Do I buy my parents home?

Question

My Parents divorced with a house worth approximately 600k. There's a 200k mortgage left. My mom wants $150kish to buy out her half of the house. Me and my father currently live in the house. He has enough $ for the rest of the 10 year mortgage + bills (Social Security, Retirments accts)

Would it be financially wise to buy out my mom in this situation or should I just let them sell my childhood home? Currently Zillow estimates 5% appreciation yearly of the house in the current neighborhood/city it's in.

I would own half the house for roughly 150-180kish and my dad would continue to pay off all the bills/mortgages. He has also reiterated that I would get the entire house later in life, contracts signed etc.

I'm in a strut and would love some help. I am liquid enough to pay her off but would be most of my savings. I'm young 20s so I'm not sure if that makes a difference or not in this situation. I really wanted to get into real estate investing soon so I am kinda scared to try and refinance and stuff and work out a mortgage with my name because I wanted to FHA a multifamily in a few years so I feel like giving her cash is my only option..

Tanvir Sattar · Answer

Account Closed this is a very tricky situation since it is family. I'd advise to pass. It is not a clean business transaction if you are purchasing from family and things could get murky later on.

Lynnette E. · Answer

Unless your dad is very elderly and you are an only child I would pass.  You will end up loosing access to that $150k for a very long time.

You have to think of all scenarios.  You dads gets a girlfriend with kids or they have kids together.  GF may want you out of the house and make you miserable.  Kids may be rude, awful to share bath with, etc.  Dad is not going to move and wont buy you out.  He has new family expenses.  You will wait until dad dies to get your money out of that house---and then HOPE he does not give a life estate to GF.

Another scenario--you get married.  Do you still want to live with dad?  Is the house big enough for his new family and your family?  Sharing  kitchen gets old fast!

Another--dad gets in an accident and is sued.  A court may take the equity of the house for a judgement.  More often judges are negotiating $ restitution instead of jail time.

Kai Van Leuven · Answer

@Kade Robertson

Why not go the simplest route and buy the house from your parents. You already have 50% of the asking price. Work something out with your dad.

The main reason I bring this up is losing the ability to leverage your primary home makes things really hard from an investment standpoint. You can’t do a HELOC, cashout refi, or show it as an asset on a personal financial statement.

50% down is pretty hefty on any investment and the money will become pretty illiquid at that point. You could be into the house around 60k (20% of 300k) and have a lot more options.

Colleen F. · Answer

Account Closed  any money you put in you need to get your name on the title. You can't add your name to the mortgage. You could get a Helco on the house if your name is on the title.

Also look at your local inheritance laws if your dad doesn't  have a will to see what happens to the property. States differ. Whatever you do the sibling needs to be looped in on the information while your dad is alive. It will make your life much easier down the road.

Derreck Wells · Answer

That's the best part Nadia, he can do both, help his parents AND get ahead in life. He has the PERFECT opportunity here.

Nadia O. · Answer

@Derreck Wells although you made a great point, everyone else is trying to point out the other problems that may occur in the future. Often times when you have family members involve in the mixed, the rules get complicated...heck everything gets so blurry & complex. It is also tough to predict the future. Account Closed only you have the answer to this. What do you want to achieve in near future? $150k can be the start of your future. You could invest that money in stocks or RE as a starter on your own.

The questions to ask yourself: are you doing this to help out your family or trying to get ahead in life? Are you living in a well performing area? Will the equity increases every year? How's your dad relationship with you? Don't feel like you have to reach out to help. You didn't get into this mess. This is between your dad & mom. I would best stay away & let them resolve on their own.

Derreck Wells · Answer

Account Closed What I haven't seen anyone mention here is this is a great opportunity. This is a house with $400k in equity built in. If your dad is on board with your investing, you can pay off Mom and take 1/2 ownership of the house. Then take a HELOC for $380,000ish (80% of the equity) and double your liquidity to buy small multi-families.

Then buy a multi-family (for cash) and use the income from the rentals to pay the HELOC until you can refi the multifamily and pay off the HELOC. (BRRRR it.) You can essentially use the multi to pay off Dad's house so that he can not have to worry about a mortgage for the rest of his life. Have him write a will leaving you his half of the house or sign a quit claim deed now so the entire house is yours. You can structure it so you take possession upon his death or when he moves out, whichever comes first.

It's a win/win/win. Your Mom gets her $150k, Dad gets his mortgage paid off and can live comfortably for the rest of his life, and you get a revolving line of credit against the house that you can tap over and over again to BRRRR properties. You will be set for life.

The best part here is you get to help Mom and Dad through this difficult time in their lives. There is no better feeling than giving back to those that gave you everything.

Account Closed · Answer

Hi! Thanks for your response. I am trying to help my family and also get ahead. The property is increasing every year and is water front. 600k is way below asking and the neighbors house just sold for 790k and is pretty similar. I have a really strong relationship with my dad and I believe if this deal is structured properly it would be a win win for everybody.

Account Closed · Answer

Thanks so much for the response Derreck! I actually am considering your option but I do have a few questions. One is would my name have to be on the title/mortgage to be able to pull out equity like that? Even if I only own 50% of the property? The mortgage has only 10 years left on it and I am considering buying my mom out. I just do not want to be illiquid and be able to pull money out to get these multi family properties like stated. I am assuming there is alot more to it and the decision time I have is coming down to a couple of days now.

Account Closed · Answer

Hi Marian, thanks for the response. In my eyes it would be an investment and helping family at the same time. Mom gets her half, father stays in home comfortably. The mortgage has <10 years  and the house continues to appreciate. I do agree I would be strapped with my $$ inside the house for at least 10 years but if the house appreciates to 700-800k and we sell then, I can get my money back + some and father would have a hefty retirement from the selling as well. The only downfall is the illequid part.

Do I buy my parents home?

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