Author Topic: Renting House from Parents vs. Buying Different House  (Read 3044 times)

Spivey

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Renting House from Parents vs. Buying Different House
« on: January 21, 2016, 11:57:45 AM »
My fiancÚ and I are currently renting a 3 bedroom, 2.5 bath house in San Diego from my mother. We pay her $1900 a month, and based on online estimates (Redfin, Trulia, Zillow), the home is worth around $700k. Does it make sense to continue living in the house and paying rent to my mother if I'm going to inherit the house in 20 to 30 years? How do I develop a cost comparison between renting this house, renting a different place, or buying a new place?

lbmustache

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Re: Renting House from Parents vs. Buying Different House
« Reply #1 on: January 21, 2016, 01:46:42 PM »
My fiancÚ and I are currently renting a 3 bedroom, 2.5 bath house in San Diego from my mother. We pay her $1900 a month, and based on online estimates (Redfin, Trulia, Zillow), the home is worth around $700k. Does it make sense to continue living in the house and paying rent to my mother if I'm going to inherit the house in 20 to 30 years? How do I develop a cost comparison between renting this house, renting a different place, or buying a new place?

I more or less do the same thing currently.

1) Are you 5000% sure you will inherit the house? Are there other siblings or family members to worry about?
2) Worst case, if your mother passes away unexpectedly, and you inherit the house - can you afford all the expenses associated with this house (this is assuming she passes before the house is paid off)?

I pay about $1000 in rent, out of a $2000 mortgage (includes a $275 HOA). I think only like $400 (of my $1000) goes towards the actual principle of the house.

If you are 5000% sure you will inherit the house, yes it makes sense. If you would pay the same, or a little more, to rent a similar place, yes it makes sense. If this last sentence is correct, then it does not matter if you inherit the house or not since the expenses are the same. You have to have a roof over your head regardless. Not knowing the specifics of your location other than San Diego, I would say $1900 sounds pretty reasonable for a house that size.

Buying a new place involves a lot of other factors (downpayment, etc.) that I don't know much about, so I'll leave that to the seasoned mustaches.

jeromedawg

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Re: Renting House from Parents vs. Buying Different House
« Reply #2 on: January 21, 2016, 01:59:31 PM »
I'm currently in a similar situation up in Irvine. In my case, I co-own a condo here with my parents but we are now strongly considering relinquishing my ownership and having them go full ownership on it and instead of me paying a monthly "mortgage" back to them, just classify it as "rent" instead. It's a very low amount of rent/mortgage (much lower than comparable units in our community). The reason why we want to relinquish full ownership to them is because I have two older brothers (and SILs) who seem somewhat "interested" in how things will turn out with the inheritance. We've had prior discussions about the condo and the feeling my wife and I get is that my brothers didn't *seem* to care about the arrangement at the time but we anticipated that they probably would care, especially after one of my SILs started asking questions about what happens when the value of the place increases and how we would split everything if it becomes an inheritance especially if we already have partial ownership in the place, etc. I could just foresee it getting really messy, and we want our hands clean of it.
On that note, I think we are open to getting our own bigger place but we'll see. We have one kid now and I started telecommuting. With my parents in town helping, things are already tight, so I'm not sure what life will look like with more kids. Furthermore, my wife is going SAHM full-time (so we anticipate) starting Feb/mid-Feb. As the days go on this is becoming more of a great place that you might want to rent out to others but not necessarily live in yourselves. At the same time, taking on a mortgage would add a significant amount onto our budget which is one thing I wouldn't look forward to. I think the current idea we have is just to try to wait it out as long as we can here until there's another housing market crash in the area, and buy as low as we can.

We're actually having a discussion with our realtor/lawyer/friend who helped us get the current place. And will see what advice she has as far as options. It *would* be quite nice to get a large home in Irvine... one can dream :) I think we'd be OK settling in Tustin (preferably) or maybe Lake Forest as well. I keep kicking myself for not just going for a place when the last housing bubble burst and prices in Tustin were at all-time lows.
« Last Edit: January 21, 2016, 02:04:55 PM by jplee3 »


Spivey

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Re: Renting House from Parents vs. Buying Different House
« Reply #4 on: January 21, 2016, 02:30:41 PM »
I more or less do the same thing currently.

1) Are you 5000% sure you will inherit the house? Are there other siblings or family members to worry about?
2) Worst case, if your mother passes away unexpectedly, and you inherit the house - can you afford all the expenses associated with this house (this is assuming she passes before the house is paid off)?

I pay about $1000 in rent, out of a $2000 mortgage (includes a $275 HOA). I think only like $400 (of my $1000) goes towards the actual principle of the house.

If you are 5000% sure you will inherit the house, yes it makes sense. If you would pay the same, or a little more, to rent a similar place, yes it makes sense. If this last sentence is correct, then it does not matter if you inherit the house or not since the expenses are the same. You have to have a roof over your head regardless. Not knowing the specifics of your location other than San Diego, I would say $1900 sounds pretty reasonable for a house that size.

Buying a new place involves a lot of other factors (downpayment, etc.) that I don't know much about, so I'll leave that to the seasoned mustaches.

1) 100% sure. There are no other siblings or family members to worry about (only child).

2) If my mother passes away unexpectedly, and I inherit the house, I can afford all the expenses associated with this house. The house is paid off.

What about the equity I could be building in another property at $1900 per month instead of paying for something I'm already going to inherit?

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

I've been using this calculator but I'm having trouble determining the opportunity cost in paying my mother rent versus building equity in another property. Hopefully my explanation makes sense.

jeromedawg

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Re: Renting House from Parents vs. Buying Different House
« Reply #5 on: January 21, 2016, 02:51:29 PM »
I more or less do the same thing currently.

1) Are you 5000% sure you will inherit the house? Are there other siblings or family members to worry about?
2) Worst case, if your mother passes away unexpectedly, and you inherit the house - can you afford all the expenses associated with this house (this is assuming she passes before the house is paid off)?

I pay about $1000 in rent, out of a $2000 mortgage (includes a $275 HOA). I think only like $400 (of my $1000) goes towards the actual principle of the house.

If you are 5000% sure you will inherit the house, yes it makes sense. If you would pay the same, or a little more, to rent a similar place, yes it makes sense. If this last sentence is correct, then it does not matter if you inherit the house or not since the expenses are the same. You have to have a roof over your head regardless. Not knowing the specifics of your location other than San Diego, I would say $1900 sounds pretty reasonable for a house that size.

Buying a new place involves a lot of other factors (downpayment, etc.) that I don't know much about, so I'll leave that to the seasoned mustaches.

1) 100% sure. There are no other siblings or family members to worry about (only child).

2) If my mother passes away unexpectedly, and I inherit the house, I can afford all the expenses associated with this house. The house is paid off.

What about the equity I could be building in another property at $1900 per month instead of paying for something I'm already going to inherit?

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

I've been using this calculator but I'm having trouble determining the opportunity cost in paying my mother rent versus building equity in another property. Hopefully my explanation makes sense.

At this point, since all the money is being kept in the family with this house, sure look into another property then. If you're happy living at the current place though, why not continue to live there and rent from your mom and then look for a rental property (that you might also consider moving into later) to invest in? Of course, you'd need to find a pretty decent deal where rental income is paying off the mortgage and perhaps more. Maybe there could be some compromise with this though if it's a property you would consider moving into at a later time.
« Last Edit: January 21, 2016, 03:47:30 PM by jplee3 »

Catbert

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Re: Renting House from Parents vs. Buying Different House
« Reply #6 on: January 21, 2016, 02:53:56 PM »
Another San Diegian here... $1900 rent for a 700K 3 bed house sounds like it's a bargain.  I currently get $2450 for a house worth about 500K in San Carlos area of San Diego.*    But the bargain also depends on what is or isn't included in your rent.  Will your mother be responsible for maintenance, repairs and improvements as a normal landlord?  Or will you take on all/part of that responsibility since the rent is below market and you expect to inherent?  If the latter it may not be as much of a bargain to live there long term as you think.

In your shoes I would probably live there for the moment (assuming it meets you needs and it well located).  I would not make a commitment to your mother to stay there "forever".   Things change...you might want to leave San Diego...or live in a different area of town...or eventually buy another home.  Or your mother might sell for a variety of reasons...gets mad a you...needs money...


* Yes, I know these prices sound ridiculous if you don't live in a high COL area like San Diego.

AZDude

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Re: Renting House from Parents vs. Buying Different House
« Reply #7 on: January 21, 2016, 03:31:35 PM »
$1900 for that house means its good deal, unless its in shithole parts of Chula Vista or somewhere like that. I would stay, especially given that you will probably inherit the home one day.

tj

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Re: Renting House from Parents vs. Buying Different House
« Reply #8 on: January 21, 2016, 03:43:33 PM »
Stay. You get to live in a 700k house for dirt cheap, plus you are helping your mother out with some extra income.

soccerluvof4

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Re: Renting House from Parents vs. Buying Different House
« Reply #9 on: January 21, 2016, 04:54:43 PM »
^+1 and shes probably wont raise it on you as much as someone else.

Villanelle

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Re: Renting House from Parents vs. Buying Different House
« Reply #10 on: January 21, 2016, 05:06:18 PM »
That rent seems very, very cheap for San Diego, unless you are way out in Alpine or something similar.

Also, not only are you getting super cheap rent, you are essentially investing in your inheritance.  My situation is different in that I wanted to re-fi and mentioned to my dad my frustration with not being able to because it is no longer owner occupied, and he offered to lend me the money.  I pay him a set, fair-market interest rate (with a lien and income tax filings so it is all official).  He gets a guaranteed return on his money, I get an interest rate I couldn't have otherwise (because we moved overseas, not due to credit or a rate below those available at the time).  In addition to that, my interest is going to him instead of to a bank.  I will someday inherit 50% of the estate, so in effect I am getting 50% of that interest back. 

In your case, assuming your mom dies with a positive net worth, you'll see that rent again someday.  And you certainly can't buy anything remotely comparable for that payment.  If you factor in taxes and everything else, I'm not sure you can find too many 1-2 bedroom townhouses for that payment, unless you are willing to live way far out and likely deal with very long drives. 

ooeei

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Re: Renting House from Parents vs. Buying Different House
« Reply #11 on: January 22, 2016, 06:20:56 AM »
I've been using this calculator but I'm having trouble determining the opportunity cost in paying my mother rent versus building equity in another property. Hopefully my explanation makes sense.

The opportunity cost is part of the calculator.  That's why you put in house appreciation rate and investment return rate.  It assumes you're building equity in the house, and assumes you're investing in the stock market with any money you save by doing a rental instead.

Obviously you can't truly know the opportunity cost, because you don't know what housing prices will do in the future.  If they go up by 20% over the next 3 years, you'll be kicking yourself for not having bought one.  If they go down by 20% next year you'll potentially be underwater and will have overpaid by 6 figures.  The same goes for stocks.

Bearded Man

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Re: Renting House from Parents vs. Buying Different House
« Reply #12 on: January 22, 2016, 07:55:42 AM »
Wish I had family with assets like that to leave me. I've got a couple of colleagues who are dead broke but in situations where they are renting from their mothers and stand to inherit the houses, so magically they will be rich like me with no effort on their part.

I'd say stay and help her out with maintenance rather than riding the cheap rent and free maintenance while you stand to inherit probably a cool million by the time she passes. She's giving you a sweet deal, don't get greedy.