Need exit strategy for aging mother who owns aging rental properties, please
"I debated whether to put this in an answer or a comment, because I'm not sure that this can be answered usefully without a lot more information, which actually would then probably make it a candidate for closing as ""too localized"". At the very least we would need to know where (which jurisdiction) she is located in. So, speaking in a generic way, the options available as I see them are: Contact the mortgage companies and explain she can't continue to make payments. They will likely foreclose on the properties and if she still ends up owing money after that (if you are in the US this also depends on whether you are in a ""non-recourse"" state) then she could be declared bankrupt. This is rather the ""nuclear option"" and definitely not something to be undertaken lightly, but would at least wipe the slate clean and give her some degree of certainty about her situation. Look very carefully at the portfolio of properties and get some proper valuations done on them (depending on where she is located this may be free). Also do a careful analysis of the property sales and rental markets, to see whether property prices / rental rates are going up or down. Then decide on an individual basis whether each property is better kept or sold. You may be able to get discounts on fees if you sell multiple properties in one transaction. This option would require some cold hard analysis and decision making without letting yourselves get emotionally invested in the situation (difficult, I know). Depending on how long she has had the properties for and how she came to own them, it MIGHT be an option to pursue action against whoever advised her to acquire them. Clearly a large portfolio of decaying rental properties is not a suitable investment for a relatively elderly lady and if she only came by them relatively recently, on advice from an investment consultant or similar, you might have some redress there.  Another option: could she live in one of the properties herself to reduce costs? If she owns her own home as well then she could sell that, live in the one of the rentals and use the money saved to finance the sale of the other rentals. Aside from these thoughts, one final piece of advice: don't get your own finances tangled up in hers (so don't take out a mortgage against your own property, for example). Obviously if you have the leeway to help her out of your budget then that is great, but I would restrict that to doing things like paying for grocery shopping or whatever. If she is heading for bankruptcy or other financial difficulties, it won't help if you are entangled too."
BLUF:  Continue renting, and work toward financial independence, you can always buy later if your situation changes. Owning the house you live in can be a poor investment.  It is totally dependent on the housing market where you live.  Do the math.  The rumors may have depressed the market to the point where the houses are cheaper to buy.  When you do the estimate, don't forget any homeowners association fees and periodic replacement of the roof, HVAC system and fencing, and money for repairs of plumbing and electrical systems.  Calculate all the replacements as cost over the average lifespan of each system.  And the repairs as an average yearly cost.  Additionally, consider that remodeling will be needful every 20 years or so. There are also intangibles between owning and renting that can tip the scales no matter what the numbers alone say.  Ownership comes with significant opportunity and maintenance costs and is by definition not liquid, but provides stability.  As long as you make your payments, and the government doesn't use imminent domain, you cannot be forced to move.  Renting gives you freedom from paying for maintenance and repairs on the house and the freedom to move with only a lease to break. I'm afraid your best recourse may be legal. I don't know that internet is a necessity, but the court would frown upon anyone paying $4K for rent but not being able to afford to heat the water or turn the lights on. $48K a year net should be enough for her to at least keep the kids with these things.  I don't know that you can educate her. Her issue is very deep-seated and far beyond a good financial planning type session. "If you're losing money or breaking even, you own a bad investment.  The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind of unlikely to change.  Option #1 - Tell your wife that you are willing to accept a loss up to a certain level because of your long term relationship with your tenant. In a perfect world, the two of you would then discuss what the ""magic number"" would be where you got out and come to a compromise. For example, if you are comfortable losing up to $3,000 per year and she is unhappy with any loss, you may agree on selling the house when your losses climb to $1,500. In a less perfect world, it would cause an argument as she has already told you what she wants you to do.  Option #2 - Raise the rent to the break even point. From what you've said, this will likely result in the loss of your tenant but you could then rent to someone else for significantly more.  Option #3 - Sell the house. It's an investment property which means it's supposed to make money for you. It can do that very quickly by way of a sale and then it's no longer your problem. Option #4 - Sell the house to your tenant. You bought it for $50,000 and it's currently worth $150,000 (roughly). The problem you face is that property taxes have gone up and caused your mortgage to increase past your tenants ability to pay. My guess is, after 15 years, your payoff is somewhere in the high $20's to mid 30's assuming you got a 30 year loan and haven't refinanced. If you sell to her for say $75,000 (or even up to $90,000) you will still make a profit (wife is happy), she will get a mortgage she can afford and be able to stay in the house (you and the tenant are happy). Added bonus is that her property taxes would be lower (assuming a different rate for investment property in your area). I would discuss this at length with your wife as well before making such an offer.  Option #5 - Get a property management company. As mentioned above, they will keep a percentage but will remove your emotions from the equation altogether and turn the situation into a winner.  I don't know if your wife is right in saying you don't have the stomach for this, but I do think your heart is getting in the way in this particular situation. I get the feeling that if your tenant was 25 years old and had only been renting from you since last October, you would have no problem raising the rent to market levels at every renewal." If your parents can afford to shell out $1,250 a month for 5 years, they would pretty much have the debt paid off, provided the credit card companies don't start playing games with rates. If that payment is too high, maybe you could kick in $5k every few months to knock the principal down.  If they think the business can keep puttering along without losing more money, that may be the way to go. Five years is long enough that the business or property may have recovered some value. Another option, depending on the value of the home, could be a reverse mortgage. I don't know how the economy has affected those programs, but that might be a good option to get the debt cleared away. My grandfather was in a similar position back in the 70's. He owned taverns in NYC that catered to an industrial clientele... the place was booming in the 60s and my grandfather and his brother owned 4 locations at one point. But the death of his brother, post-Vietnam malaise, suburban exodus and shutting of industry really hurt the business, and he ended up selling out his last tavern in 1979 -- which was a dark hour in NYC history and real estate values. A few years later, that building sold for a tremendous amount of money... I believe 10x more. I don't know whether there was a way for his business to survive for another 5-7 years, as I was too young to remember. But I do remember my grandfather (and my father to this day) being melancholy about the whole affair. It's hard to have to work part-time in your 60's and be constantly reminded that your family business -- and to some degree a part of your life -- ended in failure. The stress of keeping things afloat when you're broke is tough. But there's also a mental reward from getting through a tough situation on your own. Good luck! Obviously the best way to consolidate the real-estate loans is with a real-estate loan. Mortgages, being secured loans, provide much better interest rates. Also, interest can be deducted to some extent (depending on how the proceeds are used, but up to $100K of the mortgage can have deductible interest just for using the primary residence as a collateral). Last but not least, in many states mortgages on primary residence are non-recourse (again, may depend on the money use). That may prove useful if in the future your mother runs into troubles repaying it. So yes, your instincts are correct. How to convince your mother - that's between you and her. "There are a few of ways to do this: Ask the seller if they will hold a Vendor Take-Back Mortgage or VTB. They essentially hold a second mortgage on the property for a shorter amortization (1 - 5 years) with a higher interest rate than the bank-held mortgage. The upside for the seller is he makes a little money on the second mortgage. The downsides for the seller are that he doesn't get the entire purchase price of the property up-front, and that if the buyer goes bankrupt, the vendor will be second in line behind the bank to get any money from the property when it's sold for amounts owing. Look for a seller that is willing to put together a lease-to-own deal. The buyer and seller agree to a purchase price set 5 years in the future. A monthly rent is calculated such that paying it for 5 years equals a 20% down payment. At the 5 year mark you decide if you want to buy or not. If you do not, the deal is nulled. If you do, the rent you paid is counted as the down payment for the property and the sale moves forward. Find a private lender for the down payment. This is known as a ""hard money"" lender for a reason: they know you can't get it anywhere else. Expect to pay higher rates than a VTB. Ask your mortgage broker and your real estate agent about these options." If you're creating an S-Corp for consulting services that you personally are going to provide, what would it give her to have 50% of the corporation when you're dead? Not to mention that you can just add it to your will that the corporation stock will go to her, and it will be much better (IMHO, talk to a professional) since she'll be getting stepped-up basis. Why aren't you talking to a professional before making decisions? It doesn't sound like a good way to conduct business. "Also the will stipulated that the house cannot be sold as long as one of my wife's aunts (not the same one who supposedly took the file cabinet) is alive. This is a turkey of a provision, particularly if she is not living in the house.  It essentially renders the house, which is mortgaged, valueless.  You'd have to put money into it to maintain the mortgage until she dies and you can sell it.   The way that I see it, you have four options: Crack that provision in the will.  You'd need to hire a lawyer for that.  It may not be possible.   Abandon the house.  It's currently owned by the estate, so leave it in the estate.  Distribute any goods and investments, but let the bank foreclose on the house.  You don't get any value from the house, but you don't lose anything either.  Your father's credit rating will take a posthumous hit that it can afford.  You may need to talk to a lawyer here as well, but this is going to be a standard problem.   Explore a reverse mortgage.  They may be able to accommodate the weird provision with the aunt and manage the property while giving a payout.  Or maybe not.  It doesn't hurt to ask.   Find a property manager in Philadelphia and have them rent out the house for you.  Google gave some results on ""find property management company Philadelphia"" and you might be able to do better while in Philadelphia to get rid of his stuff.  Again, I'd leave the house on the estate, as you are blocked from selling.  A lawyer might need to put it in a trust or something to make that work (if the estate has to be closed in a certain time period).  Pay the mortgage out of the rent.  If there's extra left over, you can either pay down the mortgage faster or distribute it.   Note that the rent may not support the mortgage.  If not, then option four is not practical.  However, in that case, the house is unlikely to be worth much net of the mortgage anyway.  Let the bank have it (option two).   If the aunt needs to move into the house, then you can give up the rental income.  She can either pay the mortgage (possibly by renting rooms) or allow foreclosure.  A reverse mortgage might also help in that situation.   It's worth noting that three of the options involve a lawyer.  Consulting one to help choose among the options might be constructive.  You may be able to find a law firm with offices in both Florida and Pennsylvania.   It's currently winter.  Someone should check on the house to make sure that the heat is running and the pipes aren't freezing.  If you can't do anything with it now, consider winterizing by turning off the water and draining the pipes.  Turn the heat down to something reasonable and unplug the refrigerator (throw out the food first).  Note that the kind of heat matters.  You may need to buy oil or pay a gas bill in addition to electricity." Firstly, I'm going to do what you said and analyze your question taking your entire family's finances into account. That means giving you an answer that maximizes your family's total wealth rather then just your own. If instead of that your question really was, should I let my parents buy me a house and live rent free, then obviously you should do that (assuming your parents can afford it and you aren't taking advantage people who need to be saving for retirement and not wasting it on a 25 y/o who should be able to support him / herself). This is really an easy question assuming you are willing to listen to math. Goto the new york times rent vs buy calculator and plug in the numbers: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html Firstly, if you do what you say you want to do buy the house all cash and live there for 4 years, it would be the equivalent of paying 1151 / month in rent once you factor in transaction costs, taxes, opportunity costs, etc. Take a look at the calculator, it's very detailed. This is why you should never buy houses all cash (unless its a negotiating tactic in a hot market, and even then you should refi after). Mortgage rates are super low right now, all that money sitting in the house is appreciating at maybe the rate of inflation (assuming the house value isn't going down which it can very easily do if you don't maintain it, another cost you need to factor in). Instead, you could be invested in the stock market getting 8%, the lost opportunity cost there is huge. I'm not even considering your suggestion that you hang onto the house after you move out in 4 years. That's a terrible idea. Investment properties should be at a maximum value of 10x the yearly rent. I wouldn't pay more then 72K for a house / apartment that rents for only 600 / month (and even then I would look for a better deal, which you can find if you time things right). Don't believe me? Just do the numbers. Renting your 200K house for 600 / month is 7200 / year. Figure you'll need to spend 1% / year (I'm being optimistic here) on maintanence / vacancy (and I'm not even considering your time dealing with tenants). Plus another 1% or so on property tax. That's 4K / year, so your total profit is 3200 which is a return of only 1.6% on your 200K. You can get 1% in an ally savings account for comparison. Really you are much better off investing in a diversified portfolio. You only need 6 months living expenses in cash, so unless your family is ridicuouly wealthy (In which case you should be asking your financial planner what to do and not stack exchange), I have no idea why your parents have 200K sitting around in a savings account earning 0. Open a vanguard account for them and put that money in VTI and your family will be much better off 5 years from now then if you buy that money pit (err house). If risk is a concern, diversify more. I have some money invested with a robo advisor. They do charge a small fee, but it's set it and forget it with auto diversification and tax loss harvesting.  Bottom line is, get that money invested in something, having it sitting in a bank account earning 0 is probably the second worst thing you could do with next to buying this house. I think what you have here is actually TWO agreements with your sister, and explicitly splitting it into two agreements will bring some clarity. The first is ownership of and responsibility for the building. The second is each of your personal use of a unit.  Here's what you do: Treat ownership as if you're not living there. Split the down payment, the monthly mortgage, taxes and insurance, responsibility for cost of maintenance, etc. as well as the ownership and benefit of the building 70%/30%. Put all that in a contract. Treat it like a business. Second, lease those units to yourselves as if you were tenants. And yes, I means even with leases. This clarifies your responsibilities in a tenant capacity. More to the point, each of you pays rent at the going rate for the unit you occupy.   If rent from all three units equals the monthly expenses, nothing more needs to be done. If they're more than the monthly expenses, then each of you receives that as business income on that 70%/30% breakdown. If those three rents are less than the monthly expenses, then each of you are required to make up the difference, again at 70%/30%.  Note: if any of those expenses are utilities, then they should be apportioned via the rent -- just as you would if you'd rented out the whole building to strangers.  2nd note: all that can be done with ledger entries, rather than moving money around, first as rent, then as expense payments, then as payouts. But, I think it will benefit all of you to explicitly pay rent at first, to really clarify your dual relationship as joint owners and as tenants.  Final note: I think this is a stickier situation than you may think it is. Familial relationships have been destroyed both by going into business together, and by renting to family members. You're doing both, and mixing the two to boot. I'm not saying it will destroy your relationship, but that there's a solid risk there. Relationship destruction comes from assumptions and vague verbal agreements. Therefor, for the sake of all of you, put everything in writing. A clear contract for the business side, and clear leases for the tenant side. It's not about trust -- it's about understood communication and positive agreement on all important points. You can't calculate how many houses it will take. To do so you would have to know how much you can charge in rent compared to how much is costs to run that particular location. If the desirability of that location changes, so does the ability to rent the place, and so does the amount you can charge. It is possible to create a business in real estate that would allow you to generate retirement income. But you would be focusing all your income in your retirement years on one segment of the entire investment universe. The diversification would have to come from spreading the money through different types of real estate: condo, apartments, houses, commercial, warehouse, light industrial. You would even have to decide whether you want them all in one micro-market, or spread throughout a larger market, or an even wider area diversification.  As your empire grew and you approached retirement age you would have to decide if you wanted to liquidate your investments to minimize risk. The long leases that provides stability of income would make it hard to sell quickly if the market in one area started to weaken. Your mother has a problem that is typical for a woman with children.  She is trying to help her children have a good life, by sacrificing to get them to a point where they can live comfortably on their own.  Though she has a difficult situation now, much of the problems come from a very few choices by her and her children, and her situation can be fixed. Let me point out a few of the reasons why she has come to this point: My mother is a single mom... she is turning 50 this summer... she has about $60k in school loans from the college I attended... she has payments of $500/month ($10k) to my sisters college... she lives on her own in a 2 bedroom apartment... Mother's current 'income statement', Income Essentials (total $3131, 71%, too high, goal $2200) Lifestyle (total $150, low, she should have $500-900 to live her life) Financial (total $1350, 31%) Some observations and suggestions: Even though the $1625 rents seems high, your mom might enjoy her apartment and consider part of her rent ($300) a lifestyle choice (spending money for time), and the higher rent may make sense.  But the rent is high for her income. Your mom should be spending more on food, and budget $200/month. Your mom should be saving money for investments and retirement.  She should be putting 10% into savings ($440), plus any IRA/401K pretax savings. Your sister should be paying for her own college.  She should take her own student loans, so that her mother can save for retirement.  And since she only has $10K left, an alternative would be that you could loan her the money, and she could repay you when she graduates (you have money, as you loaned your mother $8K). You should be repaying the $500/month on the $60K student loan your mother took to help you get through college.  You have benefited from the education, and the increased opportunity the college education has given you.  Now is the time to accept responsibility and pay your debts.  You could at least agree to split the expense with her, and were you paying even $300/month (leaving $200 for her), that would still fix her budget. Your mom should get a car that is paid for and reduce her transportation expenses, until the $350/month debt is resolved.  She should resolve to spend no more than $300/month for a car, and with $100/month for insurance be under 10% for her vehicle. Since your mother lives in the US (NJ) she could avoid the $350/month debt payment though BK.  But since there are other solutions she could exercise to resolve her problems, this is probably not needed. You mom could consider sharing her apartment to share expenses.  Paying $1625 for an apartment for one person seems extravagant.  She might enjoy sharing her apartment with a room-mate. That is about it.  Once her children take responsibility for their lives, your mom will have a manageable budget, and less stress in her life. Mother's revised 'income statement', Income Essentials (total $2721, 62%, high, need to reduce by $500) Lifestyle (total $450, 10%, low) Financial (total $990, 23%) While you and your sister have these changes, Summary of changes: Some rent is lifestyle, reduced car loan by $200, sister pays her college $500, you pay your college $300, mom saves 10% of her income.  Once your sister graduates and starts to repay you for your help with her college, you can take over paying the remainder of your loans, saving your mom an additional $200/month. Sit down with professional with knowledge about eldercare issues. Know how your options regarding the property ownership can impact the services they qualify for. Even making a change in ownership can impact their eligibility for certain programs. Some of which can reach back to events in the recent past. Also if you own it but she will get some of the profits when you sell, she could still be considered an owner, which can impact eligibility for programs. This is in addition to the issues with the lender, the IRS, and your estate. If your sister paid rent, she was a tenant. There are laws to protect tenants, but those depend on what country, state, and city you live in. In most places in the US (maybe all), she was owed more than 2 days notice. Normally, the local housing authority could help her figure out what her rights are, but since this already happened, they may not be able to do much (depends on the local laws). It's worth asking them anyway. I don't know how partial ownership of the property would affect things if your sister was a partial owner. If the 30 year old will was the most recent document, then that's how the estate will be distributed. There are no laws in the US requiring a will to be fair. An executor's role is to carry out the will. Being an executor does not mean one can choose to unilaterally sell the property in the estate without permission of other heirs. You'll need to speak with a lawyer if you think they're breaking the will by selling property that you have partial ownership of. But since the sale is already done, reversing it would be slow and probably very expensive in legal fees. If it's a small estate, you'll have to judge whether a lawyer is worth the money and the family's animosity. Also, if the estate had debt, debt must be paid before property is distributed to the heirs, so that could also change what your sisters had to do.  I'd suggest first asking your sisters to tell  you about what they've done to execute the will, and what they do in the future. He doesn't have to follow through on this, but he could tell this sister that he will stop making mortgage payments, which will result in foreclosure and sale at lower price than might be realized by a voluntary sale. Translation: the house will sold, sis. Do you want to maximize your share of the proceeds?  And, as I said in a comment above: I hope that he is keeping careful records of mortgage an utility payments, as he might (should) be entitled to a refund from the proceeds of an eventual sale (possibly adjusted by the fair rent value of the time which he spent living there)