Long story short my mom claimed bankruptcy and was able to keep her house in NJ. She owes 133K @ 7.3% and still has 18 years left on the loan. Taxes are at about $4200/yr. Insurance is about $100/month and flood insurance is another $200/month, it’s about 2 miles from the shore. The house needs some fixes at most about $20K worth in total, but the more important fixes could be around $10K. The house could be worth low to mid 200Ks maybe upper $200K looking at comps in the area. It’s a 3 bedroom, 1.5 bath 1360 sqft home with detached garage. Built in 1929 so has normal wear and tear, but fixes are about $10K to $20K as stated before. Lot size is about 50X180 = 9K sqft. If we keep it I would buy it from her to keep from paying that ridiculous interest rate although when I get it I would be paying mostly interest upfront, but on 4.25% for what I qualify on for a mortgage. I have $150K in savings and make $104K/yr. I have some in my 401k at about $118K. No debt other than I owe about $2K in my credit card right now cause I had to make some purchases related to things for the home. Wondering if I should buy, invest in the home a little to fix it out of my savings and I can still keep saving and investing after purchasing? Or should I just sell and walk away and take my current and future savings and start to really invest. Any advice anyone may have would be greatly appreciated!!
I think the first question that needs to be answered is does Mom possibly have more house than she can afford?
The answer is yes. That’s why I’m either going to buy it from her or sell. Trying to see how I can maximize it. Thanks!
Why not buy it and ask her to share the monthly payment. When she cant, it looks like you should be more than able. That way you both have a place, lowers your cost on all the bills etc…
Maybe the same above but if/when she pays, put that directly into an acct that is strictly for maintenance… or even if she needs help moving at a later date, that money can be used to help her.
Of course, I really don’t have any idea of your family dynamics nor needs, but I think about these things sometimes as issues we may need to one day face with our own aging parents, and it brings to mind jlcollinsnh’s cautionary tale.
I realize his situation is different from what you’re describing, but it’s a reminder that what makes sense financially may have other consequences. In particular for him, the psychological factors discovered after buying a condo for his mother and subsidizing her rent:
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.
Meanwhile, when my sisters would visit once or twice a year, they’d slip her $100 to “help with the extras.” A kind and generous gesture that she very much felt emotionally. And, of course, when I’d visit I would get to hear in detail just how kind and generous my sisters were and what a blessing in a mother’s life such children are.
It really depends on your situation. If you can see yourself there, it may be worthwhile. From experience, a 1929 home sounds like there may be some issues down the road. Just my thoughts. Good luck!
Thank you @MaximizingMinimalist for this article. I’ve read it a couple of times since you’ve sent it. Financial matters are sometimes just as emotionally driven as they are financially driven and hard to separate the two. Like @mobilehomegurl said it depends on my situation, but either way, whatever decision I choose, I’ll just have to make the best of it. Thanks again.
Yes. I feel you on that. Some improvements have been made. Some still need to be done and I’m having some folks come through to give some estimates on all the fixes. Some major and some minor. In total, the highest estimate has been $18K to include everything so not too terrible.
Can you do some of the work yourself? Would take longer - perhaps years to learn it but if everyone is staying put why not…
Hey @GRuga. Yes I’ve been on the DIY sites as well as these FI sites. A lot of reading. LoL The main things to fix I know I can’t and shouldnt do on my own. For those, early estimates are at about 20K for everything to fix including minor things I can do on my own. I have money saved for that, but I’m trying not to dig into as much of my savings as possible and have that money invested.
You didn’t mention if you were planning to live in it or rent it out…or keep mom in it (which I think you have answered it is too much house for her). I would take your mom out of the equation completely and ask your self if you were looking to invest in real estate is this a home/location/risk you would invest in? Start from ground zero…
@MissMazuma Yes. All of those are still options. Not sure if I have the experience and tolerance to rent it out just yet. How much I should really rent it for and to whom once I buy and have to deal with the maintenance while someone else is living in it besides myself. I was planning on keeping my mom in it if I was to purchase it and hold on to it. I travel a lot for work and my current living situation only has my monthly expenses at approx $1K. So technically I can afford it, but trying to do include opportunity costs if I was to sell now or keep it and incur the extra expenses that occur when owning a home. Thank you for the input and different way to look at it.
Hi Alex, I’m a real estate investor and I spend a lot of time upfront analyzing each property. Without knowing everything about this property and having no experience with your location, I can’t really offer any advice. It sounds like there are emotions involved in this decision, which isn’t necessarily a great way to invest, but family is important. If I lived there, I would be more than willing to sit with you and go through all the options and analysis. Can you find someone locally who can help you with this decision who isn’t invested emotionally in this?
@PrimalProsperity I was actually reading your site and i subscribed. I was going to see if I could get some insight to investing in real estate from you. Maybe not for this particular scenario. I don’t know of anyone who would give any real advice without charging me. I was reading in one of your replies to someone that you have been maxing out your Roth IRA since you graduated. I’m really impressed. I think part of what has me stuck is the fact that I’m starting very late in investing and pursuing a FIREd up lifestyle. I have no debt and some savings and not sure if I should use any of my savings to purchase this house or sell it and move on to investing it. And yes there are other emotions involved and I know that’s not always a good position from which to make certain decisions. There arent any real pros and cons either that stand out enough to sway me one way or another. Thanking for reaching out. I wish you did live here!! If you have any general info of other things to think about I would greatly appreciate it. Thanks again.
Sounds like you have done your research. BTW - great job on your savings accumulation -just fantastic and I am hope you are pleased with your progress.
Question for your consideration? Is 7% for 18 years actually more expensive than what ever interest/term you would pay at 4%, adding in the 20K in repairs? Depreciated for interest of course.
If we add in a 20% downpayment on the 200K place (so 40K) and the 20K in repairs that is 60K sunk into the walls. What is the expected savings and over what time. That will tell you the return yield of that 60K investment and you can compare it to alternatives as you consider ways to help your mom out.
As one possible example: 60K invested in an index fund at a 4% withdraw rate will produce $2400 a year and pay a third of the loan off in the next 18 years and then produce retirement income after that (well, maybe).
Hey, thanks for subscribing! If you want to email me, I can try to provide more insight for you.
This way, I can ask some specific questions on location and such that you probably don’t want public here.
Thank you @GRuga I guess since I’ve started late I’m pleased that I’m better today than I was yesterday, but still feel a little pressed to make up for lost time.
Great question. I’ve thought about that also. Looking at the monthly payment which will go down by about $800/month if I finance the rest myself and restructure some other things. If I purchase the home it will only be for the amount left on the house. $140K with only 5% down @4.25%, finance the remaining 133K to pay off what is owed on the home and fixes will only be minimal to what is important to make the home safe and energy efficient. I could sell and take all the money and just invest but when would I have another opportunity to buy a home for 133k with minimal fixes? I’m sure there are opportunities with tax liens and foreclosures, but those also have their own risks and timing associated with them as well. Although very possible.
Hi there! Well, it depends on your situation. But according to me why not buy the house of your mother and do some renovation to make it a better place to live. After all, it’s all your mom’s house so keeping it would be a great idea. Or you may either take the help from a real estate investor who would suggest you the better advice for investing in a home. And also insurance will help in renovating the house. Few days back one of my friends has renovated the house after the water damage in the house with the help of insurance money by taking the help from a home insurance claim adjuster for claiming an insurance.
Though it’s totally depends on you. But i think you should sell it now. lol