Author Topic: Should I use my equity to help parents????  (Read 6722 times)

nyxst

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Should I use my equity to help parents????
« on: August 28, 2014, 09:27:17 AM »
I have been watching my parents run on a mouse wheel with their bills.   My mom takes care of my kids so I can work.  I pay her $100 per week (which covers snacks for them and her gas money driving to and from school, but probably nothing towards my parents household income.)  My dad makes a blue collar income.  I think he is at about $30,000 per year.  They have to buy health insurance through the government program.  My dad is getting older (57) and the hard work of a labor job is starting to break down his body.  He had a stroke about 5 years ago, and no other health problems since, but I just don't know how much longer he is going to be able to continue like this.  Their house is worth about $230,000-ish.  They pay a mortgage and a heloc, plus they are going backwards on credit card bills now..  They live a frugal life and really I can't even imagine what they could cut to lower their bills.  I would guess they owe about $150,000.

I am a single mom with three kids.  I make an ok income ($48,000) and my health insurance is covered by my work for my whole family, so I am definitely making out there.  I am working on my accounting degree with the hopes of improving that income in time.  My house is worth about $200,000 and I owe $50,000.  I have a 30 year mortgage, so my payments are really tiny.  I save about 20% of my income between my work sponsored plan and my Roth IRA.  I also (try to) keep an emergency fund, with my goal at $10,000.  It hasn't gotten there yet, but that is my goal.   I have had to lend my parents money during emergencies that they have (a few trees hit their house and insurance covered most of it, but not the cost of tree removal, which ended up at $3,500, that they didn't have... things like that...) 

I am trying to figure out if pulling the equity out of my house and paying off their debt/mortgage and owning their house outright would be a benefit to us.  The way I see it, I will end up with the house eventually someday anyway (since I am an only child) and the 20% that I am putting towards retirement could instead be saved as equity in my parents house.  Of course, if I decided to do this, I would talk to a lawyer and have my name on the deed and whatnot... but the way I see it, I could take the pressure off of my parents until their social security payments kick in.  They only have about $70,000 saved for retirement. 

I know my mom plans on getting a part time job once my youngest daughter is in school all day (next year), which will help a little, but she has been out of the workforce for more than 20 years, so I don't think she will make much of an income.  They aren't very good at staying out of debt.... but with their situation I can see why.  I can't just increase the amount I give my mom each week, since I feel like that will be steeling from my own retirement since it will be spent on daily expenses and not secured like having equity in their house.  My house is in a less desirable neighborhood then theirs is and I think that over time the value of their house will increase more than mine will.

Is this just an all around bad idea? Thanks!

zhelud

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Re: Should I use my equity to help parents????
« Reply #1 on: August 28, 2014, 10:18:44 AM »
Why don't you pay your mom more to watch your kids?  She's staying out of the paid workforce to help you out, surely she deserves more than just reimbursement for gas and snacks. If you think she's not good at budgeting, you could just apply your extra payments directly to one of her bills.

ltt

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Re: Should I use my equity to help parents????
« Reply #2 on: August 28, 2014, 10:31:42 AM »
$100 a week???  Granted, she's your mom, but how much would you be paying someone else to watch them?  Maybe find the difference and increase by half?

Do your parents have the ability to downsize into a condo/townhome to get out from under that $150K, plus all the direct maintenance of owning a home?

$30K is not going to go very far with $150K in loans and bills.  Do you have a breakdown of what they owe or what you think they owe?



RFAAOATB

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Re: Should I use my equity to help parents????
« Reply #3 on: August 28, 2014, 11:00:51 AM »
Do you all really need TWO houses?  Perhaps arrange one house for all y'all as a family compound?  What do you plan on doing when you get your parent's house anyways?  If it's sell then you should get together, if it's have one house be a rental, that might be worth paying off the mortgage for them.

DrJohn

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Re: Should I use my equity to help parents????
« Reply #4 on: August 28, 2014, 11:07:09 AM »
Question: would your parents be happy with you owning their house?  Relationships sometimes go bad and a split with a future spouse (heaven forbid) might leave them without somewhere to live....

Weedy Acres

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Re: Should I use my equity to help parents????
« Reply #5 on: August 28, 2014, 11:28:28 AM »
Your parents are house poor.  A household income of $30,000 shouldn't buy a $200K+ house.  They should downsize to something they can better afford.  If they've got $80K equity and buy a $100K house, their payments will drop dramatically and they'll be able to dig out of their credit card hole. 

And your comment about "can't pay her more is stealing from my retirement because she'll spend it on herself" is looking at it the wrong way, IMO.  She's providing you a service and it's reasonable to pay her for her time. 

In any case, moving the debt on their house to your house doesn't make much sense to me.  Much simpler to just pay down their mortgage directly, with them signing a note to you (like a reverse mortgage).  But your return on that "investment" will likely be worse than in the stock market.  I wouldn't do it.

I'd focus on helping them get more frugal with their house situation by downsizing.  And pay your mom a bit more for watching your kids.

NoraLenderbee

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Re: Should I use my equity to help parents????
« Reply #6 on: August 28, 2014, 11:52:08 AM »
If you did this and paid off all your parents' debt, would they then be able to live on their incomes? Or would they slide back into credit card debt? This question has two parts--1. would they earn enough to live on, and 2. would they disciplined enough to avoid CC debt, or would they overspend.

frugaliknowit

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Re: Should I use my equity to help parents????
« Reply #7 on: August 28, 2014, 12:05:46 PM »
No, no, no!!  Best of intentions, but bad idea.  Look at the range of possibilities and the worst case is awful!

1.  Pay your mother close to market rate.  $100 per week is ridiculous, especially since she and your father are bleeding.
2.  Have a heart to heart with your parents expressing your concern.  Try to get them on a sustainable path.  Another mustachian mentioned downsizing their residence.  This makes sense

crispy

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Re: Should I use my equity to help parents????
« Reply #8 on: August 28, 2014, 12:25:20 PM »
No, no, no!!  Best of intentions, but bad idea.  Look at the range of possibilities and the worst case is awful!

1.  Pay your mother close to market rate.  $100 per week is ridiculous, especially since she and your father are bleeding.
2.  Have a heart to heart with your parents expressing your concern.  Try to get them on a sustainable path.  Another mustachian mentioned downsizing their residence.  This makes sense

This!  The idea of pulling out your equity to pay for their house just isn't a good idea.  There are so many ways this can go wrong.

I also think you need to pay your mother more or encourage her to get a job now instead of waiting and then put your children in daycare.  You aren't paying her market rate and are hindering her ability to get a better paying job. 

nyxst

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Re: Should I use my equity to help parents????
« Reply #9 on: August 28, 2014, 12:27:25 PM »
I don't pay her $100 per week because that's what I think she deserves... I pay her $100 because that is what I can get her to take... I had to write down everything I though she spent in a week in order to convince her to take it.  My parents are proud people to a fault.  My dad will work until he physically can't any longer because that is what he feels his job is.  I am nearly positive that any extra money I could give my mom to babysit would end up being spent on stupid toys and unnecessary things for my kids (so that it wasn't like they were taking money from me...) 

I guess it is a bad idea :) I will keep brainstorming ways help! I usually take the perspective of "they made their bed.. now they have to lay in it" because they don't stay out of debt and because my dad lost some good jobs.... but they are my parents and I want them to enjoy life a little instead of always stressing.  My mom is an artist who is amazing, but hates selling her work.  There is potential there, but it just is difficult with stubborn people.  I don't think they will ever leave their house, but it may be mortgaged to the hilt if they keep living like this. 

Frugally-raised

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Re: Should I use my equity to help parents????
« Reply #10 on: August 28, 2014, 02:57:41 PM »
Your parents are in a precarious situation; one serious problem and they could head down a spiral into bankruptcy.

Do not tie your financial future to theirs. And real estate is so illiquid, it really ties you together. Don't do it.

The best thing you can do for them is to keep your financial house in order. The better you do for yourself, the more you can do for them when they allow you to.

If you want to be truly aggressive about helping your parents, find out what the fair market cost of childcare in your area is. Set that money aside each week/month; put it into its own savings (or money market) account, and think of that money as "Mom's". Don't spend it. Don't tell her about it, but keep it there for her emergencies. When that money is gone, then you need to think carefully about sacrificing your own future (and your children's futures) for your parents' future. Tough decisions, but at least this way you have a plan and a baseline for evaluating support.

If you can't afford to pay for the fair market cost of childcare, then you need to realize that your financial house isn't in order yet, either. Focus on that, not your parents.

I know it's easier said than done!

rocksinmyhead

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Re: Should I use my equity to help parents????
« Reply #11 on: August 28, 2014, 03:37:40 PM »
If you want to be truly aggressive about helping your parents, find out what the fair market cost of childcare in your area is. Set that money aside each week/month; put it into its own savings (or money market) account, and think of that money as "Mom's". Don't spend it. Don't tell her about it, but keep it there for her emergencies. When that money is gone, then you need to think carefully about sacrificing your own future (and your children's futures) for your parents' future. Tough decisions, but at least this way you have a plan and a baseline for evaluating support.

If you can't afford to pay for the fair market cost of childcare, then you need to realize that your financial house isn't in order yet, either. Focus on that, not your parents.

I know it's easier said than done!

this! I totally understand people that won't take money, but I think this is a great idea.

Dicey

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Re: Should I use my equity to help parents????
« Reply #12 on: August 29, 2014, 12:07:44 AM »
If you want to be truly aggressive about helping your parents, find out what the fair market cost of childcare in your area is. Set that money aside each week/month; put it into its own savings (or money market) account, and think of that money as "Mom's". Don't spend it. Don't tell her about it, but keep it there for her emergencies. When that money is gone, then you need to think carefully about sacrificing your own future (and your children's futures) for your parents' future. Tough decisions, but at least this way you have a plan and a baseline for evaluating support.

If you can't afford to pay for the fair market cost of childcare, then you need to realize that your financial house isn't in order yet, either. Focus on that, not your parents.

I know it's easier said than done!

this! I totally understand people that won't take money, but I think this is a great idea.
+1 on this. I have so many thoughts on this topic that I don't know where to start. I think I'll ruminate on this for a while. Whilst I'm pondering, let me leave you with the standard airline message "In the event of an emergency, put on your own oxygen mask first."

nyxst

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Re: Should I use my equity to help parents????
« Reply #13 on: August 29, 2014, 06:15:01 AM »
Your parents are in a precarious situation; one serious problem and they could head down a spiral into bankruptcy.

Do not tie your financial future to theirs. And real estate is so illiquid, it really ties you together. Don't do it.

The best thing you can do for them is to keep your financial house in order. The better you do for yourself, the more you can do for them when they allow you to.

If you want to be truly aggressive about helping your parents, find out what the fair market cost of childcare in your area is. Set that money aside each week/month; put it into its own savings (or money market) account, and think of that money as "Mom's". Don't spend it. Don't tell her about it, but keep it there for her emergencies. When that money is gone, then you need to think carefully about sacrificing your own future (and your children's futures) for your parents' future. Tough decisions, but at least this way you have a plan and a baseline for evaluating support.

If you can't afford to pay for the fair market cost of childcare, then you need to realize that your financial house isn't in order yet, either. Focus on that, not your parents.

I know it's easier said than done!

Thank you for that idea!!  That seems like a good temporary solution at least; one where I don't feel frustrated for giving up my own emergency fund, but still have cash on hand to help them out when need be.  And when they insist on paying it back, I can stick it back in their fund and wait for the next hiccup. 

They are so stubborn and private about their financial life, I have to work off of hints and glimpses I can gather.  I know they are going backwards, but my mom claims that it is very slowly and she thinks my dad will hold up at least until social security kicks in.  I think they are embarrassed and that makes me sad and very frustrated. 

Thank you all for putting thought into this!

nyxst

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Re: Should I use my equity to help parents????
« Reply #14 on: August 29, 2014, 06:17:46 AM »

[/quote]
+1 on this. I have so many thoughts on this topic that I don't know where to start. I think I'll ruminate on this for a while. Whilst I'm pondering, let me leave you with the standard airline message "In the event of an emergency, put on your own oxygen mask first."
[/quote]

Yes thank you!  I definitely need to make sure of my own financial security or I won't be able to help anyone... I need to make some personal boundaries and write them down somewhere so as they get older, I know that I am not hurting myself (and my kids) by helping them.

It seems like such a grey area, I will have to set up some rules for myself.

PloddingInsight

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Re: Should I use my equity to help parents????
« Reply #15 on: August 29, 2014, 06:29:18 AM »
Is bankruptcy a possible outcome?

If you give your parents money and they are forced into bankruptcy anyway, that money was wasted.

I like the idea that you can "pay" your mom into your own savings account, earmarked for the upkeep of your parents in their old age.  The great thing about this plan is that if they end up filing for bankruptcy, the money is protected.

Above all, keep your own head above water so that you can take them in and provide for them when the time comes.

NCGal

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Re: Should I use my equity to help parents????
« Reply #16 on: August 29, 2014, 08:26:12 AM »
You've been given some excellent advice. I read these posts earlier and your situation has stuck in my mind. I would just like to say you have my admiration. You are facing significant challenges which you are handling not only alone and without complaint, but with dignity and a sensitivity to your parents' feelings. I'm not sure I know anyone supporting 3 children on one salary who could act as responsibly. And the fact that you, yourself, are doing as well as you are financially is awesome.

former player

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Re: Should I use my equity to help parents????
« Reply #17 on: August 29, 2014, 09:07:32 AM »
Between you and your parents, you have equity for one paid-off house.  If you like theirs better than yours, could you buy it from them and all live together?  Or buy somewhere else together?  It would be a lot of people in one house (3 adults, three children) but could save a lot of money on housing, save your mother commuting time and give your children three adults to go to instead of one.  If the house is solely paid for by you and in your name it would be free from a possible bankruptcy by your parents, and they would have money to put into pensions.

I would entirely understand if you didn't want to do it.  I could not live with my mother however much money it saved.

nyxst

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Re: Should I use my equity to help parents????
« Reply #18 on: August 29, 2014, 09:56:00 AM »
Between you and your parents, you have equity for one paid-off house.  If you like theirs better than yours, could you buy it from them and all live together?  Or buy somewhere else together?  It would be a lot of people in one house (3 adults, three children) but could save a lot of money on housing, save your mother commuting time and give your children three adults to go to instead of one.  If the house is solely paid for by you and in your name it would be free from a possible bankruptcy by your parents, and they would have money to put into pensions.

I would entirely understand if you didn't want to do it.  I could not live with my mother however much money it saved.

Thank you for the comment!  And, ESPECIALLY for the last sentence!! :) My mom and I would very likely kill each other in close quarters!  I have a 4 bedroom home and they have a 2 bedroom home.  I have kicked around the idea in years past of getting them to sell their home and move in with me, but I would have to add a few walls.  Their house is in a nicer area, but the township makes it really difficult to get permits to add on to the property.  2 bedrooms just wouldn't work out for all of us.  It is something to consider though in a worst case situation, even though I would be foregoing my sanity :)

nyxst

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Re: Should I use my equity to help parents????
« Reply #19 on: August 29, 2014, 09:59:23 AM »
You've been given some excellent advice. I read these posts earlier and your situation has stuck in my mind. I would just like to say you have my admiration. You are facing significant challenges which you are handling not only alone and without complaint, but with dignity and a sensitivity to your parents' feelings. I'm not sure I know anyone supporting 3 children on one salary who could act as responsibly. And the fact that you, yourself, are doing as well as you are financially is awesome.

Thank you for the compliment! I will admit that sometimes the pressure is heavy, but it all works out in the end.  All I can do is make the best of it all, and try to instill in my kids how important it is to pay yourself first and start out right away saving like crazy.  It doesn't solve every problem, but not being broke does make things a little easier! 

Lyssa

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Re: Should I use my equity to help parents????
« Reply #20 on: August 30, 2014, 10:12:54 AM »
I would just like to say you have my admiration. You are facing significant challenges which you are handling not only alone and without complaint, but with dignity and a sensitivity to your parents' feelings. I'm not sure I know anyone supporting 3 children on one salary who could act as responsibly. And the fact that you, yourself, are doing as well as you are financially is awesome.

+1

You're story is really impressive. Both personally and financially.