Buy my parents house?

Question

My parent's home is a custom build built in 2003 in a desirable neighborhood with above-average schools in a suburb in Buffalo, NY. 4 bed, 2.5 bath and 2,522 square feet. Unfortunately, my mother passed away a few months ago, and my father is living in the house himself now. He has kicked-around the idea of selling this home - or at least entertaining the idea to us as a discussion next year, and has expressed that he does not just want to list it on the market. The house has clear sentimental value, and I know he wants to keep it in the family.

I am about to close on my fist house hack near where I work, but my plan was to live in the house for only a year anyway, and move back in with my father.

He has about $120-130k in equity (I would say around $200k to build the house), and it is listed on MLS sites as being worth around $278k. My father is 60yo, and plans to retire (hopefully) at 62.

How should I go about this? I love this home - I have lived in it all my life (I just turned 25yo), and my parents have added things (back cement patio, shed, fence) over the years to it. I do not think I will have the money for a down payment/loan approval within the next 1-2 years ( I would need about $50k at least for a down payment if I bought it with a loan?), and I worry that this would "drain" my funds if I took it on. I was thinking about the rent-to-own process, but not sure how that would work either. I know my father would be very much interested in a steady monthly income when he retires. At the same time, I understand the value of this house on the market, as well as the built in equity that exists.

I also thought about seeing if my father would agree to a HELOC on the house. I could take that equity and use it for a possible flip or expand my hopeful real estate aspires, and give him a cut of the monthly rent/profit.

Does anyone have advice on this type of situation? It would be greatly appreciated, thank you.

Timothy Smith · Answer

@Nicholas Bossert my condolences on your mothers passing, and also congrats to you for savvy thinking as a beginning investor. First of all, slow down! I agree with the others that you should finish the house hack that you've started. One, it gives you credibility and the learning experience is invaluable. Two, it's an asset free & clear of sentimentality.

The red flag that stood out to me is "...I love this house..." When I got into this game, it was hammered into me by a mentor that you must fall in love with the numbers, not the property, or the architecture, or the fact that it reminds you of your Nana's house. I get it -- I really do. But fall in love with the numbers and make your decision that way. Now, have I chosen some properties based on other factors than just numbers? Yes. Such as quality of structure, location, fitting our business model, etc. But in all of those cases, the numbers worked first.

I agree with an above point about showing your dad a successful investment through your house hack, then go from there. Showing someone how something works is often more powerful than explaining it.

Jaron Walling · Answer

@Nicholas Bossert Take a couple deep breaths and slow down. You and your father should not be in rush to do anything. First off I would close on the house hack property and secure that asset. If you're buying it correctly you're locking in a wonderful future rental and wealth builder. Once you stabilize that property and describe what your investment strategy to your father bring him on board. WHY buy your parents place? Wouldn't you just inherit that anyways? Private/family financing is wonderful thing. I would entertain the HELOC just like you described to complete a BRRRR deal. You could pay him back with the REFI. At that point you're at 3 doors.

Oz Radiano · Answer

There are two ways to look at this situation:

1. As a son. This means that you are helping out your father and yourself, keeping the house you grew in in the family, and creating a steady cash flow for your father. In this case, you are not an investor buying a deal, and the decision is personal and not based on calculations.

2. From an investor standpoint. This means you need to analyze this deal in an excel sheet and make sure the property makes sense if you had no emotional attachment to the situation.

Good luck!

Thomas Latuga · Answer

@Nicholas Bossert

Very sorry for your loss. Come to next week's REIA and we can discuss some options.  You and your father need to consider estate planning, taxes, other finances, etc.

Nicholas Bossert · Answer

@Jaron Walling @Oz Radiano @Theresa Harris @Thomas Latuga @Timothy Smith

Thank you all for the sage advice. I appreciate your condolences, and I appreciate your insight into this thought of mine. Clearly, and unfortunately, I am someone who likes to "get their ducks in a row," and sometimes a bit prematurely... I guess it was this newfound investor's mindset triggering me forward...

I definitely have a few years to calculate my father's decision (and mine), and in the meantime I look forward to tackling the current task at hand. Thank you again!

Theresa Harris · Answer

Jaron and Oz make good points.  Is this to keep it in your family or for an investment purpose?  Either is fine, but the goals are different and the first may not make financial sense.  You also need to remember it is your dad's home and if you have siblings, they may see it as you taking 'their inheritance' (I put it in quotes as it is your dad's money, not theirs).

Tim Delaney · Answer

Sorry for your loss. I agree with the others - close on the house hack and get started with that. Even if you are using an FHA you can always move out before a year is up if other circumstances come up.

I also agree that you need to decide on how you are looking at your father's home. Do you love it and want to live in it forever? If so, then figure out the best way to get it. One way may be agreeing on a fair market price for the house and then using a "gift" from your father to cover the downpayment. You can then give him a monthly gift over the next five-ten years to help take care of him. That gets you in the house for no money down, however you will need to make sure you have the income to cover the debt on the house and the gifts back to your father.

Jaron Walling · Answer

I agree with @Oz Radiano  and you don't want to burn any bridges during this process. That's why I mentioned closing on the duplex property first. Too me it's "proof of concept" to the father and shows the REI knowledge is there. His market research, skin in the game, and strategy is working. Without it I would never lend money to anyone.

Buy my parents house?

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