Real Estate: Buying Property with Mother-in-Law?

The costs of home ownership in the Bay Area are, well, terrifying. My husband and I (and now my husband, his mother and I) have been visiting open houses each weekend –just to get an idea what, if anything, is in our price range. The short answer is–not much.

Although we’re definitely not wealthy, we now have the benefit (?) of his mother joining us in our home purchasing endeavor. And, by joining us I mean joining us to live with us in an in-law unit (or second unit of a duplex) that we purchase together. should be super-duper grateful that she’s offering a $1M cash downpayment to make this possible. I am. But I’m also super-duper nervous because the other $1M (since the properties we are looking at are about $2M) will come from my husband and I (mostly me myself and I) – and the way their family communicates is practically non-existent so I’d be wrapping my future everything up in a property that’s co-owned by his mother (or, she “gifts” him the money so it’s fully owned by us, but the ownership then is a lifetime of debt to her in other means.)

Do I like my mother in law? Good question. She is, for all intents and purposes, a quiet person who keeps to herself. She marches to the beat of her own drum, but we get along. Would I prefer not to live on the same property as her? Yes, of course. But she’s also willing to help out with childcare and as much as I am nervous about her providing childcare to my kid(s) once they’re of walking age (she’s doing a fine job now with the 10-week old), it’s certainly nice to not have to spend $20k+ a year on daycare, and it’s extra nice keeping it in the family.

The actual scenario we’re looking at is that his mother gifts us the $1M, we get a mortgage for $1M, then his father (who is not married to his mother–never has been–but who is friends with her) gives us $2k a month in “rent” to bring down the monthly costs. All-in-all, financially, doing this with a ~$2M duplex or a reasonable single family + in-law unit makes a hell of a lot more sense than spending $1.5M+ on a single family home with no future rental potential. Even if our mortgage is $7k a month, my husband’s father’s contribution of $2k brings that down to the $5k that is that max I feel comfortable paying monthly for our PITI. I’d like it to be less than that, but at this point realistically it’s not going to get under $5k for what we need to make this work.

I’m just struggling with the lack of fiscal communication here, and how it feels like I’m dealing with a bunch of elementary school students in handling a very serious, very costly purchase, should we make it. That said, what right do I have to ask for any sort of special communication when it’s my husband’s mother who is making this purchase possible at all… shouldn’t I just roll with it? He’s an only child, his mother has practically put her income after very low expenses under pillows her entire life, and she seems to want to offer that to my husband and my child(ren) more than spend it on herself… I mean, for a women who has never owned a home, car, or pretty much anything “new” in her life, I doubt she’s going to change suddenly and spend that money. If I thought she would, or even would enjoy spending it on something else, I’d refuse the cash. I don’t want to be responsible for destroying her retirement. But all she wants in her retirement is a small place to live with a backyard and, most importantly, to spend as much time with my child(ren) as possible.

The entire situation makes me so uncomfortable because even though I grew up with a lot of privilege and my parents providing for me, I have been extremely independent since I graduated college (outside of my wedding.) I feel guilty for the privilege I’ve had, but have always told myself that as long as I make my own money for the life I want to live once I graduate college, I’m doing right by the world.

There’s a very long post I will write one of these days regarding my own parent’s financial mess (my father passed away this summer and let’s just say the family networth went from $1M to $400k in about 4 years–again, that story will be saved for another post(s))–but I’ve been struggling too with coming to terms that I always thought there’d be something left to provide backup should I financially fall on my face one day–but the reality has sunk in that nothing will be left. I am in a much better financial situation than my sister who is 28 and still earning a little higher than minimum wage with no benefits, so I can’t complain. It’s still a scary feeling, nonetheless (to be written about in another post.)

But I’ve also saved up now $650k, give or take, in retirement and investment accounts, and I feel like I’m capable of buying my own property without the help of others. Well, I would be, anywhere else in the country. Here… anything under $1.5M is pretty terrifying, at least with a 30 minute commute from my job south of the city.

That leads me down the road of… why buy now? The prices are coming down a bit (I’ve seen a bunch of $100k price drops in the last few weeks which seems substantial), but do we really need to buy this year? Our 1 bedroom, 1 bath apartment lifestyle isn’t that horrible, especially given the size of our apartment (800 square feet) provides rather large rooms compared to 3br, 2ba houses for sale (some of those “master bathrooms” are masterly tiny.)

His mother doesn’t have to move now either. She’s still living in her parent’s house (I believe, for free, which she’s done her entire life), so she is ok there until her mother, who is in her 90s, passes away (clearly not wishing this on her at all, but there’s the reality that few humans live past 100.) Once she passes away, we don’t know what will happen with the property other than that it will be sold and, we think, his mother will get 1/3 of its value (possible that won’t be the case but no one talks in the family about things like that.) Even without that inheritance, though, she will still have the $1M waiting its use for a home purchase with or without us.

Part of me wants to power through the next few years in our 1br/1ba and enjoy the rent control we have with our $2450 rent. I’m 45 minutes from my office in rush hour, but maybe I can work out an alternative travel the where I get that sweet 30 minute each way drive. I’ve considered moving us closer to my office… but we can’t get anything near nice enough at $2450 a month. We could pool resources and live with his dad for $4450 a month… but we know without a private unit / in law that would be a mess. We’re not even going to try that…

So, we may just wait it out as long as we can. When his grandmother passes away, that will make everything happen faster, since his mother will have to move. Until then, nothing is making us leave this place. Our son can easily manage to live in a 1 bedroom with us until he’s at least one, and maybe longer. It does suck not being able to invite people over, but heck, what people would I invite over? I don’t really know anyone. And I work all the time anyway, or at least I will when I get back from maternity leave.

That seems like the right option– even though we could qualify for a loan that, with his mother’s cash, would enable us to buy a property now. Yet I’m not sure buying is right at all anyway… home ownership is a hot mess from what I can tell… it’s costly, it takes all your time, there are issues you don’t know about when you buy that pop up later… and in the Bay Area you have to buy “as is” with no contingencies which just sounds like a recipe for financial ruin. Why bother?

Well, why bother because I have a kid and I want him to have a stable life… both my husband and I grew up in houses from the day we were born until adulthood, and we value not moving around every couple of years, especially for our family. So there’s that.

Leave the Bay Area? Maybe. If we don’t buy now… and if I can keep my current job for the next 3.5 years to collect my stock, and that stock remains valued at what it’s worth now or more, then who knows… we could pick up and move. His parents won’t want to, but we could buy a place on our own. He wouldn’t want to be far from his parents, so–I’m not sure it’s really an option, but if we can have another kid (or two more kids) it may be the best one.

In any case, I’m not sure what to do… as always… but after looking at probably 100 open houses over the last year… all I can say is I really don’t want to buy anything I’ve seen. That’s not a good sign.

(Visited 111 times, 1 visits today)

Related Posts:

5 comments

  1. ok – wow – that is a lot of activity going on! I don’t even know how you hold this altogether!

    Another important point to note which maybe no one in your life is pointing out now is that in the event things go south (not that I’m hoping that on anyone) the persons on title would be you, your spouse, and your MIL, which means it would be a lot easier for them to buy you out than the other way around. You would only be 1/3 owner.

    One workaround is to get your MIL to put in writing at time of purchase that the 1MM is GIFTED with no contingencies. Unlikely scenario.

    This way, you can have 50% title : you and spouse.

    But if she is on title too, well think of it as a company really, and you are a minority shareholder. The probability of staying in the home is slim. You will only get your 1/3 of the home at market value and will have to pack it elsewhere.

    Understand in the bay there’s no way into the market without parental help, and this is very common scenario whenever a 3rd party comes into help out a couple in ANY HCOL city.

    I am sure you’re aware of this in the back of your mind before going in.

    I totally relate to that picket fence dream, the garden, the little deck, lawn chairs, and pretty light decor outside the home…

    It’s a tough decision
    #adulting

    1. Joy ( User Karma: 0 ) says:

      Thanks. She wants to give the gift and doesn’t care about being on the title, but I think long run it could get messy if it feels like we owe her everything because of this… would rather be in it together like a company as you say– not sure her or my husband would go for that though.

  2. georgehpuck says:

    Be careful of a gift from a family member, if NOT done correctly, the person giving the gift can be subject to a tax between 15-40%. So if your mother in law gives you a million dollars, she may have opened herself up to a owing tax for giving you money of $150K-$400K.

    I would also suggest that have you written down all of the contingencies about how property will be owned?

    Death, divorce, disease, drug use, disinterest, all can play into changing the circumstances of one or both of you if you buy together.

    What if one of you cant pay the mortgage? What if one of you needs to immediately sell or whatever. What if you decide to move? will you be able to sell and force your mother in law to sell also?

    Personally I would be very reluctant to go in on a property with a family member too many things can go wrong.

    Have you thought any more about just moving? you can get a huge house for 300-400K in DFW, or Phoenix as an example. Or 150-200K will get you a mansion in Peoria Il.

    1. Joy ( User Karma: 0 ) says:

      My husband is committed to living here. The good news for us is that his mother will be putting down $1M up front, so she would be risking a lot more than we are. If we have a $750k mortgage, for instance, then the risk to her is that we don’t pay it off. But I agree with you, there’s a lot of risk here overall… it’s just the only way we can get into the market here, and its helpful for us because his mother has $1M sitting in cash and at least if it’s in a property it will likely increase in value…

      Death: would be a problem for her if we both died, we would have to have term life insurance to cover our part of the mortgage (though with her pension she could cover it if needed, I think)

      Divorce: bigger risk here is to me– but I don’t plan on getting divorced, and it’s too late for a prenup anyway. If my husband and I jointly own the property then in a divorce I believe I’d get 50%. But it would be messy. It would be bad if we get divorced, but we won’t. And it would be just as messy if we buy a house as a married couple without his mother…

      Disease: could be an issue, though his mother will be paid outright. I feel uncomfortable with this as his mother doesn’t want to talk about long-term care planning… but with her own inheritance and pension that won’t be spent, she will probably have enough to self insure and then some, even after gifting the $1M to my husband. If we get sick, it would be tough, but that’s why I only want to take a $750k mortgage (and we already have $700k in investments, so we can almost pay it off if needed, even with tax.)

      Drug use: no one in this family is using drugs… definitely not a concern. His parents don’t drink or do drugs, and we are pretty straight-laced ourselves (though we drink occasionally.)

      Disinterest: his mom will be happy living wherever forever. She has very low wants. I may get disinterested but the only way for us to stay in this area long term is to do this… so I feel like I have to compromise.

      Today I’ve been thinking a lot about moving but we love it here, our friends and his extended family are here, and my career is here. Maybe we’d move but it would be really tough to find a place we both agree on. The only place we’d consider is Seattle and it’s not that much cheaper. He doesn’t like heat and I don’t like a lot of rain, and neither of us like the cold, so that really limits us (Arizona and Texas are definitely out, as is Illinois.) So…

      The reason why I think this is ok is that if we get a duplex and we have to move (say I get a job offer somewhere else) we can pay off the mortgage and rent out our unit while his parents stay in the other, and the rent in that unit can help us rent or purchase elsewhere. But I’m sure there are other issue sI haven’t though about.

      It’s really scary to me and my husband refuses to understand why or put himself in my shoes. But also I can’t really complain if his mother is gifting us $1M.

      Agree that this has to be done correctly. It would be an early inheritance.

  3. Labangel says:

    Best of luck whatever you decide! Like you I heard from a coworker that the market is slowing somewhat so I hope you find a place you want to buy soon! <3,
    Labangel

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge