Financial advice needed
January 5, 2006 11:52 AM
I'm thinking about buying half of a house. How do I find a good financial advisor to tell me the best way to go about things?
I've been thinking about buying half of my dad's house. My dad thinks it's silly, because he and all of my siblings already consider the house mine, so he wants to give me half of the house.
Normally, I wouldn't turn down the gift of half a house, but I have quite a bit of money in my savings and more than that in a 401k, and my dad has some debt and a junky car and the house needs repairs.
The ideas people have thrown at us so far range from me buying half of the house and then paying a mortgage to him giving me half the house, then taking out an equity line of credit (which I would then pay off) to pay his bills, buy him a good used car, and fix up the house.
None of us know anything about any of this stuff. How can we find someone we can trust to tell us what's what?
Oh, and my dad's debt + a good used car + the home repairs needed are more than my savings, otherwise I would just give him the money.
I've been thinking about buying half of my dad's house. My dad thinks it's silly, because he and all of my siblings already consider the house mine, so he wants to give me half of the house.
Normally, I wouldn't turn down the gift of half a house, but I have quite a bit of money in my savings and more than that in a 401k, and my dad has some debt and a junky car and the house needs repairs.
The ideas people have thrown at us so far range from me buying half of the house and then paying a mortgage to him giving me half the house, then taking out an equity line of credit (which I would then pay off) to pay his bills, buy him a good used car, and fix up the house.
None of us know anything about any of this stuff. How can we find someone we can trust to tell us what's what?
Oh, and my dad's debt + a good used car + the home repairs needed are more than my savings, otherwise I would just give him the money.
It's definitely silly if the inevitable result is him leaving you the house when he dies; at that point you'll receive it at the current cost basis and you could turn around and sell that day with no capital gains penalty. If you gain partial ownership now your cost basis will, presumably, stay static while value rises. So however many years from now you could find yourself facing big bucks in taxes.
Perhaps you can come up with an unofficial solution where you provide an informal reverse mortgage to your dad in exchange for your eventual inheritance of the home. If it makes your dad feel better you can draft up loan documents, though depending on the amounts in question that could remove your ability to take advantage of the annual gift allowance from the IRS - if it's a loan it's not a gift.
Unrelated financial advice - stop thinking of the amount in your 401k as anything other than "not enough." That's retirement money, and if you somehow had a million dollars in it and $20 bucks to your name you should be thinking of yourself as dirt poor destitute. Taking money out of it is for suckers, taking loans against it is almost always a bad plan, given the risk:reward ratio.
posted by phearlez at 1:04 PM on January 5, 2006
Perhaps you can come up with an unofficial solution where you provide an informal reverse mortgage to your dad in exchange for your eventual inheritance of the home. If it makes your dad feel better you can draft up loan documents, though depending on the amounts in question that could remove your ability to take advantage of the annual gift allowance from the IRS - if it's a loan it's not a gift.
Unrelated financial advice - stop thinking of the amount in your 401k as anything other than "not enough." That's retirement money, and if you somehow had a million dollars in it and $20 bucks to your name you should be thinking of yourself as dirt poor destitute. Taking money out of it is for suckers, taking loans against it is almost always a bad plan, given the risk:reward ratio.
posted by phearlez at 1:04 PM on January 5, 2006
Why half of the house? Is it a duplex or something? What are you going to do with half of a house? Who's living in it?
It sounds like you're getting two unrelated things mixed together and making this a lot more complicated than it needs to be.
Your dad wants to give you something (half of his house). Take it, if you want, or wait to inherit it. You want to give your dad something (a car & help with his bills). Give it to him. And you're done.
Oh, and my dad's debt + a good used car + the home repairs needed are more than my savings, otherwise I would just give him the money.
So pay for as much as you feel like. He can take out a loan against the property just as well as you could if you owned half of it.
posted by designbot at 2:38 PM on January 5, 2006
It sounds like you're getting two unrelated things mixed together and making this a lot more complicated than it needs to be.
Your dad wants to give you something (half of his house). Take it, if you want, or wait to inherit it. You want to give your dad something (a car & help with his bills). Give it to him. And you're done.
Oh, and my dad's debt + a good used car + the home repairs needed are more than my savings, otherwise I would just give him the money.
So pay for as much as you feel like. He can take out a loan against the property just as well as you could if you owned half of it.
posted by designbot at 2:38 PM on January 5, 2006
Agree that "half" muddies the waters more than it needs to.
Where I live, it's commonplace (and there's a special real estate provision) for adult children to buy their family home for $1 and work out a "mortgage" with their parents. I don't know exactly how it works, but I know that it's frequently used for pretty much the same situation you've got.
posted by desuetude at 3:02 PM on January 5, 2006
Where I live, it's commonplace (and there's a special real estate provision) for adult children to buy their family home for $1 and work out a "mortgage" with their parents. I don't know exactly how it works, but I know that it's frequently used for pretty much the same situation you've got.
posted by desuetude at 3:02 PM on January 5, 2006
desuetude -- that's the kind of thing that I was wondering if having a financial planner can help me find out.
The real estate market in the DC area is crazy, and I'd never be able to afford a house here on my own (and I've been searching and saving for years), and I also want my dad to have a nice retirement without having to worry too much about money, and I thought this would kill two birds with one stone.
We both live in the house now. My dad's deaf, in his sixties, and his health's not the greatest. I do the cooking and cleaning and translating when needed and make all of the household decisions -- that's why my dad and all my siblings think of the house as being already mine.
However, I don't really feel right with the idea of him just flat out giving me the house.
So maybe buying half the house makes no sense, but that's why I wanted to talk to a financial planner, to see if there was something we could do that does make sense.
posted by amarynth at 3:39 PM on January 5, 2006
The real estate market in the DC area is crazy, and I'd never be able to afford a house here on my own (and I've been searching and saving for years), and I also want my dad to have a nice retirement without having to worry too much about money, and I thought this would kill two birds with one stone.
We both live in the house now. My dad's deaf, in his sixties, and his health's not the greatest. I do the cooking and cleaning and translating when needed and make all of the household decisions -- that's why my dad and all my siblings think of the house as being already mine.
However, I don't really feel right with the idea of him just flat out giving me the house.
So maybe buying half the house makes no sense, but that's why I wanted to talk to a financial planner, to see if there was something we could do that does make sense.
posted by amarynth at 3:39 PM on January 5, 2006
I am not an expert (at all!) But I don't think that buying half the house will be the wise financial-planning way to go. If your siblings and your dad are okay with the "weirdness" factor (no-one likes to think about inheritance = death) of you taking over the house (on paper) now, you can probably work out something that doesn't insult anyone's pride and solves the short-term financial difficulties for your dad. You need a financial advisor, and while I can't recommend in DC, the genre is not totally quacks. Do you have a 401k or the like from work? They will probably dispense free advice. Your bank may, also. Your situation is by no means unusual.
posted by desuetude at 8:14 PM on January 5, 2006
posted by desuetude at 8:14 PM on January 5, 2006
Buying half the house now definitely screws up the potential tax benefit when he dies. Find out what his basis in the house is, and ballpark how much it is currently worth. Take the difference, split it in half, and then calculate 15% of one-half that gain. That's how much you are losing by doing this. (It sounds like your father's potential estate is small enough to not incur any federal estate taxes, so that shouldn't be an issue.)
I would recommend not buying the house, and finding some sort of way to loan him the money, and have the debt repaid to you upon his death. That way, he gets to use it now while he needs it, you get it back when he passes away, and you keep the tax benefit in the house at his death.
Just make sure you have a formal loan agreement drawn up between the two of you!
posted by MrZero at 9:57 PM on January 5, 2006
I would recommend not buying the house, and finding some sort of way to loan him the money, and have the debt repaid to you upon his death. That way, he gets to use it now while he needs it, you get it back when he passes away, and you keep the tax benefit in the house at his death.
Just make sure you have a formal loan agreement drawn up between the two of you!
posted by MrZero at 9:57 PM on January 5, 2006
Thanks to all who responded. I've asked around for financial advisor reccommendations, but so far it seems like I'm going to have to just pick one out of the phone book.
The reason we wanted to have the house involved at all instead of a straight loan was in case my siblings suddenly become crazed drug addicts and my dad becomes senile and they trick him into leaving them the house and I have to live in my dad's junky car. Or something equally unlikely, I guess.
posted by amarynth at 11:31 AM on January 6, 2006
The reason we wanted to have the house involved at all instead of a straight loan was in case my siblings suddenly become crazed drug addicts and my dad becomes senile and they trick him into leaving them the house and I have to live in my dad's junky car. Or something equally unlikely, I guess.
posted by amarynth at 11:31 AM on January 6, 2006
This thread is closed to new comments.
posted by designbot at 12:41 PM on January 5, 2006