Should we buy a house with my husband’s parents?

It has become increasingly clear that owning a house in the Bay Area (unless I want a 1.5+ hour each way commute in bumper-to-bumper traffic for the rest of my life) is pretty much an impossible feat on our own.   Theoretically I can become a VP and make $200k a year for the next 30 years of my life, but with my husband’s expected $50k income, we just can’t buy a house on $250k. And that’s IF we both are gainfully employed in such roles for the next 30 years straight.

His parents, not married but quite friendly with each other, are both seemingly interested in purchasing a home with us and living together. My husband, thankfully, realizes it’s not a good idea to live in the actual same house without an in-law unit (attached or dettached), and I’ve recommended if we’re going to go this route we look at duplexes which would be more expensive up front, but would give us more options long term as rental properties should they no longer want to live there for any reason (and we spend more than we would just us since there needs to be space for them.)

Duplexes around here seem to go for anywhere from $1.6M to, well, much higher. A really nice duplex could be $2M. The duplexes don’t come with much of a backyard usually (not that any property here does) but what’s nice about them is that together we might actually be able to afford ownership and the stability that affords.

His father is open to paying $2,000 a month towards a mortgage. I don’t know yet about his mother as she could likely help with the downpayment and then have to pay less monthly for a while (she apparently has most of her savings in cash, for better or worse.) Then, between all of us, maybe we could afford an $8k monthly mortgage. And, although I’m not quite sure how it would work, I think we could split the mortgage interest deduction three ways (since they’re not married) and thus actually be able to take the full deduction (though it would be worth much less to retired people, and I’m not sure it would be worth much of anything at all to them.)

I’m torn on whether living with his parents makes sense. His father is already offering to help out with the kiddo and I wouldn’t mind living with his dad if his father had an in-law type unit, or we had a duplex. He is very quiet and a nice, introverted guy that isn’t bothered by much. He’s a bit older too, in his 70s, and I think he just wants to spend time with his grandkid, which I appreciate. And it would be nice for my child to have a grandma it is close with (since my dad is across the country and due to his cancer may not be around that much longer unfortunately.) He currently lives in a very small one bedroom apartment in a 55+ apartment complex and I think his quality of life would increase substantially should he live in a house. He’s been sending my husband links to houses for rent with makeshift in-law units so clearly he’s very big on this idea of living together.  It certainly makes sense to offer him decreased rent/mortgage payments in trade for helping out with the baby.

His mother is a bit of a different story. She’s also quiet and independent, but she’s a mess. Like, more of a mess than I am. I’m a mess, but she’s like a “I have a bunch of cats I gathered from the outside and a billion purchases from thrift stores I’m hoarding” a mess. My husband knows this, and doesn’t want to live with her if she will continue this behavior. But he seems pretty confident she will change if she moves into a new space (she lives in her own parents house now, and her parents also collected  lot of junk so that place is just chaotic.) She isn’t ready to move yet, but her mother is in her 90s and eventually she will have to leave the house and find somewhere else to live. At that point, we could all put our savings together and find a home that works.

I wish the duplexes weren’t so expensive. While I’m still a little concerned that she would let the house become disgusting, if she lived with my husband’s father I don’t think it would happen. I mean, maybe her room (if we had a duplex with a 2br for them) would be messy, but the rest of the place and the outside areas wouldn’t be. If they were detached units on the same property, that wouldn’t be so bad.

The other option is to rent a house that happens to have a room with a private entrance. This wouldn’t work with his mother, but she’s not ready to move right now anyway. My husband’s father would move in a heartbeat. I think we’re still pretty set on staying in this apartment for the first year of our kid’s life, but it really might make the most sense to move now since the first year is when grandpa will be helping out the most (and taking 30 minute train rides to get here, since grandpa doesn’t drive.)

I’m pretty certain if I pushed for it and found the perfect place, we could move in together next month. I’m not sure that makes any sense though — our rent is now about $2500 a month. So we’d have to find a house that is $4500 a month max. The houses around here that are $4500 are not that nice, and I haven’t seen any with in-law type units. We could maybe get a regular 2br/1ba for $4500 a month… but I think we all agree that living in the same house–especially with one bathroom–is a bad idea.

So we’ll probably just stay in this apartment at least for a year, but be opportunistic in purchasing should the right property come along. His mother may change things if she needs to move sooner than later. But we’ll see. I do think her savings would make it possible for us all to purchase something a bit nicer. If we could split taxes on the property 3 ways, that would help as well, since there is the $10k per person/couple limit on that deduction now, including income tax.

What do you think? Should I consider a duplex or house with in-law purchase? Should we rent a house? Should we wait?

 

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9 comments

  1. Kit says:

    I realize this post was a few months ago, but I’ve been looking through blogs that have similar circumstances to my wife and I. You mentioned you’re looking in the Bay Area? If it’s not too personal, where in the Bay Area are you looking? My wife and I just bought a place south of San Jose. We’re about 45 minutes from Mountain View, but our new house was $600k and its on 1/3 acre. There is a lot of stuff along highway 17 for under a million and a lot of them have ADUs (granny units).

  2. georgehpuck says:

    Absolutely there can be taxes on gifts from inlaws.

    There are a couple of things that can be done to minimize or eliminate those taxes, but you NEED to talk to an accountant ahead of time.

    Here is an article on the topic. I haven’t checked to see if anything changed with regards to gifts under the new tax laws.

  3. Financial Orchid here. Great idea. Much more hopeful than last post. Duplex or inlaw suite/carriage home is a fabulous idea!
    Alternatively, you can also buy a pre fabricated tiny home (min 168 sq ft) for $30K in the backyard (a lot of folks are doing that in the bay now) with brand new finishings on a trailer basically. Electricity connects to the main dwelling. I stayed in one in Washington. It was quite nice.

    Duplex or in law suite is great depending on how much you can swing financially. Also helpful with buying the home now rather than get hit with inheritance tax. It would simply be transfer of title to existing owner. Caveat is having too many ppl on title tho (4 adults could be messy if things go sideways). The other benefit is future rental opportunities when the elder passes on (no disrespects to your inlaws). By then your mortgage will have been paid down so any extra room/bedroom/suite/carriage home/plex basically = +cash flow, which would really supplement the lower teacher income esp during the summer months. Not to mention airbnb opts.

    More owned space = opts. The more rooms you can partition out the better. Future potential project maybe.

    I’m all about building cash flows even if it may mean more servicing at the onset. You’d be spending it on rent otherwise anyway. Bay area housing only has one direction. Can’t say this elsewhere.

    Hope this helps.

    1. Joy ( User Karma: 0 ) says:

      Thanks for your comment, as always. 🙂 I’m not sure any of these houses we’re looking at that are not duplexes have room for a fabricated home in the backyard (they barely have backyards at all) but the duplex situation with two separate houses on the same property seems like a good idea. I’m a bit confused on the taxes regarding this, though – since it seems it may be better to have a duplex with a connecting wall so things like roof fixes and air conditioner replacements would be deductible at 50% – but maybe not if it’s a separate house? Also, I don’t think we’ll have inheritance tax regardless (???) so might not help. Do you think it makes more sense to have his parents buy with us or for us to buy entirely and have them pay us rent? It seems silly to me to have them pay us rent that we’ll have to pay income tax on, but maybe that does make sense since we can then deduct the expenses to fix teh property and our deductions will be worth more… this is quite confusing.

      1. I recommend keeping you guys on title. Again more names on title more complex. They don’t have to pay you rent directly. They could help out a lot with cost savings eg daycare cost, cooking meals, cleaning, and help out with buying groceries or be responsible for the utilities, electricity, water if they can. That’s boatloads of savings for your family already. Blue apron is expensive though super popular amongst millenial DINKs

        If they help out on the down payment then most banks will require you get written statement from the parents saying this is a gift.

        Inter generational household is pretty common on the coast.

        http://financialorchid.com/3-ways-to-manage-house-horniness-and-fomo/

        1. Joy ( User Karma: 0 ) says:

          A duplex would cost $1.5M-$2M, which means we’d need $300k+ for the downpayment (doable) but then about $8k a month for mortgage. I don’t think we can manage that on our own if they don’t pay us rent. My husband is an only child so theoretically any money left over in their accounts in the long term would go to him, but we hope they live long healthy lives, and we’d have nothing left after paying our mortgage for anything else. That just seems like a bad idea. Also, if they don’t pay us rent, then we wouldn’t be able to claim expenses against it, so it seems like a bad idea to be the only ones on the title and then not collect rent? I think? I agree they could pay other ways (babysitting etc) but that will be worth less as the kid gets older. I still think having us all on the title makes sense. His parents are stable…. his mother has enough money in savings and his father doesn’t spend anything and has small but stable retirement income. I’m more worried about our stability in income to pay a mortgage that is $8k a month… when we take home something like $10k after tax right now.

          1. No it’s a cash gift. There’s no tax except if they are liquidating stocks. Sounds like mil puts money under the mattress so no capital gain tax.

            Recommend to rent out a basement to third party. If you lose your fat paycheck your whole family lives to the basement and you rent out the main suite to keep the mortgage payments. At least y’all still got a roof. Still better than 1 bedroom apartment.

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