Author Topic: The inherited cabin or cottage  (Read 4872 times)

Worsted Skeins

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The inherited cabin or cottage
« on: July 22, 2012, 02:57:29 PM »
Once humble vacation homes of previous generations can now be valuable properties because of their locations.  My husband and his siblings inherited such a place.  It is small and fortunately the owners get along.  We each spend roughly $3000 annually for taxes, insurance, maintenance and utilities.  Taxes here are high but ours are lower since the cottage is not insulated.  It can only be occupied in a seasonal window.  Our tab is also low because we do most of the maintenance on the old place ourselves.

But not everyone who inherits a cabin or cottage is as fortunate.  I had a conversation just last night with a neighbor who reports that he and his siblings will not be able to afford their property now that his parents have died.  (Their taxes are much higher than ours.)

This along with a post that Sol made in another thread about creating wealth for the next generation has me wondering about something.  We have a nice college aged kid who is passionate about a field that will bring him a decent income but will not make him wealthy.  He is rather attached to the old cottage and I know would be hard pressed to sell his share. I am wondering if I am foolish in thinking about giving him the means to maintain his share.  I realize that his cousins may eventually want to sell--and whether he or other cousins would be in a position to buy them out is questionable.

Any mustachians out there who think about preserving the old homestead cabin for future generations? (Renting out the place in the future may help the kids keep the place in the family.  The current crop of owners chooses not to rent.)

MooreBonds

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Re: The inherited cabin or cottage
« Reply #1 on: July 22, 2012, 03:43:01 PM »
I don't have the same current situation, but my parents have a place in Florida that has quite a high market value (property taxes alone would be north of $50k/year without homestead exemption). They could end up selling it before passing on, but I doubt that, given their affinity with the property (they built the house, essentially their 'dream house', and it does have a killer waterfront view of the bay/islands).

When they pass on, it will be a significant expense to maintain it for myself and my 3 siblings. I have a feeling that one or two of them (basically, a spendthrift sister and half-spendthrift brother) will be utterly opposed to selling it, but my sensible sister and I will see the absurdity of paying all of that maintenance and expense when it can hardly be used that frequently, given careers and family activities. By selling the place and divying up the shares, a 3% WR alone from each person's share could afford their families a trip to pretty much anywhere in the world for several weeks in fairly generous accommodations - all without the hassle of real estate taxes, hurricane insurance, upkeep, constant worry about nothing happening while it's vacant 90% of the time, etc. In our personal situation, I don't feel the cost is justified for how little time I would use it.

You say that he won't become wealthy, but will earn a decent living...if his share of the cottage is going to take up (for example) 10% or more of his after-tax income, he needs to really think if his emotional attachment (and his limited use of the property) would truly justify that large of an expenditure each and every year - plus the eventual assessment for rehabing/extensive repairs.

You mentioned they might rent it out - but you also mention it has a limited use window due to not being insulated. If it's rented out, then truly how much 'family time' would the family get out of it? If they only get to use it 1, maybe 2 months a year with renting it out, is it truly worth the hassle, expense, and upkeep?
« Last Edit: July 22, 2012, 03:45:16 PM by MooreBonds »

Worsted Skeins

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Re: The inherited cabin or cottage
« Reply #2 on: July 22, 2012, 05:43:29 PM »

You say that he won't become wealthy, but will earn a decent living...if his share of the cottage is going to take up (for example) 10% or more of his after-tax income, he needs to really think if his emotional attachment (and his limited use of the property) would truly justify that large of an expenditure each and every year - plus the eventual assessment for rehabing/extensive repairs.

You mentioned they might rent it out - but you also mention it has a limited use window due to not being insulated. If it's rented out, then truly how much 'family time' would the family get out of it? If they only get to use it 1, maybe 2 months a year with renting it out, is it truly worth the hassle, expense, and upkeep?

Hi MooreBonds,

You have cut to the chase by using the words "emotional attachment".  Indeed that is the situation.  Hence my wondering if I could/should set up a funding apparatus so that he can readily pay his share.

I did not grow up with summers spent at this place but I have grown to love it. 

Owning a second home (or even a share in one) leads one to return to the familiar, something which is limiting in itself. Initially I resisted annual trips to the family cabin because it meant we were not seeing the rest of the world.  Then we reached a point where we could do both.  But whether the next generation is even interested is yet to be determined, I suppose.

Yup--I'm emotionally involved in this one.

Thanks.

sol

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Re: The inherited cabin or cottage
« Reply #3 on: July 22, 2012, 11:28:48 PM »
It wasn't a cabin, but when my grandmother recently died disposing of her house turned into a huge fiasco.

She had been renting it to one of my cousins at below-market rates since moving into a full time care facility toward the end of her life.  When she died her three children inherited it equally, and they did not agree on what to do with it.

None of them really wanted to be landlords, and my cousin couldn't afford to pay market rates anyway.  One of the three siblings, the cousin's parent, wanted to just give the house to my cousin but wasn't willing to reduce his share of the rest of the inheritance to make it happen by buying out the other two siblings.

In the end, they had to evict my cousin and liquidate the house.  They sold it to an investor who is already turning a tidy profit on renting it out, but it took about a year to unfold and caused great distress in the family.

Lesson learned; have a plan for all real estate you pass on.  Without one, people will argue and feelings will get hurt.

MooreBonds

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Re: The inherited cabin or cottage
« Reply #4 on: July 23, 2012, 12:08:07 AM »

You say that he won't become wealthy, but will earn a decent living...if his share of the cottage is going to take up (for example) 10% or more of his after-tax income, he needs to really think if his emotional attachment (and his limited use of the property) would truly justify that large of an expenditure each and every year - plus the eventual assessment for rehabing/extensive repairs.

You mentioned they might rent it out - but you also mention it has a limited use window due to not being insulated. If it's rented out, then truly how much 'family time' would the family get out of it? If they only get to use it 1, maybe 2 months a year with renting it out, is it truly worth the hassle, expense, and upkeep?

Hi MooreBonds,

You have cut to the chase by using the words "emotional attachment".  Indeed that is the situation.  Hence my wondering if I could/should set up a funding apparatus so that he can readily pay his share.

I did not grow up with summers spent at this place but I have grown to love it. 

Owning a second home (or even a share in one) leads one to return to the familiar, something which is limiting in itself. Initially I resisted annual trips to the family cabin because it meant we were not seeing the rest of the world.  Then we reached a point where we could do both.  But whether the next generation is even interested is yet to be determined, I suppose.

Yup--I'm emotionally involved in this one.

Thanks.

Well, it's just like any other emotional attachment that is tossed around in this forum.

It could just as easily be a $5,000/year budget on buying a new Rolex or piece of jewelry each year. Or a piece of art. Maybe a new piece of exotic furniture. Whatever it is, you know what the typical poster would say. :)

Just like family businesses often don't make it past the 2nd generation owners (for a variety of reasons, not all related to heirs cooperating), I'm willing to guess that many family properties don't last into the 3rd/4th generations due to increasing numbers of owners, and increasing opinions on what to do with the property. Do you really think your son will be so crazy about it that he would consider buying out other peoples' shares in it? From your brief description, it sounds like it would require a hefty pricetag.

While I'm all for family and ethic traditions, when a thing becomes so obsessive that someone will risk (I'm guessing) several times his anticipated income to possibly gain sole custody of it, it makes me wonder what the underlying issues are. Did he really spend that much time growing up at it? Is it really that great of a piece of property? Just what is the big deal with it? Did great grandpa build it by hand? Why isn't the house he grew up in as a child as desirable to keep in the family? Is he as nostalgic towards other family heirlooms? Or are there other psychological factors at work?

Do you think it's wise to lead him down a path that might wind up with him owning the entire property outright, at a risk of possibly destabilizing his finances (or at the very least, putting a bit of strain with all of the associated expenses related to the cottage)? I suppose it all depends on the specifics - what the total real estate taxes would be per year, plus upkeep, insurance, and other related expenses for him to shoulder if he ended up as sole owner.

Worsted Skeins

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Re: The inherited cabin or cottage
« Reply #5 on: July 23, 2012, 04:51:20 AM »
It wasn't a cabin, but when my grandmother recently died disposing of her house turned into a huge fiasco.

She had been renting it to one of my cousins at below-market rates since moving into a full time care facility toward the end of her life.  When she died her three children inherited it equally, and they did not agree on what to do with it.

None of them really wanted to be landlords, and my cousin couldn't afford to pay market rates anyway.  One of the three siblings, the cousin's parent, wanted to just give the house to my cousin but wasn't willing to reduce his share of the rest of the inheritance to make it happen by buying out the other two siblings.

In the end, they had to evict my cousin and liquidate the house.  They sold it to an investor who is already turning a tidy profit on renting it out, but it took about a year to unfold and caused great distress in the family.

Lesson learned; have a plan for all real estate you pass on.  Without one, people will argue and feelings will get hurt.

The current owners had a plan which is why the shared arrangement works as well as it does.  Being the planner that I am, I am now thinking about the "kids" who are in their 20's and 30's.  While I cannot control their lives and financial decisions, I can certainly think about my son's possible role in a future trust.

Inheritances in general come with uncomfortable baggage.  I saw this in my husband's family where the issue was not high ticket items but petty stuff.  There were days when this pacifist wanted to spank people.

Worsted Skeins

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Re: The inherited cabin or cottage
« Reply #6 on: July 23, 2012, 05:20:00 AM »

Just like family businesses often don't make it past the 2nd generation owners (for a variety of reasons, not all related to heirs cooperating), I'm willing to guess that many family properties don't last into the 3rd/4th generations due to increasing numbers of owners, and increasing opinions on what to do with the property. Do you really think your son will be so crazy about it that he would consider buying out other peoples' shares in it? From your brief description, it sounds like it would require a hefty pricetag.

While I'm all for family and ethic traditions, when a thing becomes so obsessive that someone will risk (I'm guessing) several times his anticipated income to possibly gain sole custody of it, it makes me wonder what the underlying issues are. Did he really spend that much time growing up at it? Is it really that great of a piece of property? Just what is the big deal with it? Did great grandpa build it by hand? Why isn't the house he grew up in as a child as desirable to keep in the family? Is he as nostalgic towards other family heirlooms? Or are there other psychological factors at work?

Do you think it's wise to lead him down a path that might wind up with him owning the entire property outright, at a risk of possibly destabilizing his finances (or at the very least, putting a bit of strain with all of the associated expenses related to the cottage)? I suppose it all depends on the specifics - what the total real estate taxes would be per year, plus upkeep, insurance, and other related expenses for him to shoulder if he ended up as sole owner.

What is so special about the place?  Mustachian heaven!  No car needed after arrival.  Free entertainment (water, great library, lectures).  Familial connections through the generations that lead to potlucks and wine/nibbles on porches.

Odds are that my kid is going to receive a generous inheritance.  Some of it will be stocks, some real estate.  Obviously he can liquidate it all if he chooses.  To be honest, he may have reasons to keep the modest family home in which he grew up because that coastal location is also a vacation spot.  The key difference is the individual ownership vs. the group. 

We're also not talking about a McMansion.  Really--just a small cottage with a lot that is more valuable than the building.

But you are right.  It would be foolish for him to tie up his finances in the place as a sole owner.  I do think that he might be able to swing some sort of shared ownership with one or two of the likeminded frugal, hands on cousins.

Just musing...Thanks for bringing me back to reality with your valid points.