San Diego Housing Market News and Analysis
Invest in Real Estate - buy house and Rent to family member???
User Forum Topic
Submitted by 23109VC on February 18, 2009 - 2:42pm
I am hoping someone here is economically sophisticated and can explain why this would be a good/bad investment.
My parents are at retirement age. They own their home, and have roughly 1 million saved up. They pulled their money out of the market before it went way way down - and moved it to a cash account. they have a big fat pile of money, that they were going to invest for retirement, but now they are paranoid about putting it anywhere given all the economic uncertainty. My dad still works, making roughly $100k/year. they have a nice house in San diego / Scripps area they have owned for decades. bought it for 60k, now even zillow says it's still worth about 600k. they plan to stay there until they die..the taxes there are dirt cheap.
i am in temecula upside down in my house. i had this "scheme" in mind. it would benefit me - but i only want to present it to my parents if it would HONESTLY benefit them too.
I am upside down my house. i am trying to mod my loan, maybe it will work, ,maybe it wont. i have considered just living in my hosue as long as I can put off foreclosure, and stockpile all the money i'm saving. i could probably save up close to 50k between what I don't pay in taxes, mortgage,s insurance, and what i could save.
then, once they finally boot me out - instead of just renting - IF IF IF you all think this "is the bottom" or in about a year when I would be actually moving we are "at or near the bottom" I then get my parents to buy for cash - a nice house. say for rought estimates - they buy a house that costs $500k in TODAY's market. my hosue cost almost that in the OLD jacked up market. the house that costs 500k in 12 months will be ahosue that would have been 900-1M in the old market.
I then move into the new house and make payments directly to my parents. they retire, and use my payments as an annuiyt. they are leaving me their entire estate when they die. they are about 65 each. realistically, while i wish they woudl live forever, statistically, they won't be alive by the time the note matures..so i keep paying them - they get a gauranteed annuity, I get out of my upside down house - I get into a newer/bigger/better house for essentially the same monthly payment.
the risk to parents is what if I stiffed them? they could be holding the note, and have to foreclose on their son. i thought about giving hem the 50k i save up and they hold that like in escrow... then if were to default, they would have 50k of "my" money to draw on until the situation rectifies or I get out and they sell/rent it.
i havea gov't job in public safety, lots of seniority at work. odds of me being laid off are very low. the whole system would have to crash before i lost my job. no job is 100% secure, but mine is about as secure as you can possibly get. so they "risk" of me losing my job, defaulting, etc is low in my opinion.
i have a 1M life insurance policy, I could add them as a beneficiary if they wanted to esnure that if i died, they got paid.
the only contingency i couldn't really control for woudl be if I were injured to the point that i could not work, but was not dead - my work related disablity ins would pay 60% of my insomce until i reach age 65. so i might be able to keep making payments...maybe not.but there would be something coming in to at least cover the minimum jhntil I adjusted living arrangements and moved.
essentially, I see it as a win win. they put thei rmoney in the stock market now and what kind of a return would they get?they could lose even more.
if they put the money into a house - in this market, would you all say that the odds are the value will essentially be bottomed out in about a year?
even if the values stayed flat and the house didn't appreciate substantially - it probably woulnd't go down like the market has in the last year or two.
the benefit to me is getting out from under my huge upside down house - getting into a bigger/better hosue that would be bought at the "bottom".
the money is my parents, but it will be mine in 30 years - rather than my parents put the money into some investment account, or give it to some investment advisor to put it in his account and they see a 5-7% return annually - they can get the same return,i f not more - and the money benefits me/their son/heir at the same time it earns them money.
seems like a win win. what am i missing? are there negative or positive tax implications for this? i think the money is in their 401k program or an equivalent, but he moved the money from being in any fund to a "cash" type part o the program so it was NOT invested, hence his value froze and stayed stable as the market just recently dumped...
if he pulls that money to buy a hosue and then sell or rent - does he get mega penalties or can he avoid penalties by the fact that it is a new investment?
any suggestions - pro or con are welcomed.
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