Buying my mother's house and renting it back to her

[mrs sideways]

Background: We're a FatFIRE couple (husband works strictly because he wants to) with a pretty big stash, mostly thanks to lucky stock purchases. Husband's parents are financially set (pension), my dad is set (inheritance), but my mother...

She bought her house late in life, and despite trying to pay it down ahead of schedule, she still owes $350k on what is maybe a $425k house. (Home prices have been stagnant in her area since she bought.) She's always been... sorta okay with money. Not wasteful, but not exactly careful or frugal either. She makes a decent amount at her current job, but she doesn't like it, and it's starting to physically wear on her (she's over 70) especially once she got osteoporosis. Then she caught Covid at work. Her boss thought Covid was a hoax, he didn't take precautions seriously, he let a driver come to work who was visibly sick, and now the majority of her office has tested positive. She's on the mend, thankfully, but she didn't like her job BEFORE her boss wantonly endangered her life.

Which brings me to the titular plan. Husband and I are thinking of buying her house and renting it back to her at the price of property taxes, which would allow her to retire. Her other options would be to either keep working, or sell the house and either buy a mobile home locally or a regular house several hours away where property is cheaper. She's collecting social security, which would be enough to cover all maintenance, utilities, daily expenses, and our break-even rent.

Why we're considering this: It will let her retire from her current job. It would keep the only local grandparent near her only grandkids. It would keep her nearby me, for all that inevitable work kids have to do for their parents when they get older. It would keep a cheap roof over her head later, in case she ever has serious medical expenses that would have forced her to liquidate her assets and lose the house anyway. She would have time to settle her mother's estate (a house and everything in it has to be sold to cover debts, and likely nothing will be left). She could always take a part-time job to earn additional money, something she's done before.

What isn't great, but we're fine with: We could buy her house with cash, which means that while we wouldn't be paying interest on a mortgage, there's an opportunity cost we're paying since money is tied up in a house. Since we're not charging a "market rate" on rent, this would be, for financial and tax purposes, a second home rather than a rental, which means we couldn't deduct any expenses or maintenance, and we'd have to ask her to cover that so we're not actively losing money on this. The house itself is in okay shape but would probably require some retrofitting at some point in the future to fix up the foundation.

What we're afraid of: Worst-case scenario, this is just the first step in supporting her financially and we'll be on the hook for more later. I'm worried that as she ages, her mind and personality will slip, and she'll either start spending more money than she should, or see us a cash register to solve her problems. I'm worried that any contract or document that we draw up, stipulating that she has to cover maintenance and utilities, will be dishonored or discarded later because it's "family". While we can afford this deal going bad, I'm going to feel wretched if MY mom ends up causing my husband problems.

So, am I missing anything to consider? As far as I can tell, this could go great, solving her problems at a manageable cost to us, or it could blow up in our faces. Any thoughts or advice?

[Duke03]

Gee that's a tough spot.  I understand wanting to help your mom out, but if I was you I'd go into this deal knowing whole heartedly that you will not break even on rent.  This house will end up costing you money maybe alot.... How much depends on how many years your mom will be able to live in this home without any assistance that comes with aging ect.

[Alternatepriorities]

I've lived a riskier version of this already.

I'd do it again in the same position because it was the right thing to do, but if you do this go into it with your eyes wide open. From your description it sounds like if your mother totally dropped the ball and you were on the hook for the taxes and maintaining the house you'd be okay even if it's far from ideal. That was the position I was in when my bother and I bought our mothers house out of foreclosure before the bank evicted her. (I'm thankful her mortgage was with a small town bank). We knew buying it that she was in foreclosure due to her own choices and unlikely to pay us rent, but we thought it was the right thing to do so we did it. She died of alcoholism ~18 months later. But we went into it prepared for 10 years or more. It was worth it to ensure she and more importantly our teenage sisters were not left homeless.

It sounds like your mother and your relationship with her are in a much better place and your financial risk is probably lower than mine was a the time. Assuming i understand that all correctly, I'd do it again in that position. Maybe we will someday with my MIL...

[Frankies Girl]

I have never understood the siren song of home ownership when you're not handy or rich enough to pay someone to fix things yourself.

First thing tho: Has she asked you to do any of this? Because if she hasn't invited you to handle her finances/life/living arrangements, you're welcome to ask her if she's okay and needs help (discuss options) but you may be overstepping here and should likely rein things in a bit.


But in any case, I would not do this.

You buying the property is not going to solve anything. You stepping in to parent your parent isn't going to sit well, you mom likely will not appreciate the gesture and you're obviously already expecting the possibility that she'll "slip/see you as a cash register." And then there is the whole poor use of your money tied up in a property that you will own but not feel 100% able to do with as you please since it would be HER house.

And at worst, I would rather add a line item to my own budget - 1K a month for example - to help with expenses, rather than outright buy the property. As long as your mom's house is HERS, she is the one paying for the taxes/upkeep/liability, and in the event (hopefully long in the future) that she passes and the house becomes yours (you don't mention siblings so assume you inherit) the house gets stepped up cost which is WAY better for you financially.

Your thought of having an actual contract isn't worth the paper it would be printed on unless you plan to enforce it, so why bother going through the show of writing one up? Are you prepared to foreclose on your mom or throw her out if she refuses to honor it?

What I would do - if you are concerned or she has expressed interest in you helping her figure out options - is sit down with her look over budget, incoming $ and SocSec and all that stuff and see what realistic options she has that mean she can quit now and either stay in her current home, or downsize and support herself on her Social Security and whatever she has left over from a house sale. Or could she find a friend or roommate that could live WITH her in the current house that could help with expenses so she could easily afford to stay where she is. Would make sure to include as an option that you've examined the available housing and aid in the area (especially anything available for seniors) and check about moving to a small house rental or condo/apartment where all maintenance is someone else's problem and no more worrying over mortgage payments.

Help her to help herself and allow her to maintain her independence with what resources she has available.

[uniwelder]

This doesn't help alleviating concerns about your mom's future finances, but something that might be able to happen (someone please doublecheck me) is to charge her full rent and gift back whatever portion you feel inclined to get her monthly payment to whatever you originally thought she could handle.  This would allow you to buy the house as an investment property, she signs the lease as a tenant, then you get the business expenses and deprecation on the house.

[Dicey]

I was going to reply with something like what @uniwelder just wrote, but per usual, @Frankies Girl hits the nail on the head.  Maybe some kind of hybrid that protects your ability to inherit the house with minimal tax consequences. Again, assuming you're an only child.

[renata ricotta]

I like JLCollins's article on this topic:

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

He tells the story of doing something really similar with his mom, and failed to appreciate the psychological effect:

Now here’s where the psychology gets really interesting. My mother was a smart woman. She understood intellectually that I was supporting her to the tune of hundreds of dollars each month, thousands each year. But she never saw that money. What she saw, and felt emotionally, was the $300 check she wrote and mailed to me each month. Wrote and mailed to (cue me twirling one end of my imaginary handlebar mustache) her landlord.

He ended up wishing he had just given her that support in cash and letting her pay her rent/mortgage with it. Less house hassle, plus then it's easier for her to emotionally feel the windfall of support was getting (and his siblings as well).

[mrs sideways]

Wow, after lurking in this forum and watching Frankies Girl give out so much good advice over the years, it's weird being on the receiving end of it.

First thing tho: Has she asked you to do any of this? Because if she hasn't invited you to handle her finances/life/living arrangements, you're welcome to ask her if she's okay and needs help (discuss options) but you may be overstepping here and should likely rein things in a bit.

That's a good point! She hasn't asked. To be honest, I'd be more hesitant to do the deal if she had, because it meant she was already seeing us as a financial fix.

You stepping in to parent your parent isn't going to sit well.

I mean, we ALL end up parenting our parents eventually, right? If they live long enough, their minds falter and inevitably they get to the point where they can't even handle paying their bills any more because it's too confusing. At least, that's how all my relatives have gone.

Your thought of having an actual contract isn't worth the paper it would be printed on unless you plan to enforce it, so why bother going through the show of writing one up? Are you prepared to foreclose on your mom or throw her out if she refuses to honor it?

Another good point. Woof.

What I would do - if you are concerned or she has expressed interest in you helping her figure out options - is sit down with her look over budget, incoming $ and SocSec and all that stuff and see what realistic options she has that mean she can quit now and either stay in her current home, or downsize and support herself on her Social Security and whatever she has left over from a house sale. Or could she find a friend or roommate that could live WITH her in the current house that could help with expenses so she could easily afford to stay where she is. Would make sure to include as an option that you've examined the available housing and aid in the area (especially anything available for seniors) and check about moving to a small house rental or condo/apartment where all maintenance is someone else's problem and no more worrying over mortgage payments.

(Deep breath.) Okay, yeah. I think you're right, her moving into a smaller place (or sharing a place, maybe with her equally-old cousin) would be a good solution. Unfortunately, that will mean getting rid of (or storing) all the stuff she loves so dearly - the family heirlooms, tons of paintings, piles of books, family furniture, etc. Downsizing and/or moving is a good solution for her, but she'd take it as a defeat, I think. I don't think she'd see giving up everything--the space, her stuff, and the home she's put so much work into--as a necessary step to preserve her financial future. I think she'd be permanently distraught over everything she lost in the process.

So now I have to ask myself... am I considering all this, and risking all this, just to spare her that distress and keep her near the grandkids? Am I pondering this deal just so I'm not the one who has to tell her that she HAS to make some hard choices and give up on some dreams she can't really afford?

I was going to reply with something like what @uniwelder just wrote, but per usual, @Frankies Girl hits the nail on the head.  Maybe some kind of hybrid that protects your ability to inherit the house with minimal tax consequences. Again, assuming you're an only child.

I'm not. I have one brother in the mix, but we figure neither one of us will EVER inherit the house because, unless she keels over from a heart attack, she WILL need assisted living, and at that point the house will have to be sold and her assets drained down to pay for it until welfare steps in.

I like JLCollins's article on this topic:

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

He tells the story of doing something really similar with his mom, and failed to appreciate the psychological effect:

Now here’s where the psychology gets really interesting. My mother was a smart woman. She understood intellectually that I was supporting her to the tune of hundreds of dollars each month, thousands each year. But she never saw that money. What she saw, and felt emotionally, was the $300 check she wrote and mailed to me each month. Wrote and mailed to (cue me twirling one end of my imaginary handlebar mustache) her landlord.

He ended up wishing he had just given her that support in cash and letting her pay her rent/mortgage with it. Less house hassle, plus then it's easier for her to emotionally feel the windfall of support was getting (and his siblings as well).

I actually read that post when I was looking this up! Again, the "give them money and plan on inheriting the house" will get blown out of the water if she ever goes into assisted living or needs any kind of welfare, which will be likely. Then the house is sold and any stake we have in it goes up in smoke.

[Paul der Krake]

What I would do - if you are concerned or she has expressed interest in you helping her figure out options - is sit down with her look over budget, incoming $ and SocSec and all that stuff and see what realistic options she has that mean she can quit now and either stay in her current home, or downsize and support herself on her Social Security and whatever she has left over from a house sale. Or could she find a friend or roommate that could live WITH her in the current house that could help with expenses so she could easily afford to stay where she is. Would make sure to include as an option that you've examined the available housing and aid in the area (especially anything available for seniors) and check about moving to a small house rental or condo/apartment where all maintenance is someone else's problem and no more worrying over mortgage payments.

(Deep breath.) Okay, yeah. I think you're right, her moving into a smaller place (or sharing a place, maybe with her equally-old cousin) would be a good solution. Unfortunately, that will mean getting rid of (or storing) all the stuff she loves so dearly - the family heirlooms, tons of paintings, piles of books, family furniture, etc. Downsizing and/or moving is a good solution for her, but she'd take it as a defeat, I think. I don't think she'd see giving up everything--the space, her stuff, and the home she's put so much work into--as a necessary step to preserve her financial future. I think she'd be permanently distraught over everything she lost in the process.

I mean, your mother is:
- in her 70s with a negligible net worth (unless there is more money elsewhere, maybe in an IRA?)
- holding on to a job she soon won't be able to do anyway

...that is a defeat. Deep down, she must know it's not going to get better, right? The sooner she comes to terms with this, the better.

BTW, One can store a lot of stuff in a well organized apartment.

[mrs sideways]

I've lived a riskier version of this already.

I'd do it again in the same position because it was the right thing to do, but if you do this go into it with your eyes wide open. From your description it sounds like if your mother totally dropped the ball and you were on the hook for the taxes and maintaining the house you'd be okay even if it's far from ideal. That was the position I was in when my bother and I bought our mothers house out of foreclosure before the bank evicted her. (I'm thankful her mortgage was with a small town bank). We knew buying it that she was in foreclosure due to her own choices and unlikely to pay us rent, but we thought it was the right thing to do so we did it. She died of alcoholism ~18 months later. But we went into it prepared for 10 years or more. It was worth it to ensure she and more importantly our teenage sisters were not left homeless.

It sounds like your mother and your relationship with her are in a much better place and your financial risk is probably lower than mine was a the time. Assuming i understand that all correctly, I'd do it again in that position. Maybe we will someday with my MIL...

Thanks for your perspective. It sounds like you had a lot of sound reasons for making the move and you were fully prepared for any outcome.

[mrs sideways]

I mean, your mother is:
- in her 70s with a negligible net worth (unless there is more money elsewhere, maybe in an IRA?)
- holding on to a job she soon won't be able to do anyway

...that is a defeat. Deep down, she must know it's not going to get better, right?

I'm... not sure she does.

Thank you everyone for the replies. I've got even more to consider than I thought.

Edit: Okay, so I've realized that a big motivating factor for me here is guilt. Like, the economic version of survivor's guilt. I'm fine, my mother isn't, and I feel, well... BAD about it. I'm going to be thinking hard about this all weekend. Thanks again, everyone.

[MayDay]

I would try to reframe not as: it isn't failure or defeat to spend your retirement years in an apartment. She's one person.... A house is just silly and wasteful! She's at the downsizing time of life and that has nothing to do with success or failure.

Keeping a 70 year old in a house she can't afford seems the definition of insanity. Help her, sure. But unless she is independently wealthy enough to hire all the help she would need to stay in a single family home, help her with an apartment that she can actually manage.