Pay off my parents mortgage?

[texastumbleweed]

Ok, I can already hear people saying no, but bear with me.  So my parents have a beautiful historic house (mansion) in the best possible location in a big booming city.  If they wanted to sell it this afternoon, they could get $1 million on the spot. If they waited, they would be able to get $1.2- 1.5 very easily.  So I am the only child and will one day inherit the house and everything in it.  They owe probably between 100 and 200k on the house.  The main drawback I see is my parents don't have huge retirement funds, probably just over 300k (plus several rental houses worth a total of say $300k) What if I drew up some legal document that basically said if I inherit the house, great, if they sold it, i'd get the money back.  But otherwise, my family and I would move in to this amazing house for a much smaller investment.  Is there any possible scenario where this makes sense to anyone on here?

[ysette9]

I read your post twice and I still don't understand your question. What exactly are you proposing? You pay off their mortgage for them? You move into their house? Them move somewhere else? What is the compelling reason to do anything other than the status quo?

[texastumbleweed]

Ok, let me see if I can be more clear.  I sometimes worry my parents will sell their house and downsize.  In theory this is fine, but after they pass away, I would love to live back in my childhood home.  If I paid off their mortgage, I could help insure that they would stay there and I could move in after they passed or moved into a retirement home.  Does that make more sense?  It may still be a terrible idea, Im just looking for feedback.

[GizmoTX]

Talk to them. You need to know what they intend to do. Do you have siblings?

[texastumbleweed]

No, I am an only child.  I know their wills stipulate everything goes to me though (as opposed to a charity or something.)

[skp]

I don't think its fair to expect them to just "give you" a million dollar home.  Even if they are Mustachian they need some cash flow to live on.

Depending on SS, pension, expenses this might work.   If they decide to sell the house and downsize.  I would offer to do a switch.  I'd sell my current home and use the money as a downpayment to buy them the new house.   They'd then "sell" me the mansion at a reduced/ reasonable price/ ? no interest loan so that they can use the money you are paying them to pay off the new mortgage and living expenses.  Then they'd have some cash flow and a smaller home.  Can you afford to take on more of a mortgage? Can you afford to keep up a million dollar home?  The taxes I bet are outrageous.  It sounds like when they pass away, you are the sole beneficiary. But until then they need to live.   

You'd have to pay them now.  But you'd have the house of your dreams, they'd have the smaller house they wanted and some money (maybe less than they'd get on the open market) for living expenses.

[sokoloff]

It depends on what you want to do, what they want to do, your resources, their ages and health, etc.

You could look into you (personally) doing a reverse mortgage for them, which would be tax inefficient, but is the arms-length legal structure that accomplishes pretty close to what you might want. (It's somewhat tax inefficient, but protects your interests if they consume all of their wealth in their final years.)

[ysette9]

I hope this doesn't come across as rude, but your post strikes me as a bit entitled. Being the only child of parents with a nice home I do understand why you feel this way. However, your parents are house-rich and cash-poor, so they very well may need to equity in that big home to fund their later years.

I agree that you should talk to them about your preferences and hear out what their plans are. Really though, If you want to live in that house then you should be prepared to offer to buy it from them. Until they are both dead and the estate is indeed settled upon to, you have zero claim on that house.

[Bracken_Joy]

Even if they own the home outright, they still have property taxes, insurance, high utilities, etc to contend with. What you're interested in doing is basically strapping them with an asset they might not want to or be able to afford in retirement, just because you want it later. Hardly seems fair or selfless.

[trollwithamustache]

Can the mansion be rented out? If cash is tight and they need to downsize, moving into a small rental (giving up that income) but then getting the bigger income from mansion rental seems to make sense? I would think you have to manage the rental/do all the work for them for this to make sense?

You also need to talk to someone qualified in your state to understand if there are advantages to your parents having a trust to hold the property.

[Jrr85]

Ok, I can already hear people saying no, but bear with me.  So my parents have a beautiful historic house (mansion) in the best possible location in a big booming city.  If they wanted to sell it this afternoon, they could get $1 million on the spot. If they waited, they would be able to get $1.2- 1.5 very easily.  So I am the only child and will one day inherit the house and everything in it.  They owe probably between 100 and 200k on the house.  The main drawback I see is my parents don't have huge retirement funds, probably just over 300k (plus several rental houses worth a total of say $300k) What if I drew up some legal document that basically said if I inherit the house, great, if they sold it, i'd get the money back.  But otherwise, my family and I would move in to this amazing house for a much smaller investment.  Is there any possible scenario where this makes sense to anyone on here?

It's really hard to say without knowing a lot more info.  If your parents are already retirement age, it looks like they should have around $12k of investment return income (4% of $300k in retirement accounts) and $24k of rental income (an 8 cap on $300k of paid off residential rental property), plus social security (say $30k? slightly above average assuming someone with a $1M+ house had higher than average earnings).  That would be around $66k.  Certainly not chump change but if that mortgage debt is what's left after getting deep in their amortization schedule, that could still be a pretty heft house note.  If it's a 30 year note that they refinanced a few years ago, not so much.  But the taxes could be really high depending on jurisdiction, and if it's an old mansion, the maintenance costs are probably pretty high. 

Unless you are in a position to top up their income (either though buying an interest in the house or just making a gift knowing that it should come back to you, which carries a lot of risk that a financial situation will arise that will put their house in jeopardy unless they live in Texas or Florida or another state with favorable homestead laws), it doesn't look like it makes a lot of sense unless they simply are comfortable with their lifestyle and don't need to downsize.   

[surfhb]

How old are they? 

I think you should talk about their intentions but I honestly believe you are thinking about YOUR plans?

If I were your parents I'd would sell the home and secure my retirement forever.   Ask them what they want but be prepared to hear things that go beyond what you are excepting.   

Based on their age, selling the home in this crazy RE market might be a good idea.

[texastumbleweed]

Thanks for all of your responses!  It helps a lot.  I guess I didn't clarify my parents very much hope to leave us the house someday.  That is definitely a dream of theirs and I was excited thinking I could help out, but wasn't sure if it made financial sense.  Thanks again. 

[Sydneystache]

Do you have that in writing? Their will states you are the sole beneficiary? Nothing wrong with helping the people that gave life to you. And it seems you have a good relationship with them. It's not a matter of financial sense - it's an emotional one. Eg having children is definitely not good for one's hip pocket but intrinsically they could possibly be the best thing that could happen to a person.

If you think their issue is more of a matter of cashflow then maybe a weekly allowance instead of a lump sum or even eg paying their water bills, electricity bills, council fees etc something that will ease their paperwork burden especially if they're not tech savvy. It's up to you as their only child to start repaying something back. I'm gradually taking over some of my mother's property bills because she hates internet banking and I find this a small price to pay (to stop her whine about technology and prevent her from clicking on phishing links!) given the push by banks to have everything online.

What you're doing is a good thing because you want to show you care for the happy childhood memories you have in that house. Nothing wrong with that. It's called emotional ownership. I just hope you have enough funds for this.

[anonymouscow]

Can the mansion be rented out? If cash is tight and they need to downsize, moving into a small rental (giving up that income) but then getting the bigger income from mansion rental seems to make sense? I would think you have to manage the rental/do all the work for them for this to make sense?

You also need to talk to someone qualified in your state to understand if there are advantages to your parents having a trust to hold the property.

I second looking into a trust.

If they were every to go on medicaid and a nursing home then I believe medicaid will put a lien on the house and use it for reimbursement. I do not know all of the nuances with medicaid, but it would suck to put a bunch of money toward their house only to not inherit it.

I think this is really where you want an estate planner involved.

[charis]

Can the mansion be rented out? If cash is tight and they need to downsize, moving into a small rental (giving up that income) but then getting the bigger income from mansion rental seems to make sense? I would think you have to manage the rental/do all the work for them for this to make sense?

You also need to talk to someone qualified in your state to understand if there are advantages to your parents having a trust to hold the property.

I second looking into a trust.

If they were every to go on medicaid and a nursing home then I believe medicaid will put a lien on the house and use it for reimbursement. I do not know all of the nuances with medicaid, but it would suck to put a bunch of money toward their house only to not inherit it.

I think this is really where you want an estate planner involved.

I think the "homestead" is exempt from Medicaid, but I agree that an elder law attorney would be helpful here.

[anonymouscow]

Can the mansion be rented out? If cash is tight and they need to downsize, moving into a small rental (giving up that income) but then getting the bigger income from mansion rental seems to make sense? I would think you have to manage the rental/do all the work for them for this to make sense?

You also need to talk to someone qualified in your state to understand if there are advantages to your parents having a trust to hold the property.

I second looking into a trust.

If they were every to go on medicaid and a nursing home then I believe medicaid will put a lien on the house and use it for reimbursement. I do not know all of the nuances with medicaid, but it would suck to put a bunch of money toward their house only to not inherit it.

I think this is really where you want an estate planner involved.

I think the "homestead" is exempt from Medicaid, but I agree that an elder law attorney would be helpful here.

I'm not an expert, but I think it is only exempt while the home is being lived in. It also looks like if you have 500k or 750k, depending on the state, in home equity you are ineligible for medicaid.

[Bicycle_B]

It depends on how much money you have, doesn't it?

If your parents lose the house because they don't have enough money, you can hold on to the house in any of several ways - buying it outright, paying off their mortgage prior them losing it, making their mortgage payments for them before they lose it, etc. 

But holding on to the house only makes sense if you have enough money to pay your own expenses after you have it.  Presumably your question applies to a case where your parents' money was barely enough to cover their own expenses, so you wouldn't be getting much besides the house itself. 

Personally, if I had enough money to hold on to a $1.5M house, my main objective would be to ensure my parents enjoyed their remaining years to the fullest.  Fwiw, I am near a much more minimal FI (stash maybe 450K) and my sister is on track for a rather prosperous FI by Mustache standards but far too little for a $1.5M house.  Neither of us will likely ever afford anything near that, but we are in process of giving our mom, who is at modest FI herself, tens of thousands of dollars we inherited from our divorced dad via the sale of his house, simply to increase her pleasure spending during the active phase of her old age.   

Whether you can achieve the house goal, the help your parents goal, or both depends primarily on how much money you can contribute and how clear and loving a conversation you can continue having with Mom and Dad.  The best financial format will emerge from this conversation.  Obviously the discussion to date has already been significant; congrats on that, and best of luck to you.

[Goldielocks]

The logical solution to get you into that home:
 When they need the money  / get out of a large home, you buy the home off of them, near full market value.

They move (downsize) or even live with you (in their former home) and pay rent.

When they pass, you inherit their [cash] assets, which should be quite high, as you bought the home from them years before.