Author Topic: Purchasing a house for parent  (Read 3967 times)

seanh510

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Purchasing a house for parent
« on: March 10, 2015, 01:26:15 AM »
30, single, software engineer in SF bay area.

Father is 63, by himself on other side of the country, and soon will need considerable financial help. Income < 12k a year, spotty, not in perfect health. Hasn't taken social security yet, but may decide to soon (joint decision, but let's keep this not TOO complex.) Has a place to live now, but not gonna last forever.

Have decided to purchase a house for him, using the thinking:

1. He'll always need a place to live. Have given some financial assistance in the past when needed, and honestly, for me - I'd rather put my money into something I own, as opposed to it just disappearing.

2. Insane housing market here, might as well start purchasing somewhere else.

I'll try and give relevant info, and ask my questions.

Income: $165k/yr, + lottery tickets (ISOs)

Current expenses: $3263/month

Live/work in SF. Above number includes $2400 rent for a 1BR, $500 car payment (please have mercy, far from upside down and at 0% interest, it's a truck, not a bmw, and I get my usage from it, but yes, it's a luxury), insurances, gym, family cell plan with dad on it, utils.

Assets: 60k IRA, 35k liquid

Again, in my defense, came from low means and had a ton of debt out of school. Haven't lived as frugally as I could have (i.e. have not been MMM reader past decade), and didn't always have current income.

Specific questions:

So pops is in PA now, but doesn't have a ton tying him there. Would like to see me more, and isn't married to staying in that state.

I recently lived in SLC, UT for a year, and loved it (outdoor nut), but had to move back to SF for career. He'd be open to living there (pretty easy to take the 2 hr flight, visit, enjoy the area a bit, etc.) If we don't go that route, I'd have to find somewhere in CA where I could afford to buy that a) wasn't a hell hole, and b) is within 2.5 hrs driving. If I'm gonna buy something in this state for him to live in, we'd better be able to see each other. Seems like there's not much in the immediate vicinity that's reasonable, and SLC is a good investment for real estate, afaict (it's growing.) In this state, I feel like I'd want to look near Sacramento.

So, concrete questions -

Given my income, it would seem that I could afford to make relatively high mortgage + homeowners, taxes, etc payments, and STILL be able to save some, on a relatively expensive house. Down payment is limiting factor there.

1. Should I -

a) Try and find a 5% down, or 10% down no PMI mortgage, and go big on a house (in a non SF Bay Area locale)? (because interest rates are low, inflation could happen, and I could potentially buy in decent market), or,

b) Try and find some sort of multi-unit dwelling and take advantage of having a family member living there that could help act as a landlord? (again, non-SFBA market)

c) Buy a reasonable (100-200k) condo or some such in SLC or Sacramento, be glad I can help out my dad with housing, make trips from time to time, make the mortgage payments, and figure out a strategy for the rest independently of that situation?

d) I'm an idiot, and should be doing something completely different?

2. For any of the above, which type of professional would I go to for advice on the taxation situations? A real estate lawyer? accountant?

This would be my first time home purchase, but I would not be living in it. However, it wouldn't be an income property, since I wouldn't be charging my dad rent. Would it be a "vacation home"? Or could it be some sort of rental, that I'm taking a (tax deductible) loss on?


Honestly, thanks for any tiny bit of advice. Probably a complicated situation to try and assess from the outside. The ONLY thing that's off the table is us living together. As crappy as that sounds, I love the guy, but it'd be bad for both of our mental health situations. Obviously finding something around here that involved me ditching the $2400 rent would be great, but really...it's not an option.

Another Reader

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Re: Purchasing a house for parent
« Reply #1 on: March 10, 2015, 05:24:06 AM »
The "joint" decision to take Social Security is key here.  Are you housing a stepmother or long-time girlfriend as well as your dad?

I would not find him a house right now.  Instead, I would find him an apartment in a senior community for folks with restricted incomes.  My house in Silicon Valley would rent for $4,500 a month, but a one bedroom moderate income senior apartment in a nice neighborhood nearby goes for around $1,250.  It's on a bus line and there are two banks and a convenience store in an adjacent shopping center.  There may be similar complexes closer to where you are.  This will get him acclimated to living in the Bay Area, near you.  If he does not like it, he can move somewhere else and you don't have a property to sell or rent.

There are also age 55+ condos, but they tend to be expensive to buy and have high HOA fees.  Since the rents are not restricted, they are also very high. 

At his age, he could have ten to twenty years of quality time left, so choosing something that makes him happy would be my first priority. 

chasesfish

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Re: Purchasing a house for parent
« Reply #2 on: March 10, 2015, 05:59:14 AM »
I hope those lottery tickets win big for a BMW...what are your car taxes on that thing a year?

Regarding the house, I'd look at this more holistically.   I've thought about this and watched my dad do this for his mother-in-law and learned a lot of lessons on what not to do.  How much per month are you willing to contribute to your dad for the rest of his life?  A house kind of fixes that, but it doesn't.  You have interest, insurance, taxes, then any maintenance ultimately falls on you to protect your investment.  It could go up and down in what you have to pay and create tension when you think dad is responsible for something but you ultimately have to pay for it.  Housing does not always go up in value.

I'd figure out how much you're willing to supplement, then direct pay that amount to a senior friendly apartment complex or a regular market rental.    Where in PA?  Cost of living could be all over the place.

GizmoTX

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Re: Purchasing a house for parent
« Reply #3 on: March 10, 2015, 06:40:37 AM »
I agree with the previous posters. It makes sense to bring your dad closer, but if he's going to leave his home environs & friends, he needs to be in a place where he can easily meet new ones & do things. A house with all its maintenance demands is much less attractive to a senior, & it should be single story. A senior's health situation will change over time, sometimes very quickly. You need to be minutes rather than hours away.

My aunt lived in a senior apartment community in Sunnyvale CA from age 70 to 90, & she was definitely income restricted. She sold her car because the community has transportation. The community has a dining room & chef where residents get at least one of their daily meals.

My MIL sold her home & car at 90 & moved into a CCRC type senior community that has both independent & assisted living options. This requires considerable up front money that is mostly refundable when she leaves. She is now almost 99 & we thank her community for keeping her safe & active.

Putting your money into a house you don't live in or rent out means you get all the expenses with none of the tax deductions. It isn't portable, could easily go underwater & require much more money to keep up. All while your dad may need assisted living, a nursing home, or a memory care facility.

The one family I know of that successfully provided a house for parents was part of a large extended local family plus their own minor children & bought the house next door for cash.

Pigeon

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Re: Purchasing a house for parent
« Reply #4 on: March 10, 2015, 06:57:44 AM »
I'm currently dealing with my elderly parents and dh's elderly mother (FIL died a couple of years ago).

From my experience, I would do something that had living close to me.  I would either look for a senior living situation, like a pp said or I would look for a house with an inlaw apartment.  If you can find lower income senior apartments near where you live, I think that would be the best situation.  He would have access to services like transportation that will become increasingly important to him, and he will be able to make friends and take advantage of activities offered there.

I would be OK with an in-aw apartment and have seen that work out very well, but it depends on your relationship and that might not be a good option for you.  We are in the process of trying to get my 89 yo MIL to move out of her house and into my BIL's house, and she would be more willing to do that and it would be happier all around, if she had some private space there in the form of her own living  area.  She is past the point of being able to entirely live on her own and she won't have help come in.

I would not buy him a house in a distant city.  That to me is the worst of all possible worlds.  There will be maintenance and upkeep on the house.  Eventually, he will need more help.

seanh510

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Re: Purchasing a house for parent
« Reply #5 on: March 10, 2015, 12:14:39 PM »
@Another Reader

Sorry, by "joint" decision on taking social security now, vs waiting, I just meant that he and I were discussing the merits of each choice. There's no other person in the situation.

Sibley

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Re: Purchasing a house for parent
« Reply #6 on: March 10, 2015, 01:18:06 PM »
I've known several older individuals who moved into senior housing. Each one resisted it (I don't want to leave my home type stuff), but eventually agreed. Within 6 months of the move, they all loved it. The community is 200% worth it for them. Many of them actually had improvements in their health because of the better community and support.

A house would mean that he'd be lonely, and if there was an accident then more likely that he'd be in real trouble. Do not go that route unless you'll live there with him.

seanh510

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Re: Purchasing a house for parent
« Reply #7 on: March 10, 2015, 02:29:58 PM »
Hrmm...maybe I should have been more specific. He's not decrepit and elderly. Perfectly capable of working/living alone. This is no, "I've fallen and I can't get up" type person. I realize I did say spotty health, but I guess that was a red herring, something I was thinking about when doing the calculus for "take SS income or not".

Was really hoping for some pointed advice about the HOWs of the house situation. It sucks that I'm already pissing away 2400 a month in rent to live/work in the same city...I don't see how funneling my money to some elderly living center (which btw, in the bay area, is gonna be insane, cost wise. There's preschools that cost $2200 a month here.) in perpetuity is a good idea.

OTOH, if I purchase a house, I'll be investing my money in something while at the same time taking away a very big/important expense (roof over your head.) If 10 years down the road, he needs assisted living or some such, I can face that battle then (sell the house if it's increased in value, rent it out and pay for the living out of pocket at that time, etc.)

Someone said I'd receive none of the tax benefits...could I not consider it a vacation home, for tax purposes? I very easily could pull off spending the requisite amount of time there.

GizmoTX

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Re: Purchasing a house for parent
« Reply #8 on: March 10, 2015, 03:36:55 PM »
YOU have to either live in the house or have rental income from it to claim house related deductions.

If you do buy a house, don't list your dad on the title or mortgage, as it will nullify any Medicaid for him.

If he starts Social Security before his Full Retirement Age, he will forever take a cut in monthly benefits plus be subjected to the income cap until he reaches FRA. On the other hand, if his life expectancy is not good, something is better than nothing.

frugaldrummer

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Re: Purchasing a house for parent
« Reply #9 on: March 10, 2015, 06:21:29 PM »
I believe you CAN deduct the mortgage interest on it as your vacation home.  But if you ever want to take the homeowner's deduction on the profit when you sell, you would have to live in it for two years first.

WE helped my mom buy a house near us when she retired.  We put up the down payment and initial remodeling, she paid the mortgage payments, we split ownership 50:50.   It helped her have a nice place for less than a rental, and we did make a profit on the house when we sold.  But we also invested significant amounts of money into maintenance and repair - new roof, new sewer line, bathroom remodel with mold problems. 

I think there's lots to consider with your dad.   Does HE want to live close to you (and do you WANT him too?).  He's healthy now, but 10 years from now he might need lots of attention that would be inconvenient to provide at a long distance.  Can he work in his new environment?  (Sounds like he will need to keep working even if you are paying the rent).   Does he have hobbies or friends or other family that would influence where he would like to live?  Are you an only child? Remember that if you are on a mortgage loan for him, you may not qualify later for a mortgage for yourself (depending on the total payment to income ratio).

Options for you include:
 - buying him an inexpensive home in a very low COL area far from you (cheap condos may still be available in Vegas or parts of Arizona for example.
 - buying him a more expensive home someplace that YOU want to have a home in (but keep in mind, that ski chalet in Utah may be at an altitude that he won't tolerate as he gets older).
 - buying a home where you are that has room for him too (I'm divorced now and my mom now lives with me in a largish 2 story home with a downstairs bed and bath for her.  Depending on your relationship, you might want a separate granny flat).
 - helping him to pay for reduced-rate senior housing rental (no equity but possibly cheaper in the long run)
 
I agree that him relocating to a house by himself in a new area where he knows nobody and far from you, may not be a good plan UNLESS it's in a senior community with a readily available social life.  (And he might object to being considered a "senior" at his age lol). 


seanh510

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Re: Purchasing a house for parent
« Reply #10 on: March 10, 2015, 07:33:36 PM »
Thanks for the response frugaldrummer.

I was, and still am ok with helping him to continue living where he does now. (The situation is he's living with my grandmother, and at some point that will no longer be viable. At that point, he'll either need rent assistance, or housing.)

Only child...for all practical purposes, that still wants something to do with the situation. Friends, family, reasons to stay...sadly, not really, which is I why I think somewhere I'd be able to see him more often would be better (he expressed this himself.) Again, trouble is, there is no such thing as "reasonable" in the bay area. That's why if it were to be California, I have a feeling we'd be talking somewhere close to, or in Sacramento.

Just so I don't sound like some selfish jerk, SLC only came up between us because it's a market that's on the rise, where COL and housing prices are still quite reasonable. It would certainly not be some lonely "ski chalet" situation at altitude - the city proper there has many walkable areas, and has gorgeous weather spring through fall. It being a less than 2 hour flight from SFO means it would be much easier to visit more often.

Really trying to make some sort of house situation work. People keep mentioning repairs and unexpected issues like I'd never thought about it. "Senior communities" around here are like $3500 a month. To be honest, the guy made every financial mistake in the book multiple times, and ended up house, and savingless because of it. I'm not flushing 40k a year down the toilet STARTING in my early 30s because of that, but more than willing to do something that may be mutually beneficial, like provide housing in the form of something I'm buying for myself.

Don't get me wrong though, if/when he really does need to depend on others for care, I'll deal with it. Just not there yet.

Was trying to keep this more financially oriented than going into situational details, but I guess that's easier said than done.

caliq

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Re: Purchasing a house for parent
« Reply #11 on: March 10, 2015, 07:40:46 PM »
Take this with a grain of salt, cause I'm not from the area and the only reason I know this is because I want to do a PhD at Stanford and was looking at weekend commuting options because DH is very much not a city person (not that we could really afford the city anyways...).

But have you looked at around Sonora CA?  I think it's the Sierra Nevada foothills...It seems really pretty, but like I said, I have no idea if it's actually nice or a good market -- just saw that we could get something with a decent amount of land (big dogs, DH is not into walkability, lol) for less than 200k.

Catbert

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Re: Purchasing a house for parent
« Reply #12 on: March 10, 2015, 08:09:54 PM »
As a "second home" you can deduct mortgage interest and property taxes paid just as you do with a principal residence.  You can't deduct insurance, repairs, etc. that you could on a rental property.

There is a way that it might be done as a rental property* but with your high income it likely wouldn't be the best way.  Regardless, I think that initially renting would be best.  I say that not because of his age, but rather that's what I would tell anyone moving to a new city.  Make sure the city and neighborhood are a good fix before investing in a house.

*to do as a rental you'd gift to your father 15K a year (or whatever the current gift exclusion is) and then charge him the low end of "fair market value".  If fair market value is less than 15K a year it's perfect.  Then you could deduct depreciation, repairs, utilities if included in the he pays rent, maintenance, etc.  However, if you make a profit after depreciation and costs then you'd have to pay  income tax on the profit.  OTOH if you lose money on paper your high income would preclude you from a loss.

Ricky

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Re: Purchasing a house for parent
« Reply #13 on: March 10, 2015, 08:13:43 PM »
I thought about that too, mary w, but his deductions probably would equal the rent anyway, so it would probably end up full circle with no gain.

Maybe consider a duplex thats like 70% area on one side and let him live in the 30% area. Might be hard to find, but worth it because then you could rent out 70% of it and deduct 70% and gain economies of scale.

If you're for sure going to pay for his housing, then you couldn't go too wrong buying a house. But please don't buy hoping for appreciation. Buy only if it's place you could see yourself in the future since whether you live there eventually, or rent it out in the future, you're going to want to really love the area. I assume you're not staying in the Bay Area forever, so yeah. SLC sounds like a good choice to me.
« Last Edit: March 10, 2015, 08:24:52 PM by Ricky »