How could I buy parents house- and rent it out to them?

[essjay43]

My parents are getting older and aren't in a position to retire. I would like to help them buy buying their house and renting it back to them. How could I do this with the least amount of risk while building equity?

[frugaliknowit]

You would do it the way you would do any other purchase, with a contract and legal counsel, and a mortgage.

What are you trying to accomplish?  If they are unable to retire, why would they want to rent from you?  Do they need the equity in the home for something?  Assuming they do, why don't they do a reverse mortgage (if they are 62 or older)?
If they are in debt, what is to prevent them from getting into debt again after they cash out of their house?

If the only point is for you to build equity, you can do that by purchasing, then renting any property or buying index funds (where your equity building is in the stock market).

[Trudie]

Hi,
Basically what you have described here seems very much like you would be the "bank" on a reverse mortgage.  I agree with "frugaliknowit", you should consult a lawyer and have a contract.

I am not certain what your motivations are, but also be aware that in most states -- should your parents require Title IXX for long term care -- they will do a "look back" of two years or so at related party transactions and include the value of the house in determining need -- even if title has been transferred to you.

Again, talk to an attorney and make sure you all understand the consequences, both financially and emotionally.

[Jags4186]

jlcollinsnh has an entire post about doing this very thing:

http://jlcollinsnh.com/2014/02/20/case-study-10-should-josiah-buy-his-parents-a-house/

tl;dr:  let your parents keep the house, cover their excess expenses, have them leave the house to you in their will.

[rebel100]

I have done this, it has worked out quite well actually.

Buying property as an investment isn't really determined by who your renters are, but by how the deal is structured and how well the parties work together.  That not to say the deal you describe isn't without real risk, but it is something that can be largely evaluated if you trust your parents and can afford any mistakes.

In my case the following happened:

Mom and Dad got hammered in the downturn of 2007-08 (value of retirement savings roughly halved from $250K to just about $135K), Dad bravely staved off the disaster by staying in the workforce at a great rate of pay while Mom also continued to work.  Trouble was they had mortgaged the house to the brink and started to fall behind on the payments as Dad faced a forced exit from the company he had worked for for some 30 years (actually while it was forced, they really did keep him on for a long time and I think they really tried to look after him in a way, but the end was clear and approaching fast).

I helped them navigate a short sale on the home I grew up in. none of us are proud of it, but the other option was to see it simply taken back by the bank...the short sale was the right decision.  This freed up $1200/month, but left them searching for a place to live.

Our original plan was to rent them a house /apartment while I built an addition on my house for them, we started the construction but happened by a sweetheart deal on a small 2 bedroom house a few blocks from me.

The house we found needed a lot of work, but I really feel it was purchased way below value ($28K and I think it was easily worth $45-50 the day we bought it).  For 10K down the owner financed the $18K balance at 10% for 4 years.   I spent about $5000 on central heat/air, paint, interior doors, etc...got it fully liveable.  Mom and Dad are covering the roughly $450/month and have about 18 months left.  They cover the taxes and incidentals with my help.  I am actually the deed holder and Mom and Dad technically "rent" from me.  They are close so when medical issues and such come up I can be there in just a couple minutes.

Our next step is to complete a garage apartment at this new house that they can potentially rent out for a little extra income (my Aunt may be their first tenant at a few hundred a month).  The deal is working out quite well all around.  I'm happy I could help them work this out, and it will mean an inheritance at some point (I pray that's a long way off).

I would urge you to look at your options and stay flexible.  There are win win possibilities out there if you look around and act creatively.

Good Luck!