Author Topic: Case Study: Shack up with granny or stay the course?  (Read 13992 times)

CarpeDM

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Case Study: Shack up with granny or stay the course?
« on: January 11, 2015, 03:24:11 PM »
Hello,

Long time reader first time poster. Before getting to the nitty gritty I would like to send a big thank you to MMM and the entire community for the good work you guys are doing. The feeling I experienced of having the weight of the world lifted off of my shoulders simply through reading through your common sense approach to finances was life changing. Thank you all once again.

All right, here is my situation:

Income:

$48,000/year salary (me) + $21,600 (wife) = $69, 600. Although technically I am self-employed, I work with my father in the construction consulting industry. My one man operation brings in about $100,000/year of which I pay myself the above mentioned amount. My wife works full time at a day care centre and is going to school part-time to increase her qualifications.

Current expenses:

 Miscellaneous household spending – $600/ month, includes allowances, clothing, entertainment, hobbies, eating out, pharmacy, household items, health & beauty

Groceries - $185

Cable - $0

Internet - $0 (business write-off)

Cars/Transportation – $0 (we have 1 car which is paid for by my business and I also pay for my wife’s metros through my business)

Mortgage – $1500/month, paying 4.15% right now. I know it’s a terrible rate however due to the fact that I applied for a mortgage as a small business owner my bank wouldn't give me one and I had to go with a third party lender for a year’s time until I am deemed less of a risk by my bank at which point I can get a more competitive rate. I can re-apply in March 2015.

Utilities - $40/month hydro bill. (Other utilities included in condo property management fees which is included in mortgage)

School Loan – $0 for me. My wife is in college at the moment which costs us approximately $2,500/year (paid in full, no loan) = $210/month

Health Care – $0 (Canadians)

Debt - $500/month loan repayment to my mom. She lent me $15,000 to help with my down payment. I have paid about $10,000 back so far at 0% interest

Total Spending: About $1035/month or $3035 (including mortgage & mom re-payment)


Assets:

Home equity: About $75k on a $250k condo
Investments (RRSP,TFSA etc)  - $0
Cash:  $5k in the bank
Car: 2012 GMC Terrain. Purchased through my business at 0% financing. Not my most brilliant move but this was pre-mustache.


Specific Question(s):

After soaking in the ethos of MMM and plotting my timeline to ER it became very apparent that I am quite a ways away. However it got me thinking of possible strategies going forward to maximize my time and moneys. This is what I came up with: save for another year or so until I can make a 20% down payment on a home. Unfortunately I live in a location with an extremely over inflated housing market, Toronto, Canada. This then led me to my next thought: My grandmother has been holding on to her excessively large home for the past 3 years since my grandfather passed away for irrational reasoning which is starting to really put the squeeze on her own finances. I approached her the other day and discussed having her sell her home, putting the $400,000 or so she stands to make into a conservative, dividend paying index fund and helping me make the down payment on a modest home which she could then live in with my wife and I (contingent upon us finding the perfect home with move-in ready basement apartment, separate entrance etc etc). She would then pay me rent out of her monthly dividend and live comfortably on the rest. All the while I would be able to hold on to my current condo, rent it out and use it as my savings account.

What do the mustacheans have to say?

Bob W

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Re: Case Study: Shack up with granny or stay the course?
« Reply #1 on: January 11, 2015, 03:32:30 PM »
You are doing great by the way.    I would make the decision based on how much you and spouse want to live with granny.     I think you're in a hurry when designing a sustainable system is more important than being fast.

Future Lazy

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Re: Case Study: Shack up with granny or stay the course?
« Reply #2 on: January 11, 2015, 03:38:24 PM »
I think that sounds like a great solution to the problems of both parties. Has Granny also considered and agreed to this?

Be prepared for the extra duties of taking care of a house vs. a condo - such as yard work, roof repair, snow removal, etc. Instead of paying an HOA, pay your personal House Repair Fund, so the money is there when you need it. 

Even if Granny doesn't want to stay in a MIL suite, it still may pay off to pursue a home with a MIL suite which you can rent out. What is 1 bedroom apt rent where you live? Factor that in.

Good luck!

GizmoTX

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Re: Case Study: Shack up with granny or stay the course?
« Reply #3 on: January 11, 2015, 03:49:20 PM »
If granny has other heirs, don't be surprised if they are suspicious of the financial arrangement, at the very least. You are expecting granny to "help" with your down payment as well as pay you rent. This needs to be legally documented.

Granny will need to live on the first floor, no stairs.

CarpeDM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #4 on: January 11, 2015, 03:59:06 PM »
If granny has other heirs, don't be surprised if they are suspicious of the financial arrangement, at the very least. You are expecting granny to "help" with your down payment as well as pay you rent. This needs to be legally documented.

Granny will need to live on the first floor, no stairs.

Good point. She is not on the best of terms with all of her children and the ones she's is on good terms with have exhausted themselves and their patience trying to sit down with her to discuss her finances like rational adults. If she does help with the downpayment I would subsidise her rent accordingly as well. Will definitely put all of this in writing though. Thanks

CarpeDM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #5 on: January 11, 2015, 04:01:27 PM »
I think that sounds like a great solution to the problems of both parties. Has Granny also considered and agreed to this?

Be prepared for the extra duties of taking care of a house vs. a condo - such as yard work, roof repair, snow removal, etc. Instead of paying an HOA, pay your personal House Repair Fund, so the money is there when you need it. 

Even if Granny doesn't want to stay in a MIL suite, it still may pay off to pursue a home with a MIL suite which you can rent out. What is 1 bedroom apt rent where you live? Factor that in.

Good luck!

Yes granny was ecstatic at the prospect. I have lived in a house the majority of my life so I am aware of the things you mentioned and look forward to developing some handyman skills like MM himself. Granny absolutely refuses to live in a building of any sort which is why I knew this would appeal to her.

CarpeDM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #6 on: January 11, 2015, 04:03:15 PM »
You are doing great by the way.    I would make the decision based on how much you and spouse want to live with granny.     I think you're in a hurry when designing a sustainable system is more important than being fast.

Thanks for the vote of confidence. On the surface, what would a alternative, "sustainable" route look like in your eyes?

TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #7 on: January 11, 2015, 04:19:20 PM »
Just double checking, but how does your spouse feel about this?  Is she prepared for the fact that the older granny gets, the more both of you will probably be helping with her with day-to-day issues as her health declines?

Basement is a no-no.  First floor yes.  (Two reasons: 1.  stairs 2.  basements tend to be colder and damper--maybe you'll find one that is neither, but as grandparents age, pneumonia is not just a week off of work, but a trip to the hospital.  Keep her warm and dry.)


homehandymum

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Re: Case Study: Shack up with granny or stay the course?
« Reply #8 on: January 11, 2015, 06:57:06 PM »
Good point. She is not on the best of terms with all of her children and the ones she's is on good terms with have exhausted themselves and their patience trying to sit down with her to discuss her finances like rational adults. If she does help with the downpayment I would subsidise her rent accordingly as well. Will definitely put all of this in writing though. Thanks

This is a red flag for me.  Don't underestimate the ability for Granny to decide that *you* guys are now the bad ones, for talking her out of her house and taking her money. (not that you are, but you wouldn't believe the capacity for people to talk themselves into believing stuff about who said what and what their intentions were - I have a story about my Dad, my brother, a house, and a dog, if you're interested :)  )

A history of poor communication, and avoiding money-talk does not bode well for a clean, mutually happy arrangement.

Lmoot

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Re: Case Study: Shack up with granny or stay the course?
« Reply #9 on: January 11, 2015, 07:35:24 PM »
If I were one of granny's heirs my eyebrows would be sky high. Because of that I think it would be best that the down payment assistance come in the form of an 'early inheritance', meaning it reduces any inheritance you may receive upon her passing. This would require her to get her will and estate in order and declare who gets what (if she hasn't already) so there is no perception that she is giving you money intended for someone else.

If the inheritance is not enough to help out with the DP, then you need to save a little longer to pony up the difference. That will be the best way to put the rest of the family at ease and keep you smelling good. I also think it's more fair than pro rating her rent because (and I don't like mentioning this because I'm superstitious) what if she doesn't live long enough to recoup the amount she put into the DP? How will you (or will you) reimburse her estate?

SandyBoxx

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Re: Case Study: Shack up with granny or stay the course?
« Reply #10 on: January 11, 2015, 08:35:22 PM »

Specific Question(s):

After soaking in the ethos of MMM and plotting my timeline to ER it became very apparent that I am quite a ways away. However it got me thinking of possible strategies going forward to maximize my time and moneys.

As Canadians, have you looked into the "Smith Manoeuvre" for your upcoming mortgage?  There are lots of good resources on MillionDollarJourney.com and good pro/con arguments to read over with a quick Google search.  Whatever you do, make sure you shop around for your new mortgage (use a broker to get some quotes too, do not necessarily accept the banks "competitive rate.")

In terms of Granny...straight up - sounds like a disaster waiting to happen.  I would run from that idea myself!

TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #11 on: January 11, 2015, 08:40:15 PM »
Canada. This then led me to my next thought: My grandmother has been holding on to her excessively large home for the past 3 years since my grandfather passed away for irrational reasoning which is starting to really put the squeeze on her own finances. I approached her the other day and discussed having her sell her home, putting the $400,000 or so she stands to make into a conservative, dividend paying index fund and helping me make the down payment on a modest home which she could then live in with my wife and I (contingent upon us finding the perfect home with move-in ready basement apartment, separate entrance etc etc). She would then pay me rent out of her monthly dividend and live comfortably on the rest. All the while I would be able to hold on to my current condo, rent it out and use it as my savings account.

What do the mustacheans have to say?

What exactly, is her irrational reasoning, and why shouldn't she live in her own smaller place?

GizmoTX

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Re: Case Study: Shack up with granny or stay the course?
« Reply #12 on: January 12, 2015, 01:32:48 AM »
Since granny's home is large, how about you moving in & paying rent to her? The heirs will still be suspicious, but you renting part of her house does not change her ownership or force her to move. In any event, granny should have a current will & springing POAs for finances & health as she ages.

Goldielocks

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Re: Case Study: Shack up with granny or stay the course?
« Reply #13 on: January 12, 2015, 01:37:09 AM »
If granny has other heirs, don't be surprised if they are suspicious of the financial arrangement, at the very least. You are expecting granny to "help" with your down payment as well as pay you rent. This needs to be legally documented.

Granny will need to live on the first floor, no stairs.

It seems odd to get both capital investment (e.g. she owns 20% of your home), AND monthly rent,  unless the rent is just for food and utilities..

Much better to have rent only.   This may pay for your extra PMI costs if you dont have 20% DP.

Rent only keeps other heirs out of the worry zone (we hope), just include them as witnesses on your documentation of the arrangement.
« Last Edit: January 12, 2015, 01:40:29 AM by goldielocks »

former player

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Re: Case Study: Shack up with granny or stay the course?
« Reply #14 on: January 12, 2015, 03:55:38 AM »
Love your nom de plume.

Did you know that "shacking up" with someone in the UK has a meaning which I suspect is not the one you intended?  Your question got my attention through it, anyway.

What is happening to the $52,000 per annum which your business is earning but you are not taking out as salary?  If you are leaving money there after expenses which you don't need for the business it could make a big difference to your personal finances: it could give you a deposit all on your lonesome without granny's money being involved.

I agree with what others have said about the housing for granny needing to be suitable for her long-term.  Otherwise, if her health took a turn for the worse within weeks or months of her moving and she needed urgently to move to more suitable (assisted?) housing, you would be in trouble.

What would the return be on renting out your condo?  Would you be cash-positive on it?  If you buy a house as well you will be highly leveraged in what you say is an over-inflated housing market when your only other assets are $5,000 in cash.  That is not a balanced investment strategy.

marty998

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Re: Case Study: Shack up with granny or stay the course?
« Reply #15 on: January 12, 2015, 04:31:27 AM »
Since granny's home is large, how about you moving in & paying rent to her? The heirs will still be suspicious, but you renting part of her house does not change her ownership or force her to move. In any event, granny should have a current will & springing POAs for finances & health as she ages.

Yes I thought this would be a neat solution too. You did say she has too big a house and not enough people in it.

Why ask granny to sell the house and give you a pile of cash? Sounds like you are trying to be a bit sneaky and control your inheritance before she has fallen off the perch.

alsoknownasDean

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Case Study: Shack up with granny or stay the course?
« Reply #16 on: January 12, 2015, 06:54:30 AM »
I know it may not be, but it could be seen that you're trying to take advantage of her for your financial gain.

It sounds kinda sus. Not to mention that you could alienate yourself from other family members.

crispy

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Re: Case Study: Shack up with granny or stay the course?
« Reply #17 on: January 12, 2015, 07:15:42 AM »
I don't think it's a good idea.  I know you mean well, but it's going to come across that you are taking advantage of her and it could get ugly with other family members.  Furthermore, eldercare is very difficult. Right now, she is in good health and can take care of herself, but that could change quickly.  If you alienate your family to get a 20% down payment, they aren't going to be willing to step up and help when you need it.

Finally, you don't mention children, but if you are considering them in the future that is a further complication.  Between eldercare, childcare, and you and your spouse both working full-time, you will run yourself ragged. 

Lmoot

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Re: Case Study: Shack up with granny or stay the course?
« Reply #18 on: January 12, 2015, 07:34:24 AM »
Since granny's home is large, how about you moving in & paying rent to her? The heirs will still be suspicious, but you renting part of her house does not change her ownership or force her to move. In any event, granny should have a current will & springing POAs for finances & health as she ages.

Yes I thought this would be a neat solution too. You did say she has too big a house and not enough people in it.

Why ask granny to sell the house and give you a pile of cash? Sounds like you are trying to be a bit sneaky and control your inheritance before she has fallen off the perch.

Thank you so much for providing me with my epitaph. As an avid bird lover I only wish I could live to see "She finally fell off the perch" emblazoned somewhere in my memory. Hmm, I wonder if I could pre-order it on a memorial bench at our local zoo, to be placed in the main aviary.
« Last Edit: January 12, 2015, 07:36:31 AM by Lmoot »

TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #19 on: January 12, 2015, 09:43:33 AM »
Love your nom de plume.

Did you know that "shacking up" with someone in the UK has a meaning which I suspect is not the one you intended?  Your question got my attention through it, anyway.

In the US as well.  I had a small chuckle at the title.

TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #20 on: January 12, 2015, 09:48:41 AM »
Finally, you don't mention children, but if you are considering them in the future that is a further complication.  Between eldercare, childcare, and you and your spouse both working full-time, you will run yourself ragged.

+1 Which comes back to the question of what CarpeDM's spouse thinks of all this--she will probably have to do part of that care, especially if she's home with the kids, and she may *not* be a happy camper.

Still curious about what Grandma's reasons are for not selling.

One other thing is that I believe Alzheimers is more common when someone has moved--they have both an increased level of stress and they lose the mooring of their memories in a place they've lived longterm.   I would want to know for sure that she needs to move.  Does she have the house entirely paid off?  What is causing it to be too expensive for her?

going2ER

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Re: Case Study: Shack up with granny or stay the course?
« Reply #21 on: January 12, 2015, 10:56:08 AM »
If you want to ER, do it on your own dime. It sounds like you want to take advantage of granny, get a down payment and have her pay rent. I hear the sound of entitlement.

Not sure about your family, but in mine, monies are usually left to the children of the deceased, not the grandchildren. So one of your parents would get an inheritance from granny, but you would not, it would be up to your parents if they wanted to share some of the funds with you or not.

If you are in the construction industry then you should have contacts that can help you fix up the worst house on the block, with your own money. Sell your condo and keep saving to buy a new house.

Dijonaise

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Re: Case Study: Shack up with granny or stay the course?
« Reply #22 on: January 12, 2015, 11:44:17 AM »
Do not request money for housing from granny. This could lead to living beyond your means. Best to enter into agreements with non-family members to ensure market-rate transactions take place.

Pigeon

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Re: Case Study: Shack up with granny or stay the course?
« Reply #23 on: January 12, 2015, 11:56:26 AM »
This sounds a little suspect to me, too, although I'm sure you don't mean to take advantage.  It makes more sense to me for you to move in with her and pay her a nominal rent, in exchange for helping her out some, while renting out your condo at market value.  But ditto on your wife needing to be on board.  I also think a family meeting might be in order if this is proposed, because the people of your parent's generation may hit the roof.

I don't think it's that extraordinary her not wanting to sell her house and do something more sensible.  I'm dealing with a failing elderly MIL, who insists in staying in the 4 bedroom house where she and her husband raised 5 kids.  It's maddening. She calls us nearly every day to come over and fix something, tells us constantly that she "doesn't want to be a burden," but will do nothing to make the situation better.

GizmoTX

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Re: Case Study: Shack up with granny or stay the course?
« Reply #24 on: January 12, 2015, 12:54:04 PM »
My MIL could not imagine leaving the house she had lived in for 65 years during her entire married life & after my FIL died. She fortunately recovered from a stroke in her 80s but was increasingly becoming a hermit by not wanting to risk the ice of winter in Chicago. The neighborhood was becoming targeted by gang activity & the house needed something repaired every year; it had the laundry in the basement, more stairs from the kitchen to the back door, a detached garage, & storage on the second floor. My SIL found herself making a 3 hour round trip several times a week to help her run errands & keep her company. (The other SIL & my DH live in distant states from MIL.) Finally SIL had enough & found a wonderful new senior community being built 10 minutes away from her. MIL eventually agreed to her house being sold & some of the proceeds used for an apartment in the senior community (90% refundable when she leaves/dies), but she was furious about what she viewed as the loss of her home for months afterwards. She's been in her apartment for 9 years, with a much increased social life, a good dining hall, & lots of amenities close by -- we're convinced it has added years to her life, but it was not an easy transition.

Now she's 98, experiencing increasing dementia, & can't be left alone due to that & mobility issues. She can use a walker but has fallen & broken her arm. The family has opted for a live-in caregiver, as the assisted living area of her community would change & diminish her surroundings & leave her unattended at night. She hates having "a stranger" around & several times has ejected the caregiver because she doesn't remember her. SIL has offered to have MIL move to her house, but it is not designed for first floor living (& SIL/BIL will eventually face their own problems with that). MIL is increasingly sad & angry as her options & capabilities decrease. One of my brothers is also dealing with this very issue with his MIL.

TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #25 on: January 12, 2015, 02:34:32 PM »
GizmoTX, I'm sorry to hear about your difficult situation, but definitely you hit on a good point--it's important to remember that these houses are the property of an elderly person and that they have a major attachment to them.  It's interesting that OP managed to get Grandma to agree to move out at all.  That makes me wonder if there are other situations that she could move into like a 1BR house instead of a 4BR house. Maybe two properties side-by-side would work.  Takes a bit to find one but still possible.

CarpeDM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #26 on: January 12, 2015, 08:40:32 PM »
Thanks everyone for the responses. I will try to address some of the reoccurring themes mentioned in here.

My grandmother is a VERY religious person. When my grandfather passed away this sent her into a very weird space where eventually her family refused to talk to her about her deceased husband anymore because of the somewhat "crazy" beliefs she held. What does this have to do with not moving from her house? Well her current 3600 sq ft mini McMansion (which still carries a mortgage) was bought as her dream house and she can't come to terms with saying goodbye so she has resorted to closing off any discussion of her finances and reassures everyone that god will find a way for her. This has led some of the her children that are still close with her to become extremely nervous about her future financial well being. The kids that do maintain a relationship with her also happen to live on the other side of the country (oddly enough) so they do worry for her. She flat out cannot afford her current lifestyle but wont come to terms with it.

I've always been closer with my grandparents than my own parents so my grandmother and I have always had a good bond. She is around 82 and still is in good health and lives an independent life, still drives etc so well I dont see her needing assissted living for some time it is a good point to note.  My wife and I dont have any kids but plan to soon so this splitting costs with my granny would help us financially in the beginning stages of planning a family.

All in all, I can see how this may seem suspect t you, I guess you would just have to know me, my grandmother and our relationship to truly gauge my motives. What I can say is that I believe there are more pros than cons at the end of the day with this proposed arrangement. My grandmother still gets to live in a house (albeit a smaller version), my wife and I get to move into a house and start a family while maintaining a healthy path to ER.

I will note that since I had this talk with her 4 days ago she has got the ball rolling immediately and is constantly sending me emails about how excited she is about it.


Thanks again for the feedback!

PS - We wont move in with her because her house is too big for our liking and would never feel like it was "our" home. Also we do not like the location.

PPS - The reason my take home pay is $48,000 out of the $100,000 can simply be stated in one word: Canada. I pay an extraordinary amount of taxes through HST (harmonized sales tax - 13%), Payroll taxes (canadian pension plan etc) and Income tax. Also, it works to my benefit of having me in the lower tax bracket meanwhile I am able to claim many expenses I would have had to pay for out of pocket anyways.
« Last Edit: January 13, 2015, 05:20:44 AM by CarpeDM »

GizmoTX

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Re: Case Study: Shack up with granny or stay the course?
« Reply #27 on: January 12, 2015, 09:21:50 PM »
I'm not suspicious of your motives, but have seen more than one instance of a big blowup in our families.

It is far better for your granny to salvage what she can than to watch her lose her home & assets to foreclosure, property taxes, or bankruptcy.

My MIL is also very religious. She decided to test the proposed sale of her house by insisting on increasing the well researched sales price by $25K. It still got a firm offer the first day. When the buyer couldn't get financing, it went back on the market, again there was a firm offer in 1 day, & this one closed on time. My MIL took this as God telling her it was time for her to sell.

Even in the healthiest, the 80's are when things really change quickly. Choose the house with mobility issues in mind. Minimal stairs, wide halls & doorways, shower rather than tub, levers to operate doors & faucets, lots of light, contrasting surfaces, non-trip flooring.


TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #28 on: January 12, 2015, 10:59:35 PM »
I will note that since I had this talk with her 4 days ago she has got the ball rolling immediately and is constantly sending me emails about how excited she is about it.

Uh oh.  I STILL want to hear what your wife thinks of having to take care of young kids and a deteriorating elderly woman at the same time.  Did i miss the response?  I really think this is going to be a problem for her unless she's a nurse or something.  I'm worried your grandmother is not going to be happy if your wife decides she needs to spend the afternoons in a senior care center.

CarpeDM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #29 on: January 13, 2015, 05:17:29 AM »
I will note that since I had this talk with her 4 days ago she has got the ball rolling immediately and is constantly sending me emails about how excited she is about it.

Uh oh.  I STILL want to hear what your wife thinks of having to take care of young kids and a deteriorating elderly woman at the same time.  Did i miss the response?  I really think this is going to be a problem for her unless she's a nurse or something.  I'm worried your grandmother is not going to be happy if your wife decides she needs to spend the afternoons in a senior care center.

Sorry, I realized post-post that I forgot to address this question. My wife is not ecstatic at the idea of living in a basement but then again my wife isn't mustachean oriented  at the moment. A few things to note, I am not suggesting we move into a dungeon. The type of place I am suggesting is a full walk-out with plenty of sunlight and separate entrance. Im trying to explain to my wife that by doing this we can move into a house quicker than we thought while at the same time increasing our financial security. I am currently trying to figure out a way to show her how this lines up with our long term goals/dreams. Granted taking care of an elderly person in the future is a topic that must be broached, I will have to talk to my grandmother and discuss her plans for when that day comes when she requires assisted living. It is not fair to put this responsibility on my wife.

Just to clear something up. We were planning on buying a house anyways, in a couple of years time once we had saved up for a decent downpayment. We were also planning to rent out our basement to tenants to help pay the mortgage. That is when the lightbulb went off. If we are going to have tenants anyways why not rent to a family member instead of a stranger, especially considering my grandmother will have to make a move anyways. Granted we would be the ones living in the basement now but at least we could broaden our search to a place with a beautiful basement walk-out. On the whole I saw more pros than cons which is why I brought my idea to the forum to balance out the opinions which I believe you guys have.

One last thing, I am not relying on my grandmother for the entire downpayment. I am not planning on making this move tomorrow. The amount of time alone it would take to ready my grandmothers house for a sale and pack up her stuff could alone take a year. In that time we would save up for the downpayment ourselves. If we're short of our down payment goal by 10 or 20 grand than we may consider asking granny to help us chip in but only if she is comfortable with it. If not then no problem, we wait a little longer to save the money.
« Last Edit: January 13, 2015, 05:25:08 AM by CarpeDM »

CarpeDM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #30 on: January 13, 2015, 05:36:19 AM »
I almost forgot to ask, I was originally hoping to get some guidance on the following situation:

Suppose the prospect of moving in with my grandmother never existed. So here I am, a 31 year old young man, with the above mentioned financial situation (i.e. $80,000 in equity on a $250,000 condo. Take home pay around $50,000 etc). My wife and I are planning to start a family soon which would take her out of the workforce for sometime which is why I didnt include her income at the moment.

Question is: should I sell the condo and take the equity to make a 20% downpayment on a house (which is where we want to live) and start growing a 'stache from ground zero  or save a little longer and make the downpayment on a home while keeping our condo as am income property?

MayDay

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Re: Case Study: Shack up with granny or stay the course?
« Reply #31 on: January 13, 2015, 05:51:44 AM »
I don't hate the whole idea by any means, but you need to be really clear about money (in writing).

You are way way way way underestimating the elder care issues. At 80, this is coming SOON. It's not if, it's when. I don't know the Canadian system, but make darn sure granny has money to pay for an aide, and that you are willing to manage the hiring/firing. I would also say a healthcare POA is needed.

Pigeon

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Re: Case Study: Shack up with granny or stay the course?
« Reply #32 on: January 13, 2015, 06:13:19 AM »
I agree that you are underestimating the eldercare issue.  I'm dealing with elderly parents now and it is a huge burden.

If I were your wife, I'd be running in the opposite direction screaming.  Her life is likely to be very unpleasant going forward with this plan.  Small kids and my husband's inflexible, highly religious elderly grandmother, hell no.  And her dealing with YOUR elderly relative is somewhat different than her dealing with her own elderly relative.  I've got a 92 year old father and an 89 year old MIL, and even though I've been married to MIL's son for 33 years, it still isn't like dealing with your own family.  And living in the basement, walk out or not, would be a nonstarter. 

Re keeping the condo v. selling, it depends on your individual situation, how much you think the condo will rent for, how much HOA are, how difficult it will be to rent.

begood

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Re: Case Study: Shack up with granny or stay the course?
« Reply #33 on: January 13, 2015, 06:31:41 AM »
Active 82-year-olds often become inactive, care-needing 85-year-olds. If your wife isn't enthused about this idea, and she would be the person looking after Granny (and any future kids), I'd put the whole plan on hold until you think it all through.

LadyStache

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Re: Case Study: Shack up with granny or stay the course?
« Reply #34 on: January 13, 2015, 01:30:03 PM »
Granted taking care of an elderly person in the future is a topic that must be broached, I will have to talk to my grandmother and discuss her plans for when that day comes when she requires assisted living. It is not fair to put this responsibility on my wife.

First, you shouldn't have had the conversation with your grandmother about moving in together without talking to your wife about it first. This arrangement is a lot for you to ask of your wife and if she never agrees that this is acceptable, you will make her the bad person in your family's eyes. That is totally unfair.

Second, you said you're going to wait until the day your grandmother needs assisted living before you talk to your grandmother about future plans for assisted living? This is something you should talk about BEFORE she moves in. She might have responded positively to your idea, thinking that you and your wife planned to take care of her in her old age. Also, like a lot of other people have said, that day might not be so far away. My grandmother was pretty active up until the day she broke her hip (which for an 82-year old can happen any day).

Goldielocks

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Re: Case Study: Shack up with granny or stay the course?
« Reply #35 on: January 13, 2015, 01:38:16 PM »


PPS - The reason my take home pay is $48,000 out of the $100,000 can simply be stated in one word: Canada. I pay an extraordinary amount of taxes through HST (harmonized sales tax - 13%), Payroll taxes (canadian pension plan etc) and Income tax. Also, it works to my benefit of having me in the lower tax bracket meanwhile I am able to claim many expenses I would have had to pay for out of pocket anyways.

HST comes out of your paycheque? Can you explain a bit more, as I may be missing something in my own calculations.


The way I see it -- a generic Canadian's taxes at $100k (single person) income per year:

Average net taxes, (net of personal allowance deduction), is 30% for Maritimes (as low as 24% for Alberta), plus another $3340/yr for CPP and EI... plus provincial health care at $0 to $150/mo.  so no more than 34% payroll taxes + govt deductions...
 
... Don't forget that you will end CPP and EI contributions by August...

This does not include company pension plan and benefits (disability insurance, etc) premiums.

http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2014-Personal-Tax

Catomi

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Re: Case Study: Shack up with granny or stay the course?
« Reply #36 on: January 13, 2015, 02:17:14 PM »
Granted taking care of an elderly person in the future is a topic that must be broached, I will have to talk to my grandmother and discuss her plans for when that day comes when she requires assisted living. It is not fair to put this responsibility on my wife.

First, you shouldn't have had the conversation with your grandmother about moving in together without talking to your wife about it first. This arrangement is a lot for you to ask of your wife and if she never agrees that this is acceptable, you will make her the bad person in your family's eyes. That is totally unfair.

Second, you said you're going to wait until the day your grandmother needs assisted living before you talk to your grandmother about future plans for assisted living? This is something you should talk about BEFORE she moves in. She might have responded positively to your idea, thinking that you and your wife planned to take care of her in her old age. Also, like a lot of other people have said, that day might not be so far away. My grandmother was pretty active up until the day she broke her hip (which for an 82-year old can happen any day).

Agreed 100%. You've put your wife in a really tough position. Either she agrees to a scenario she might not want or be excited about, or if she says no she's the one responsible for you not getting to buy a house. Your wife is the person you're living with now. You should always discuss with current rommates whether or not it's a good idea to add new roommates, BEFORE talking to the potential new roommates.

crispy

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Re: Case Study: Shack up with granny or stay the course?
« Reply #37 on: January 13, 2015, 02:27:14 PM »
The more you explain, the worse this sounds. 

TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #38 on: January 13, 2015, 02:36:15 PM »
I agree that you are underestimating the eldercare issue.  I'm dealing with elderly parents now and it is a huge burden.

If I were your wife, I'd be running in the opposite direction screaming.  Her life is likely to be very unpleasant going forward with this plan.  Small kids and my husband's inflexible, highly religious elderly grandmother, hell no.  And her dealing with YOUR elderly relative is somewhat different than her dealing with her own elderly relative. ....  And living in the basement, walk out or not, would be a nonstarter. 

Very well summarized.

TerriM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #39 on: January 13, 2015, 02:40:36 PM »
The more you explain, the worse this sounds.

+1

Kaspian

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Re: Case Study: Shack up with granny or stay the course?
« Reply #40 on: January 13, 2015, 02:42:07 PM »
I have never gleaned from the MMM "ethos" that it's a good idea to move back in with your parents or grandparents.  Absolutely nothing badass at all in that.  (Unless they need homecare and you're volunteering.)

jopiquant

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Re: Case Study: Shack up with granny or stay the course?
« Reply #41 on: January 13, 2015, 02:46:00 PM »


PPS - The reason my take home pay is $48,000 out of the $100,000 can simply be stated in one word: Canada. I pay an extraordinary amount of taxes through HST (harmonized sales tax - 13%), Payroll taxes (canadian pension plan etc) and Income tax. Also, it works to my benefit of having me in the lower tax bracket meanwhile I am able to claim many expenses I would have had to pay for out of pocket anyways.

HST comes out of your paycheque? Can you explain a bit more, as I may be missing something in my own calculations.


The way I see it -- a generic Canadian's taxes at $100k (single person) income per year:

Average net taxes, (net of personal allowance deduction), is 30% for Maritimes (as low as 24% for Alberta), plus another $3340/yr for CPP and EI... plus provincial health care at $0 to $150/mo.  so no more than 34% payroll taxes + govt deductions...
 
... Don't forget that you will end CPP and EI contributions by August...

This does not include company pension plan and benefits (disability insurance, etc) premiums.

http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2014-Personal-Tax

Goldilocks - you're right. It's pretty uncommon to put sales tax in a calculation of after tax income, and it is not deducted at source. I'm in BC too, and my take home pay is still well in excess of 50% of my gross even with 13% going to retirement/employer stock/charity off the top.

Future Lazy

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Re: Case Study: Shack up with granny or stay the course?
« Reply #42 on: January 13, 2015, 02:55:00 PM »
I almost forgot to ask, I was originally hoping to get some guidance on the following situation:

Suppose the prospect of moving in with my grandmother never existed. So here I am, a 31 year old young man, with the above mentioned financial situation (i.e. $80,000 in equity on a $250,000 condo. Take home pay around $50,000 etc). My wife and I are planning to start a family soon which would take her out of the workforce for sometime which is why I didnt include her income at the moment.

Question is: should I sell the condo and take the equity to make a 20% downpayment on a house (which is where we want to live) and start growing a 'stache from ground zero  or save a little longer and make the downpayment on a home while keeping our condo as am income property?

I would:

Save a downpayment, move, and keep the property as income property. I would manage it myself, to cut costs, but I would also analyze the property and make sure it will rent for a decent amount (enough to cover the mortgage, put away for maint/repairs, and still make some profit ideally).

Head over to a website like Biggerpockets for more information on figuring out of a property is good for income.

Janie

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Re: Case Study: Shack up with granny or stay the course?
« Reply #43 on: January 13, 2015, 06:40:43 PM »
Granted taking care of an elderly person in the future is a topic that must be broached, I will have to talk to my grandmother and discuss her plans for when that day comes when she requires assisted living. It is not fair to put this responsibility on my wife.

First, you shouldn't have had the conversation with your grandmother about moving in together without talking to your wife about it first. This arrangement is a lot for you to ask of your wife and if she never agrees that this is acceptable, you will make her the bad person in your family's eyes. That is totally unfair.

Second, you said you're going to wait until the day your grandmother needs assisted living before you talk to your grandmother about future plans for assisted living? This is something you should talk about BEFORE she moves in. She might have responded positively to your idea, thinking that you and your wife planned to take care of her in her old age. Also, like a lot of other people have said, that day might not be so far away. My grandmother was pretty active up until the day she broke her hip (which for an 82-year old can happen any day).

I second all this. Your grandmother may very well believe that she'll be taken care of for life if she moves in with you. Honestly, this doesn't sound like a great deal for her. If she spends her resources on your down payment and contributes rent, what resources will she have if/when she needs more care? She'd benefit from having an impartial advocate looking out for her interests before she made this sort of move. 

Pigeon

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Re: Case Study: Shack up with granny or stay the course?
« Reply #44 on: January 13, 2015, 07:40:07 PM »
Assisted living is very, very expensive. I priced it out a couple of years ago and around here it starts at $7k/month and goes up fast if you need help and medical assistance. Grandma may well need that money you want to sink into your house.

Primm

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Re: Case Study: Shack up with granny or stay the course?
« Reply #45 on: January 14, 2015, 04:14:01 AM »
So... granny contributes to buying the house, and then YOU charge HER rent???

Pretty sure it should be the other way around.

homehandymum

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Re: Case Study: Shack up with granny or stay the course?
« Reply #46 on: January 14, 2015, 02:22:15 PM »
Quote
Sorry, I realized post-post that I forgot to address this question. My wife is not ecstatic at the idea of living in a basement but then again my wife isn't mustachean oriented  at the moment. A few things to note, I am not suggesting we move into a dungeon. The type of place I am suggesting is a full walk-out with plenty of sunlight and separate entrance. Im trying to explain to my wife that by doing this we can move into a house quicker than we thought while at the same time increasing our financial security. I am currently trying to figure out a way to show her how this lines up with our long term goals/dreams. Granted taking care of an elderly person in the future is a topic that must be broached, I will have to talk to my grandmother and discuss her plans for when that day comes when she requires assisted living. It is not fair to put this responsibility on my wife.

So you see this living arrangement with Granny as a short term deal to help you spring-board into your future family home? 

What happens then?  Where does Granny live, once she's given up her own home and moved to accommodate you?  Move with you?  Have strangers move into the basement apartment that you're vacating?  Conveniently suddenly need an assisted living apartment?

And where will the rest of the family be if Granny has a really sudden decline? (hip fracture/sudden memory loss/cancer diagnosis/stroke?).  Given the small amount you've told us, I'm picking their instinctive reaction will be "Well, you must have known what you were getting into.  Have fun with that."

And you're just hoping your wife will see the light and become 'more mustachian', as if this will magically help her see what a great move this is?

I'm sorry, but although you seem very attached to this solution, I'm getting worse and worse vibes about it.  You have a lot of 'mustachian' people here giving you feedback that this is a potential minefield, to think through all the possible outcomes, and be realistic about the care needs of an elderly relative, and the huge stress that puts on the primary caregiver.  And it's not just the physical caregiving - it's the emotional stress of making those caregiving decisions, of dealing with other family members, of mediating between Granny and the caregivers that you do hire, and the very common outcome of eventually having Granny decide that you're the horrible ones because you're the ones who keep saying 'no' to her...

Multi-generational homes can and do work well.  BUT they do so when everyone in the arrangement is fully on board, everyone is completely up front and honest about money and expectations (who will cook and clean for Granny?  Does she do her own laundry once her shoulders are starting to get achy?  Does she get to make comments about how you organise your house or parent your children?), and the exit strategies and future pathways are clearly understood and acceptable to everyone.

I'm not being overly dramatic to suggest that you are setting yourself up to have to choose between your wife and your Granny.  What are you going to say to your now very excited Granny if your wife doesn't come around to the idea?  What are you going to say to your wife if she reluctantly agrees and it turns to custard?

Even if this looked like a great move financially (and it's not saving you that much time, imho), the potential relational costs are too high, given the warning signs you've told us about.

CarpeDM

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Re: Case Study: Shack up with granny or stay the course?
« Reply #47 on: January 15, 2015, 06:10:58 PM »


PPS - The reason my take home pay is $48,000 out of the $100,000 can simply be stated in one word: Canada. I pay an extraordinary amount of taxes through HST (harmonized sales tax - 13%), Payroll taxes (canadian pension plan etc) and Income tax. Also, it works to my benefit of having me in the lower tax bracket meanwhile I am able to claim many expenses I would have had to pay for out of pocket anyways.

HST comes out of your paycheque? Can you explain a bit more, as I may be missing something in my own calculations.

 
... Don't forget that you will end CPP and EI contributions by August...

This does not include company pension plan and benefits (disability insurance, etc) premiums.

http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2014-Personal-Tax

Sorry I explained that poorly,

The hst is not coming from my paycheque persay but from my company's gross earnings.

My accountant crunched the numbers and thought it was tax-advantageous to draw a smaller salary while writing off my expenses, which in my case are fairly common lifestyle expenses anyways i.e. portion of the rent (home office( internet, car, gas + insurance, eating out (from time to time), promo stuff etc.

Btw, what did you mean by "... Don't forget that you will end CPP and EI contributions by August..."?

I appreciate the honesty in this thread. It has been an eye opener and given me lots to think about.

Goldielocks

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Re: Case Study: Shack up with granny or stay the course?
« Reply #48 on: January 15, 2015, 07:23:12 PM »
Re CPP and EI

We pay a set amount each month, which at $100k is the monthly maximum.  It ends when you hit an annual max of $3340 combined, which should be at or before July for your income.

For me, I get our annual bonus in the first quarter and a huge portion of my annul CPP is taken off right away, so my monthly deductions end in April, or so.

daverobev

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Re: Case Study: Shack up with granny or stay the course?
« Reply #49 on: January 16, 2015, 05:57:21 PM »
HST is revenue neutral for businesses. You charge it to your customers, you remit it to the CRA. Any that you pay, you claim back.

HST is for the end user of products - the public.