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Sunday, January 27, 2013

Real Estate Plan: Am I Crazy??

Frugal Son is loving New Orleans. He's also loving working in a school. He has a starter job at a bilingual school and is working on a fast track teacher certification. So, my newest plan is to help him buy a house, to take advantage of the low interest rates and still low-ish housing prices. Frugal Son is still young enough to take in a roommate to help pay the rent.

Am I crazy? Fave blogger Funny About Money has had many tales of woe concerning the house she bought with her son a number of years ago. Does anyone have tales of caution? Advice? Logistical issues?

One of Frugal Son's friends opines that New Orleans has a high culture to cost ratio. It also has a high beauty to cost ratio.

Frugal Son sent some links to available real estate. Even a teacher in New Orleans can have 12 foot ceilings, heart pine floors, and floor-to-ceiling windows. Some of the houses are doubles!

For some reason, I can no longer get the links on properly. So just google New Orleans architecture!

Are we crazy??


Marcela said...

Will he be able to pay the mortgage by himself?

Shelley said...

I'm not a parent so I doubt my opinion counts for much. No one but you could decide if this is crazy, since you have the financial information. Questions I would ask are:

Is your retirement all set the way you want it? It's nice to help your children, but even better to take care of yourselves so they won't have to worry about you later on.

Can you do the same for your daughter as you are proposing to do for your son? Is it fair if not?

Can you handle the payments if your son flakes out (not that I'm saying he would) for any reason? Can you take over the payments without resentment or undue sacrifice?

Is this fostering his independence?

I'd be inclined to give him the money up front, if I could, say to help with a down payment; but never to sign the mortgage.

Then again, I grew up in a different time, with parents less able. Just some things to think about maybe.

SewingLibrarian said...

I agree with Shelley. Also, if DS lost his job or was incapacitated (God forbid, but things do happen), would you be ok with holding the house as an investment or selling at a loss if necessary?

Duchesse said...

Really great questions, Shelley and SewingL!

Can FSon afford upkeep?
Could he carry some months without rent coming in? (Son seems like really solid guy but roommates can be undependable, or it may go unrented for s time.)

I don't find the idea crazy and having read your blog for years am sure you will be thoughtful about it.

Anonymous said...

I live in the Northeast, where many people are still reeling from the effects of Hurricane Sandy. And I agree with the people who say that the "storm of the century" is becoming the "storm of the year". So my concern is not over your helping your son purchase real eastate, but simply the location of that real estate.

Funny about Money said...

You're not crazy.

Your son has shown himself to be financially responsible. It's not like you're trying to drag your hapless pot-headed kid out of the gutter here.

My son, like Frugal Son, is also extremely responsible with money. He has a good, if not spectacularly paid, job. He pays his part of the mortgage and, without having been asked or expected to do so, has quietly accrued an emergency fund of 20 grand (!!) for the inevitable repairs the old place will require.

I'd do it again. In time your son will be able to pick up more and more of the mortgage, and when he marries, with two salaries they probably will be able to cover the entire mortgage.

As for contingencies:

My son carries a life insurance policy whose payout would cover the amount we owe. But if push comes to shove, the truth is I have enough cash in savings to pay off the mortgage right now, today.

The house's rental value is just about the same as what we're paying on the mortgage. So in unforeseen circumstances, we could rent it for awhile, until such time as it could be sold.

As a practical matter, though, what I'd probably do if something happened where we (or, God forfend, I) needed to unload the house, is sell the house I'm in and move into that one, since it's very cute and entails a great deal less upkeep than mine.

The only piece of advice I can offer is to try to find a place that doesn't require any expensive restoration or renovation.

Revanche said...

Agreed that this doesn't seem crazy in principle since FS has a sense of responsibility and isn't just spending his days yukking it up; devil's in the details though. :)

Having reverse parented, the best of intentions doesn't do you any good if the other party loses an income so being certain that you can handle the payments easily and without endangering your financial stability would be really important. Also: a contingency plan that runs both ways - for both you and him.

And there's the taxes, maintenance, etc., to be factored in and some plan for them to be agreed on.

Also, as much as your kids seem to have their heads on straight, it's the most tolerant soul that doesn't in the least mind a sibling getting a very large (as this would seem to be) benefit that they're not offered. Your daughter may not want the same thing at all but she might wish to have something equivalent in some way and it would be good to have that conversation.

I suppose my thoughts seem rather stringent but I find, and continue to find, that talking through worst case scenarios around money with family make life rather easier than not.

Mrs PoP @ Planting Our Pennies said...

Mr. PoP's folks fronted us the cash for our first investment property (a duplex) when we had bought and renovated our own home the year before.

We structured it as a loan, $50K @ 5% with interest paid semi-annually, and it's worked out really well. Their only "complaint" is that we're on track to pay it back before the balloon on the note hits, and they've been quite enjoying their 5% bond of sorts.

From the kid perspective, anything that you can do to make it formal helps. Having a contract makes us feel like they're not watching every dime we spend wondering why we're not using it to pay them back. (We kindof are, but they were third in line... we leveraged a decent amount to buy RE during the crash and now we're de-leveraging.)

Good luck!