Creative Solutions Requested to Help Keep House In The Family

[Jeff Kelly]

I’d love to see what kinds of creative ideas anyone here might have to try and solve the problem this family I know of is having with figuring out how (or whether) to keep their parents’ house in the family. There are so many creative solutions possible in RE, I’d like to hear about which ones might work in this case. Thanks for reading and thinking about this. I’d be especially interested in anything along the lines of using a Trust, estate, or any other legal entity or unconventional solutions, or quit-claiming, or any other ideas.

Here’s the situation: the parents are retired, mid/late 70s. The parents own the house free and clear. The father is in poor health and wants to sell the house soon, so as to leave his wife with zero responsibilities regarding maintaining their house as his health diminishes. They’ve owned the home for many decades, and the mother always hoped one of their children would move into this house, the “family house”. 2 of the 4 siblings live very nearby and if moving back into the family house to keep it in the family were something they could afford today, they’d each strongly consider it. Property taxes and maintenance make it seem unaffordable for them today, but within 3-7 yrs it’s conceivable that one of the siblings could afford to move into the house. But the parents will be forced by the father’s health issues to move to an assisted-living facility sooner than that, maybe even this year. The parents do not, apparently, need the money from the potential sale of their house to be able to afford the rest of their retirement and living expenses. If they did, they’d just have to sell it, obviously. It’s unknown whether the parents would want to pursue anything other than the conventional (simply sell it). But either way, what creative ways can you think of to help them “buy time” on the decision to sell the family house?

-House is worth $1-1.4 million.

-It could rent for probably $4-5k/month easy, but perhaps up to $6k (some have suggested $8k but that seems ridiculous and would probably lead to high vacancy). Affluent area.

-Property taxes of approx $22-25k/yr plus maintenance of probably thousands per year (it’s very old), maybe approaching $10k/yr (guessing), or more.

I thought of possible solutions for this myself, and please tell me how feasible these scenarios might be.

A) Parents move out, and simply rent the house out for a few years until the siblings know for sure whether they could afford to move into it. The siblings would manage the house. Approx $40k/yr in profits (see below)

B) The parents take out a HELOC on the house, take maybe 50-75% LTV in equity out of the house( $600-750k), and use that money as a 25-30% downpayment on some kind of investment property, maybe a $2-3million convenience store / drug store property or a multi family apartment building. Or since making HELOC payments and mortgage payments on the Investment Property would make it difficult to cash flow positively overall, maybe to avoid paying 2 mortgages, just buy a $700k building that has a 8-10% Cap Rate. And the siblings would manage the property manager of the investment property. The amount of equity taken out via the HELOC, and the percentage of the downpayment for the investment property would need to be calibrated so that the profits/cash flow of the investment property (after paying its mortgage) would be enough to cover the monthly HELOC payments, the property taxes, and the maintenance of the "family house". Then they could still rent out the family house in addition to getting the cash flow from the investment property. They could still decide to sell the family house in a few years if it becomes obvious that one of the siblings will not be able to afford to live in it. Monthly HELOC payments would be approx $3500/month at 5.5%.

House Expenses:

$23k / yr Property taxes

$15k / yr Maintenance

——

$38k / yr in expenses related to the house.

+$40k / yr HELOC payments

——

-$72,250/yr. in expenses and HELOC payments

Invest in a $700k Commercial Property bought with all-cash from HELOC, producing at 9% Cap Rate

+$63k in profits.

Rent out the House

$4500/month gross rents ($54k annual)

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$44,750 in net profits / yr. (before vacancy)

C) Any other ideas?

Thanks a lot for your ideas!