Author Topic: My parents basement suite - Tell me if i'm a horrible son for thinking this.  (Read 4398 times)

MissionPossible

  • 5 O'Clock Shadow
  • *
  • Posts: 19
My parents are 62 and 60. Mom is retired, Dad has a year or two left to go. Middle class family but they were fairly frugal throughout their lives, did a good job saving money and generally don't have much to worry about as far as money goes in retirement. They have a paid off house worth approx $650,000 with a basement suite bringing in $750/mo I believe.

I have $50,000 cash in the bank that i'm considering buying an income property with. Problem is they live in the Greater Vancouver area where prices are insane and the numbers don't work very well in terms of trying to cash flow a property.

The thought came across me tonight - What if I considered making them some kind of an offer to essentially buy the $750/mo stream of income off them for their basement suite. My parents are the type of people who would almost do anything for me, so I don't want to take advantage of that, if this is an important piece of their retirement and their peace of mind then I want nothing to do with disturbing that.

But if they were open to it, I would like to hear people's opinions on it. It would be nice having my parents above the suite to make sure all is well and if it were ever to be vacant, I wouldn't have to incur paying any costs associated with that, etc.

What do you people think, is this a reasonable idea or am I a terrible son for thinking this?

Primm

  • Handlebar Stache
  • *****
  • Posts: 1322
  • Age: 50
  • Location: Australia
Do you mean as a straight transaction? So you pay them $50k and they divert the $750 a month to you? Or are you planning for it to be proportional, as in you get part of the $750?

If the former, that's $9k a year, at an 18% return. I'd put that firmly into the "ripping them off" category. They'd essentially be subsidising your income.

Not a bad son for thinking it. Probably a bad son if you put it into action.

MissionPossible

  • 5 O'Clock Shadow
  • *
  • Posts: 19
Now that I think about it, I suppose it wouldn't have to be for the entire monthly payment. It could be for a portion. And I suppose it would be fair to proportionally pay my share of the property taxes, insurance etc based on the size of the suite. Lets be honest they would probably give me a good deal because i'm their son but it seems like there could be a way to do it where it's a fairly reasonable transaction, and it would get my feet wet as far as having a stream of income from rental property in a highly sought after area. Again...just thinking out loud here at this point :)

tthree

  • Bristles
  • ***
  • Posts: 406
  • Location: Canada
Would they consider downsizing when your dad retires?  You could save up for a couple years, then buy their house, and live in the basement suite while you rent the upstairs. 

Also why is a basement suite in Greater Vancouver area only renting for $750??  We are in the middle of the prairies and our basement suite fetches $800.

MissionPossible

  • 5 O'Clock Shadow
  • *
  • Posts: 19
They have discussed downsizing but haven't decided one way or the other for sure yet, they are okay with being in their house for the foreseeable future. They just aren't building that many more detached houses in Greater Vancouver right now because of a lack of available land, so they know that if they decide to go that route and move into a condo, it's very unlikely that they would be able to go back to a house if they wanted to. It's a 2009 built house in near perfect condition, so the maintenance will be low for them as they get a bit older etc.

I suppose those would be questions to ask myself though:
-How would the situation be handled if they wanted to sell?
-I would have to make sure any future tenants going in would work with my parents, they are quite particular

I suppose one thing we could do is try it for 6 months. If it works out great, if it doesn't, subtract what they gave me for the rent income from the total I gave them and we forget about it.

TabbyCat

  • Stubble
  • **
  • Posts: 181
This doesn't make a lot of sense to me. Maybe if you offered to take over management of the basement suite for a small percentage of the rent? But it would still be someone in their house, so it makes more sense for them to get the main income.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8366
  • Age: 63
  • Location: The Villages, Florida
Too complicated.

K-ice

  • Pencil Stache
  • ****
  • Posts: 932
  • Location: Canada
Vancouver?
Can you build an alley home or whatever they call it?
I think the land title is still a bit complicated but then you could "own" your home.
It's more complicated to own a share of the main home.


Johnny Aloha

  • Bristles
  • ***
  • Posts: 315

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3236
  • Location: WDC
So they've managed their income and assets in a way that makes them independent and comfortable, they have a small passive income in the form of a tenant. And what benefit to them is it if you horn in on it?  Yeah, I think you need to be happy for them and for you that you have FI parents and you need to look elsewhere for your own investments. If you ant their help, why not do it in the form of their advice? 

Jack

  • Magnum Stache
  • ******
  • Posts: 4734
  • Location: Atlanta, GA
They have discussed downsizing but haven't decided one way or the other for sure yet, they are okay with being in their house for the foreseeable future. They just aren't building that many more detached houses in Greater Vancouver right now because of a lack of available land, so they know that if they decide to go that route and move into a condo, it's very unlikely that they would be able to go back to a house if they wanted to. It's a 2009 built house in near perfect condition, so the maintenance will be low for them as they get a bit older etc.

If they're interested in downsizing then I think they should consider moving into the basement suite themselves and renting out the main floor of the house.

lizzzi

  • Handlebar Stache
  • *****
  • Posts: 2125
I've read this post and the comments twice, and I still don't get it. (But I'm in the States, maybe that's why.) It just looks to me like you are wanting to take money from your parents. They are well-situated and doing OK, and I don't understand why you would want to butt in and complicate this perfectly good situation (for them), to your own benefit. I mean, why would they want to do that? It sounds like a potential train wreck. Too complex, as someone else said. I would look for a different way to build and maximize your stash.

I'm a red panda

  • Walrus Stache
  • *******
  • Posts: 8010
  • Location: United States
I'm not sure I understand why they would do this. 

You give them $50k to buy their basement suite.  Is it really worth that little; based on its proportional size to the house and the value of the hosue? Or would $50k be the downpayment?

And then you get $750 a month from it?

Seems like a bad deal for both of you. You won't build any equity in a property, so you have to get your $50k back $750 at a time (minus taxes, upkeep etc).

I'd buy your own property.

If you really want your parents to help you out, just ask them to give you the $750 a month. Or have them help you buy a property. At least this way they feel altruistic, rather than just being ripped off in the name of 'helping' you.

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
And what benefit to them is it if you horn in on it? 

Bingo. In this situation a gain for you is a loss for them. In other words if you invest X amount and get a Y% return, that Y% is money straight out of their pockets.

Just because they live in Vancouver doesn't mean you have to invest in Vancouver. Do YOU live in Vancouver? If property values there are so high that it's very hard to make a rental cover the mortgage, then maybe this particular path to wealth isn't for you, or maybe you need to consider investing in a rental elsewhere (but factor in easily 10% for management fees), or perhaps you and a small group of friends could form an LLC and all buy into a rental in Vancouver together.

LadyMaWhiskers

  • Stubble
  • **
  • Posts: 131
  • Location: SF Bay, peninsula
A number of reasons I'd suggest you not do this:

1. It's a zero-sum game with your parents (unless there's a win-win to the $50,000 to them. Do they need that cash?
2. Logically, this basement suffers the same lack of return as the market generally
3. No obvious exit strategy; this is critical to success in real estate investment, in my experience

more4less

  • 5 O'Clock Shadow
  • *
  • Posts: 85
  • Age: 34
  • Location: SF Bay Area
OP, just buy a rental property somewhere else, duh.
I am speaking from personal experience: I put like 35k down and got an out-of-state property (which I never seen). It cashflows $500-$600 a month when it's fully occupied. Also it wasn't that great of a deal by this community's standards (didn't meet 2% rule).
« Last Edit: April 01, 2016, 01:09:52 PM by more4less »

NoNonsenseLandlord

  • Bristles
  • ***
  • Posts: 396
  • Age: 60
  • Location: Eagan, MN
    • No Nonsense Landlord
I am having a hard time trying to figure out the benefit for them.  Maybe if you move in, pay them a lump sum, then rent out the place you are in now would work.

Bigsacks

  • 5 O'Clock Shadow
  • *
  • Posts: 28
Sounds like a disaster waiting to happen.

Don't mix money/investments with family IMO.......

Also, if you get off your parents teat and have some success on your own, you will build yourself up much more, gain more self confidence and experience than if you remain on the teat......