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Old 01-22-2013, 01:08 PM   #1
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RE'ed but not FI'ed

I've been lurking for months, posting a few times, and thought I should say "Hello". DH (IT nerd) and I (SAHM/'on-call caregiver' to elderly in-laws) are both 56yo and living in Michigan. Our plan was to retire as soon as FI'ed (about 5 yrs or so). Well, due to circumstances (i.e. "life") everything has been accelerated. A few months ago, DH took EER from MegaCorp. After enjoying a few months of 'rest' he's looking to get back to w*rking part-time as a consultant/contractor... eventually ;-)
Our original plan was to be "snowbirds" - with a winter home in Texas Hill Country for a few years, eventually full-time when we 'really retire'. Our son lives in downtown Austin, renting a crappy 1 bedroom apartment which is too expensive but 'where the action is'. He just told us that he wants to move in a few months when his lease is up because his rent is going to jump 50% (apparently a lot of Californians used to high housing costs are moving in to the area).
I am wondering about the feasibility of purchasing a 2 bedroom condo to rent to our son for about what he is paying now ($1200/mo). We'd like him to stay there at least a couple of years and then we'd either rent it out or sell. We have no desire to live 'where the action is' - still looking at Hill Country eventually.

Any advice as to whether we should pursue this now? One problem we have is since DH is not w*orking is there is no income... could we even get a mortgage? We could pay cash but with rates so low, I don't want to raid our nest egg. DH wasn't going to look for a j*b for a few months yet but maybe he should get going? He would very likely find ideal w*rk in Austin but his parents need us (at least me) here & we don't want to live apart -we discovered that we actually like being together 24/7 after 35 years

Any advice??
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Old 01-22-2013, 01:18 PM   #2
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Originally Posted by tessaduncan View Post
I've been lurking for months, posting a few times, and thought I should say "Hello". DH (IT nerd) and I (SAHM/'on-call caregiver' to elderly in-laws) are both 56yo and living in Michigan. Our plan was to retire as soon as FI'ed (about 5 yrs or so). Well, due to circumstances (i.e. "life") everything has been accelerated. A few months ago, DH took EER from MegaCorp. After enjoying a few months of 'rest' he's looking to get back to w*rking part-time as a consultant/contractor... eventually ;-)
Our original plan was to be "snowbirds" - with a winter home in Texas Hill Country for a few years, eventually full-time when we 'really retire'. Our son lives in downtown Austin, renting a crappy 1 bedroom apartment which is too expensive but 'where the action is'. He just told us that he needs to move in a few months when his lease is up because his rent is going to jump 50% (apparently a lot of Californians used to high housing costs are moving in to the area).
I am wondering about the feasibility of purchasing a 2 bedroom condo to rent to our son for about what he is paying now ($1200/mo). We'd like him to stay there at least a couple of years and then we'd either rent it out or sell. We have no desire to live 'where the action is' - still looking at Hill Country eventually.

Any advice as to whether we should pursue this now? One problem we have is since DH is not w*orking is there is no income... could we even get a mortgage? We could pay cash but with rates so low, I don't want to raid our nest egg. DH wasn't going to look for a j*b for a few months yet but maybe he should get going? He would very likely find ideal w*rk in Austin but his parents need us (at least me) here & we don't want to live apart -we discovered that we actually like being together 24/7 after 35 years

Any advise??
This is very complex, but it may be better if you let your son solve his housing problem, and you parents concetrate on solving your income problem. If son is well educated, his problem is likely less difficult long term that yours is. Roomates might help, and with a litle time, so will new building of multifamily housing. I live in a similar area, and although there have been several years of strong rent increases, my guess it that by next spring that will all be over. Even though it is a pretty well built up area, there are cranes everywhere building mid to high rise apartments, depending on zoning. And mids are 6 stories, so the new apartments are going to loom large in local supply. It is perhaps even easier to new build in Austin than in Seattle.

Ha
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Old 01-22-2013, 01:27 PM   #3
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Guess I didn't make myself clear re: motivation - this isn't to help solve our son's problem (he's a high tech nerd himself making 6 figures at age 26 with more than that in investments). It's more "is this a good investment opportunity for us"? He actually poo-poo'd the idea when we first brought it up a few years ago. I think he's afraid we will come & move in LOL. But being the cheapskate he is (his Mama taught him well) I thought I could present this as a "win-win" solution and maybe even convince him to move to a condo in Hill Country that DH & I could move into eventually.

I was also wondering about the deductions we could take for the property as a rental. Have heard that even our flights there could be deducted (altho that sounds kind of too good to be true).
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Old 01-22-2013, 01:32 PM   #4
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Originally Posted by haha View Post
This is very complex, but it may be better if you let your son solve his housing problem, and you parents concetrate on solving your income problem. If son is well educated, his problem is likely less difficult long term that yours is. Roomates might help, and with a litle time, so will new building of multifamily housing. I live in a similar area, and although there have been several years of strong rent increases, my guess it that by next spring that will all be over. Even though it is a pretty well built up area, there are cranes everywhere building mid to high rise apartments, depending on zoning. And mids are 6 stories, so the new apartments are going to loom large in local supply. It is perhaps even easier to new build in Austin than in Seattle.

Ha
+1 Very wise. Landlording is not easy or simple... especially from thousands of miles away, and guarantees are not easy to come by.
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Old 01-22-2013, 01:43 PM   #5
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Guess I didn't make myself clear re: motivation - this isn't to help solve our son's problem (he's a high tech nerd himself making 6 figures at age 26 with more than that in investments). It's more "is this a good investment opportunity for us"? He actually poo-poo'd the idea when we first brought it up a few years ago. I think he's afraid we will come & move in LOL. But being the cheapskate he is (his Mama taught him well) I thought I could present this as a "win-win" solution. I was also wondering about the deductions we could take for the property as a rental. Have heard that even our flights there could be deducted (altho that sounds kind of sketchy).
I see, I did not understand. It is almost always a bad idea to attempt to solve an investment or earnings problem by adding an additional consideration. (I am not sure what your situation really is, but it seems that illiquid and far away RE investments are not very well tailored to your needs as best I can understand them.)

Potential condo sellers are as aware of rent pressures in Austin as you are, they will attmept to capture at least some of that(as much as they can) with selling prices. And, while occasionally some here have sometimes described good outcomes with condos bought as rentals, it is throwing the dice.

Finally, you do not need a win-win, that is just adding another constraint to a situation that seems to have plenty already. What you need is a sensible plan to either get some wages coming in, or radically decrease your expenses to prepare for retirement. Again, only if I have understood your somewhat incomplete description.

Ha
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Old 01-22-2013, 02:13 PM   #6
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Potential condo sellers are as aware of rent pressures in Austin as you are, they will attmept to capture at least some of that(as much as they can) with selling prices
Right. That's why I thought it might be a good investment, especially with interest rates so low now and since that's where we will eventually move. This sounds awful but we can't move until the parents pass. They're in their late 80s.
I said we weren't FI'd - not exactly true. It's just we're not FI'd the way we'd like to be yet. We hope to do a lot of travelling before we have to settle down. Any $ DH makes from now is our 'gravy' for fun (and wine).

But since DH got the buy-out and our son will be moving, I thought why shouldn't he pay us rent rather than a stranger? And with him being the renter, I am not worried about managing the property from a distance. And it would 'diversify' our portfolio, right?
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Old 01-22-2013, 02:21 PM   #7
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I would NOT do this. I know far too many people who have strained or severed relationships with family & friends as a result of trying to do business with them. My 50-something coworker started down the same path with the best of intentions in helping her son while investing in something for her retirement. Well, as you said "life happened" and now they don't talk. I can see the pain in her face when she thinks about the grandchildren that she no longer has contact with.

If your son is in his 20s and making 6 figures, he can figure out his own living arrangements.
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Old 01-22-2013, 02:36 PM   #8
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Just on the strict dollars-and cents: You could buy a property anywhere and rent to anyone, and your son could rent anywhere from anyone. The only way you come out ahead (financially) in choosing your son as a tenant vs anyone else is if you'd charge him more than you'd charge anyone else. And the only way it's truly better for him is if he gets a lower rent from you than he could get from another landlord. I don't think anyone wants to take advantage of anyone in this situation, so nobody is likely to come out ahead vs. what they'd get without the family connection.

Of all the properties in Austin, what are the odds that the property that would make the best investment for you guys is the exact same place that your son would choose as his residence? Low. So, there will non-optimum outcomes for one party or both.

But, there is the issue of a "safe" renter who will pay and won't damage the property. Puts a bit of pressure on him, doesn't it, though? And on you--you'll likely do more than the minimum to attend to any little glitch.

So, from a distance I think it's not such a great idea. And your son did already did say "no, thanks", maybe the factors above were on his mind.

That said, I know I'd at least mull ovee the idea if I were in your shoes. But I think I'd still look for another opportunity without the pitfalls.
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Old 01-22-2013, 04:10 PM   #9
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nobody is likely to come out ahead
What about appreciation & the tax advantages of owning a rental? We'd have a good tenant for a couple of years and by then we might be able to move there and he might be ready to move again. We could always get someone to manage it for us, altho I know that'll cost. And we would be happy to give our son a break even though he doesn't need one. He's a very good, responsible kid and I know he's good for the money - I handle his investments.

His main reason for saying "no" to the Hill Country condo when he moved there after graduation 4 yrs ago was because all his friends live downtown. But guess what? Their rent is increasing and some of them have already moved to... (wait for it)... Hill Country!

I do thank everyone for the precautions. I admit that I never considered some of them.

My questions are more in the financial realm - can you get a mortgage without a paycheck? Can you deduct travel to/from a property? Know of a good 'tutorial on becoming a landlord?

And for anyone in the Austin area, what is your gut feeling (yep, going on gut here - don't hate me) on property values? Any particular neighborhoods that have condos in the $250K range?
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Old 01-22-2013, 04:36 PM   #10
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Property values in Austin did not tank during the recession and have started back up in most areas. Demand is high in many areas around town. I'm not an expert, but the downtown condos are mostly in the over $500K range, and as there are none under construction now the outlook for price would be "going up". There are probably some in the campus area (intended for UT students) that are lower, but not sure about details. Out here in the burbs there are definitely condos/townhomes in that range, but that's not what he's looking for. Hope this helps a little.
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Old 01-22-2013, 06:25 PM   #11
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Old 01-22-2013, 07:00 PM   #12
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Thanks to all. I thought I was being clever with my "RE'd before IR'd" title but I confused the issue. While we would be 'OK' if DH never worked again (guess you could call that FI) our goal was to be 'more than OK' in retirement. That included a second home in Texas & travel. We anticipated another 5 years of socking away savings and hoping our investments would continue to grow. Now that DH took the EER (and received a nice lump sum) I am wondering if the second home could be part of the strategy, rather than just the goal.

I definitely will do a lot of studying of the issue, but wanted to get some input from the wise posters here and introduce myself at the same time.

If it's not against board policy, I will post this question (abbreviated) re: Austin property in another thread.
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Old 01-22-2013, 07:12 PM   #13
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Sounds kinda like you just want to buy your kid a condo. I agree with the rest, it is a bad idea, especially when your own finances are unsettled.

I'd invest in stock and bonds and save myself the tenant hassles that come with real estate rentals.

Oh, and welcome to the forum.
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Old 01-22-2013, 11:05 PM   #14
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Historically condos have not appreciated much in Texas. A single family home in a gentrifying area would be a much better "investment".
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Old 01-23-2013, 07:59 AM   #15
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Sounds like your son may have the resources to buy his own place and take advantage of the very low interest rates available today. Who knows, but he may not see a rate environment again like this one in his lifetime.

We are in the DFW area, and my DS (also 26) bought a home last September due to low rates and home prices. Sometimes, timing is everything.
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Old 01-23-2013, 09:16 AM   #16
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Sounds like your son may have the resources to buy his own place and take advantage of the very low interest rates available today. Who knows, but he may not see a rate environment again like this one in his lifetime.
I agree. As Dave Ramsey likes to say, "Thanksgiving dinner tastes different" when you owe friends or family money. There are always strings attached when money exchanges hands between family and friends, whether they are spoken of or not. What if the OP disapproves of the person that her son dates? Or has some other kind of disagreement or fallout? The business arrangement will just make things more awkward. It's best to keep business and family relationships separate IMO.
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Old 01-23-2013, 09:54 AM   #17
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No, we would not be buying our son a condo because he could get his own (he does not want the commitment or responsibility). WE would be buying OUR condo now rather than a few years down the road. His uptick in rent is an indication of rising property values. Our options, were we to buy now since we're not as FI'd as we'd like, would be to rent it out or DH to find work in the Austin area since he will be starting his j*b search in earnest soon (we don't like that one; just kicking that idea around). We would move down there today were it not for our responsibilities here (aka his parents).

Since son will be moving anyway (& his friends are already moved to the very area WE would like to move to) we could present this option of his renting at about his current payment (covering our mortgage & insurance payments) and he might be receptive now. Of course, we wouldn't force it so if he doesn't want to do it that would leave us with renting to stranger or DH relocating/long distance commuting/telecommuting.
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Old 01-23-2013, 11:18 AM   #18
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No, we would not be buying our son a condo because he could get his own (he does not want the commitment or responsibility). WE would be buying OUR condo now rather than a few years down the road. His uptick in rent is an indication of rising property values. Our options, were we to buy now since we're not as FI'd as we'd like, would be to rent it out or DH to find work in the Austin area since he will be starting his j*b search in earnest soon (we don't like that one; just kicking that idea around). We would move down there today were it not for our responsibilities here (aka his parents).

Since son will be moving anyway (& his friends are already moved to the very area WE would like to move to) we could present this option of his renting at about his current payment (covering our mortgage & insurance payments) and he might be receptive now. Of course, we wouldn't force it so if he doesn't want to do it that would leave us with renting to stranger or DH relocating/long distance commuting/telecommuting.
It sounds like you have made up your mind. Go for it.
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Old 01-23-2013, 12:11 PM   #19
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Can't make up our minds until we get more information Can we even get a mortgage? Can we deduct expenses on the rental, particularly since we'd be renting to family (including airfare)? What's the housing market look like there
(i.e. the kind of info Westlake & MBAustin gave)?

Also trying to convince DH that having a mortgage isn't necessarily bad. I like the idea of a mortgage, not only because rates are low (& likely to rise), but we could maximize the tax benefit by having DH w*rk 'just enough'. Then we wouldn't have to touch any savings. We could then decide in a few years whether or not to just pay it off. And if we move there permanently, we could also sell our Michigan home (we have no debt). By then our home value here might recover a bit (the Detroit area took a really bit hit).

So, no, haven't made up our minds at all. Definitely hesitant to take on debt after being debt-free for so long & so close to retirement. But isn't that called "leverage"? Is that such a bad thing?

Maybe I should take this to the Fire & Money forum?
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Old 01-23-2013, 12:20 PM   #20
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Why not have your son buy the condo, and then purchase it from him when you're ready to move into it?
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