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Jump down to the bottom my question, but read the long-winded parts for great detail.
Background:
My wife and I are old millenials and thanks to a lot of sacrifice (and dumb luck), have found ourselves fairly well off with a current net worth that will allow for 50 years of retirement (at today's costs). My sister-in-law had a very late start to adulthood and is currently living in a newly built 1,300 sq ft ADU (accessory dwelling unit) on her in-law's property. She and her husband combined income does not cross the six figure mark, but their expenses are incredibly low that they are able to save $3K each month. They literally have $60K in their savings account, very little in their retirement accounts, and nothing in discretionary investments. I'm working with them to divert their savings into their IRAs and trickle some money each week into a mutual fund. It's my sister-in-law's goal to have a piece of real estate for when she's retired some 30-35 years down the road. Problem is that real estate in Orange County, Ca is close to $500K for a nice condo/townhouse and $700K for a starter SFR. Supply and relatively low-priced deals are hard to come by given all the active flippers in the area.
The more immediate situation is actually my parents-in-law. My father-in-law was forced into retirement just 1.5 years short of him maxing out his pension and benefits. Their income (pension, SSI, and TSP distribution) is short of their expenses largely due to their $2K monthly rent. I'm open to them moving in with us, but my wife likes her space and has many unresolved issues with her parents where living with them might be a ticking timebomb.
Our solution:
My wife and I would go in with her sister on a property and have their parents live in it rent-free until it no longer suits them. This will allow her parents a lot of breathing room in retirement and it will help my sister-in-law build some real estate equity for her retirement but at 2021 prices; her concern is that real estate will outpace her ability to build a proper downpayment.
My question:
How should we best structure this real estate purchase and how shall we do the title? I'm trying to help my in-laws who are not very financial savvy and a father-in-law who tends to take on foolish risks. Do we "charge" her parents half in rent? Do we set up a trust? Perhaps I should post this in Economics forum? Thanks in advance.
Can your sister-in-law buy the house from the parents? They can all stay put and then she can move into the main house and rent out the ADU in retirement for extra income?
This idea is convoluted by too many interests. You are looking for a solution that cures all the issues but risks curing none. Going in half with your SIL, regardless of ownership structure, is linking your future equity to someone else's decisions. Even rent-free, your in-laws will have tenant rights. Your proposal requires six like votes to maintain harmony.
Ex: Your SIL decides to relocate and wants to cash out her share of equity in the co-owned property. Do you buy her out? Or do you tell your in-laws to move out? Do all three couples (the six votes) agree on how to do this?
I appreciate your interest in taking care of family. It is not selfish to insulate yourself and your spouse from risks that come with shared ownership and family handshake deals.
If your SIL wants to buy a property to build equity, lend her, or gift her the additional down payment. Don't become a landlord to your in-laws.
I agree with those above. Especially because your wife does not get along with her parents, any issues her parents have with a rental owned by you would most likely prove to be a catalyst for even more pain for your wife - and most likely everyone involved. Only an arms-length transaction would be advisable and even that is risky.
I suggest you consider a trust as owner of any property you wish to purchase with the idea to help out either the parents or SIL and figure out the consequences to you and your wife - not just financially but emotionally as well. You need to speak with an accountant and lawyer or a lawyer who is an accountant to work out this situation.
Thanks for the concerns. I would generally give the same advice to others who I didn't know either, but this has been something I've been considering for nearly 20 years. I think I will ask our 2 financial advisors how to efficiently set this up. Her parents are burning into their savings which will dry up 12 years by my projections. They aren't good at planning and so we're trying to make a plan for them where they can breathe easier in retirement.
My FIL is an undiagnosed depressive who dreams too big and cannot evaluate the probability between risk and reward; my MIL has diagnosed anxiety. Historically, they never tell us about their problems until it's too late for any easy solutions. We usually find her dad depressed and agitated, while her mom looks completely stressed out...that's how we get around to finding out their problems. We're trying to get ahead of this before they are broke and enhance their quality of life. They've been through a lot and I don't mind being the conduit to give them a break.
Thanks for the concerns. I would generally give the same advice to others who I didn't know either, but this has been something I've been considering for nearly 20 years. I think I will ask our 2 financial advisors how to efficiently set this up. Her parents are burning into their savings which will dry up 12 years by my projections. They aren't good at planning and so we're trying to make a plan for them where they can breathe easier in retirement.
My FIL is an undiagnosed depressive who dreams too big and cannot evaluate the probability between risk and reward; my MIL has diagnosed anxiety. Historically, they never tell us about their problems until it's too late for any easy solutions. We usually find her dad depressed and agitated, while her mom looks completely stressed out...that's how we get around to finding out their problems. We're trying to get ahead of this before they are broke and enhance their quality of life. They've been through a lot and I don't mind being the conduit to give them a break.
So if their savings will dry up in 12 years, why not wait until then? They both might not be alive in 12 years, or illness may cause major changes. Or given a rent free place to live your FIL may blow his savings on some scheme. Chances are they will still be depressed and anxious.
Your sister in law and husband are young enough to figure out their own retirement. They are good for years in their current situation. Maybe they will inherit the house and land. Maybe they can buy out his parents in time. Maybe the housing market will crash again in the next 30 years. It sounds to me like you want to be a hero and save the whole family. I hope it works out for you.
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