it is them living with you downstairs etc. You're for sure taking an additional financial risk if you were to lose your job, but that is the same risk we all take every day with many purchase decisions. So choose wisely, and do the best you can to prepare. If you do that and they pay some rent to offset costs that's great, and if something happens outside of your control at least you're all in it together.

Brad Hammond · Answer

I would see what they want.  I've been thinking about the same thing but I know my dad would never want to live in the same area as me.  He is a farm boy and I live in the city.

Scott Mac · Answer

Hi April,

What about option 3?

A ground level (slab) addition, separate bedroom, living room and elder friendly bath.

Then share the kitchen and dining room.

You could make the doorways and bath ADA compliant for wheelchairs, and ground level because elders sometimes have issues with stairs.

Then when you sell, demo the interior walls and make it into a nice patio.

Basically build a patio and convert it into a demi-apartment with easily removable walls.

Good Luck!

Anna Watkins · Answer

@April Lentini - it's not clear from your post whether you have addition/remodeling options at your current house. Is there room (and zoning) for an ADU or in-law suite?  That might bring you the best of both other options.

Joseph Firmin · Answer

Agree @April Lentini, multi-generational housing is in short supply. There are agents out there that understand what a "house hack" is and can look for what you need specifically: basements that are unfinished, house with a carriage house, unfinished extra large shed on the property that can be renovated, etc. Can get creative...

April L. · Answer

@Joseph Firmin You're right about having my preference to have my parents live with me on premise -in a separate suite. As much as I love them, there are a million good reasons to have our own living space. I will definitely need a new house to accomodate this arrangement. It doesn't have to be a McMansion. It simply needs to be a smart design —which seems to be sorely lacking in the market right now. :(

I have not considered using a HELOC  to pay off my mortgage. I think my focus is finding the right place. However, I'm definitely open to creative ways to finance a bigger mortgage payment. :)

Thank you!

April L. · Answer

@Jeremy Wirths I have thought of buying land and building a custom home. I have to admit, I'm not in love with the mass-made matchbox-style of houses currently on the market. Plus, none of them consider the popular multi-generational style living -that is the future. lol

I love the style of modern cement homes like in Merida, Mexico for example and many other parts of the world. It would be great to design a custom home...

But even for a standard local contractor, I believe it will be the more expensive option. Plus, I have a 9 and 10 year old. Finding land in a good school district in suburban Atlanta can be tricky. At least I think considering a school district is still a thing? lol (It;s silly that we let schools dictate where we have to live. Grr.)

Anyway, I did see land for sale in a popular suburb (Rowell, Ga) but the land alone was the cost of my current home -about $350k.  Add a house, and you're looking at close to a million bucks. I'm open to the idea though... Maybe I can find a contractor who sells the whole package, land and all?

Investors: I really see an opportunity to increase the design/ construction of multi-generational housing. Don't families like each other anymore? Geez. Let's take care of each other. LOL

Thank you!

Jeremy Wirths · Answer

I agree with Joe, it's a gut decision on your part but it seems like option A would best suit your situation. Have you thought about finding land and building something to suit your specific needs?

Aging Parents: Multigenerational Home or Get'em A Small Ranch?

Most Popular Reply