Should I help my parents buy a house?
Hi everyone, would love to hear any thoughts on this.
I come from a conventional middle class family where both my parents work blue collar (normal jobs) - mom is a teacher and dad is a warehouse manager. Combined they make around 90k. However, grew up in a relatively HCOL area (Brooklyn) as my parents are third generation new yorkers and did not want to leave. They are nearing retirement age (both 56). My mom recently asked me if I would consider in a few years helping them buy a house out in Long Island. Specifically, if I would consider putting my name on the loan with them and contributing a portion of the downpayment. In return, I would get 50% equity in the home as well as inheriting 50% of my parents share when they pass (have a sibling who is 8 years younger and is still in middle school).
I just graduated college and will be working in AM so expecting around 110-120k for my analyst years based off what I heard from prior analysts. Don't have significant savings around 4k in a savings account and 8k in stocks mostly S&P and tech. I wanted to know if helping my parents buy a house of which I would eventually have 75% equity at a young age of 26-28 be the right move financially. I have no qualms morally and absolutely want to help my parents retire peacefully. Main question is if it is feasible in the early years of my career or if I should wait till I am older. Like my parents, I intend on living in NYC for most of my adult life.
All you need to do is pay off part of the downpayment and you get 50% equity? I know it's family, but isn't that a little unfair on your behalf?
There is also the added expectation that I will help out on the mortgage when my parents retire in about 12 years or so. As my mom laid it out, they will be looking at houses in the 500-600k range in Long Island. Currently with the two of them they have around 600k in retirement saved up which is very low for the area I grew up in hence why they wish to move although they both intend to work for another decade so should grow a bit more. Some unforeseen health expenses for my parents and grandparents caused them to have a lower retirement contribution than they should be at. They want to buy a house in five or so years so with 20% down, that would be close to 100k-120k so I would contribute 50-60k of that if I did.
Also 50% is what my parents told me I would get. I am not going to screw over my baby sibling just because they are so much younger and cannot help out in the interim and will definitely have the house be a 50/50 split between the two of us. Sorry if I did not make that clearer, I was just talking in terms of how my parents laid it out for me.
You are too young and don't have the necessary capital to do this. Oh, and a finance career is always a risky proposition in terms of job security. I'd focus on building 6-12 months (preferably 12) of living expense savings prior to making any large purchases.
Hey sorry if I did not make this a bit more clear earlier. My parents are looking to buy a house 4-5 years from now and were asking me about my thoughts on it right now. They would like me to contribute 50-60k for the downpayment then and then 10-12 years from now when they retire, help them out with the mortgage which at a high interest rate of 6% should range from 2.4k-3.2k.
I would try and use the next five years to build up my savings/investments.
dont buy a house at these prices. let the market cool down a little unless you get a really good deal
There is a ~3 million unit housing shortage in the U.S. Price increases may slow down but you're unlikely to see a bending of the cost curve in any substantial way going forward. 5 years from now you can bet your bottom dollar prices will be higher than today.
This is a personal decision based on your comfort with the associated risks.
A few things to keep in mind:
1) make sure you factor in property tax and homeowners insurance, I would say you are looking at $3k/mo all in (more if interest rates rise). So you are going to be paying $1.5k a month which is about $2.5k before taxes (so $30k a year hit to your pre tax income) - that is a $60k hit if anything were to happen to their ability to pay
2) factor in cost of repair as well as maintenance (lawn care? Appliances, etc)
3) make sure you have a safety net, you should have 12m of your income saved before shelling out that much for a down payment, you need to be protected as well. So I wouldn’t feel comfortable unless I had ~$150-200k saved up.
4) I wouldn’t commit to anything now, you can set out your goals and talk to them about it, but as others have said, finance is risky. How will your investments do? How much do you think you can save? I would work backwards from the 5yr goal. Take your current income, current expenses, and very conservative market returns and comp increases to get a sense of what that would take. (I.e. $110k -> ~$60k after taxes and 401k -> ~$36k if you rent a place for $2k a month -> ~$18k after very conservative $1.5k a month of living expenses. That isn’t a whole lot)
5) why do your parents want to buy? Seems like renting is less capital intensive, doesn’t create a potential headache down the line, and offers greater flexibility in case of unforeseen circumstances
6) finally, and realize this is a bit morbid, but think through your plan if anything were to happen to your parents. Can you easily get renters? Is the market stable? Fees for selling, etc
Yes - definitely help them out in a few years and prepare yourself for when the time comes. One of my long-term goals is to retire my parents (dad is also a warehouse manager). I trust you’ll be in a great position to help them in a few years as you apply yourself to your role in AM.
Move them to a new cribaz in Florida for like 500k in a few years
I know that you wanna help your folks but some parts of your story rubs me the wrong way a bit. Think about helping them but also think about setting up some family boundaries. It's basically your first real job and family is already hitting you up for money.
Maybe, I grew up in a different culture, but my parents and grandparents were the complete opposite. They were super happy to see me buy my first car, first house, and start forming a family. It was inconceivable that they would ask me for money to make their life more comfortable when they were already living ok. Could I have helped gramps with a down payment on a beachside condo rather than his house in a crappy little town? Sure, I could have, but he would never ask that of me in a million years and probably wouldn't accept the money if I gave it to him.
Now, if you have a parent that truly needs help, then of course do this. Or if you're a few years into your career and they ask for a loan or something, sure fine. I've helped a ton of relatives who really needed it - much more so than probably most people on this forum. But to right off the bat start putting your salary into their retirement plans is not right in my opinion. Again, might be just different cultures that we're talking about here but that's the way I see it.
Further to this, if his parents truly need the help then they should consider places where their retirement money will go further. Shouldnt ask your child to help subsidize a life you cannot afford.
correctly
I wouldn´t do it since you would probably start your own family as well.
Yes, Also, if there is a girlfriend or wife in the near future, get ready for the conversation on why we're renting a tiny dump apartment while paying for your parent's mortgage. This conversation WILL happen and it's not going to go well.
Maybe, you'll be single for for a long time, but however long that is...mortgages last longer.
I know exactly how you feel cause I found myself in the same position a few months. My all-in comp is around yours and one of my parents asked if I would go 50/50 on a down payment and help with mortgage. I declined. Primarily because my parent is extremely irresponsible with money. I know a grudge is held against me but honestly I don’t care. I worked hard to get where I got and I have to provide for myself + my future kids. On top of that; I already pay my own bills. I know it sounds selfish but I feel like middle class kids always have this outsized burden to help out our parents, which holds us back in the long run. My advice to you is do what is in your best interest. Sure, help out as long as it does not interfere with your financial stability and happiness. If it feels like a pain, then don’t commit to it, IMO.
edit: also, please NEVER discuss how much you make with family. Especially, when you come from a family where you are now the top earner.
Your middle-aged parents make a combined $90K/year as a teacher and a warehouse manager? In NYC?! I don't want to doubt your story, but that seems a little off. Do they work part-time, or am I missing something?
Related to your question: I concur with the above. Parents should not knowingly and voluntarily handicap their children, especially one who is just starting his/her career as a young professional. That doesn't sit right with me. As someone else said, they should look at lower COL areas for retirement or otherwise plan for something different. A ~25 year old son/daughter who is essentially a "working stiff" (i.e. we're not talking about you being a tech entrepreneur with near limitless disposable wealth or something) shouldn't be subsidizing retirement for their parents. That could potentially set you back and derail your own long-term goals.
90k net of taxes and 401k. Dad also works fewer hours around 30 a week due to health and also because he works for a smaller family owned (not related to us) who are also very supportive and helpful for us (supported us during health issues with family, kept employees on during hard times with the business) so he also is extremely loyal to them and did not seek higher paying jobs elsewhere. My mom also had a gap of around 15 years as a SAHM for me and my younger sibiling and was a sub for many years after before getting a FT position hence the lower salary.
I would do it in a heartbeat, but then I was raised in an immigrant family. Your mom would have a pension as a teacher. Hopefully 5 years from now, house prices would be more sane. I presume they would also have equity from current house to contribute.
Because many immigrants value family more than their westernized counterparts.
I wouldn't say value family more, just believe that the parents sacrificed to get you where you are (and ate shit to do so) so now it is your turn to pay it back, so to speak.
Echoing what others have said. Your parents have $600K in retirement savings in their late 50s. They cannot afford to retire on Long Island and they shouldn't expect you to subsidize it. Maybe there's a conversation to be had here if they'd agree to look at LCOL retirement spots, but based on the current information you've provided I wouldn't do this.
Aslong as it doesn't put you in horrendous debt, yes. Dude these are the people who love you the most, and helped you get to where you are today. When I have the money (if), I fully plan on buying my parent's a home..
Caveat is your parents should retire in a much cheaper area than Long Island. If they aren't willing to compromise location, then I would say no. Because it is financially irresponsible for them to retire there.
Yeah I absolutely would love to be able to help them in any way I can. As far as retiring in Long Island goes, I know it is not a typical retirement spot. It is primarily due to the fact that most of my extended family has retired there which is why they will be primarily looking there.
If your parents sacrificed for you, and you can do it, go for it brother
No point in thinking about this until the time comes. I believe that Long Island has high property taxes so something to consider.
To the extent its not going to set back your homeownership plans, sure, but I wouldn't sacrifice your ability to meet your goals first.
The mortgage rules are always shifting, but from what I recall, if you are on that mortgage that debt counts fully against your debt-to-income ratio when you seek out another mortgage for yourself, so co-signing will compromise your ability to buy a place for yourself. Just an FYI.
Surprised no one else has focused on a little detail that makes me wary about the whole thing. Your parents want you to contribute extensively to the mortgage and have you signed as a guarantor but want you to simply give away 50% to your younger sibling? Dude he’s not a “baby” who will never be able to make money. He’ll do quite fine when the time comes. This part of the arrangement indicates to me that your younger sibling is the favorite of the fam and you’re clearly the naive one who can easily be taken advantaged of as you’re willing to burn a few hundred thousand on your younger sibling for absolutely no reason. Pretty clear that the parents are using the naive one of the house to pay for stuff for the favorite one of the house. And mark my words THIS WILL NOT STOP AT A HOME PURCHASE. Your parents will continue to use you the naive one for money for them and their favorite child and get you to prioritize them OVER YOUR FUTURE GIRLFRIEND, THEN WIFE AND KIDS EVEN IF IT MEANS YOUR FUTURE FAMILY SPLITS. CAPS BC I KNOW TOO MANY CASES WHERE THIS HAS HAPPENED. There is nothing wrong with helping your parents out if they are in financial need. Funding an irrational purchase and then being forced to give half of it away to a sibling is a huge red flag. RUN.
This is true, it happens in a lot of families and sometimes it's not even done deliberately, the family just thinks Tommy is always willing to help out no matter what, so they always ask him for money and expect him to make the sacrifice regardless of the fact he gets nothing out of it and is actually going to hurt him.
Consider a LCOL area. Long Island property taxes can be crazy and they may be paying NYS income tax on their retirement income, though it doesn't sound like they have much to draw on if they only have $600k thus far. Why do they even need a house? Wouldn't a 1-bedroom apt or tiny home be sufficient in retirement?
$500-600k doesn't go very far in Long Island and it would probably be in a less desirable district. When you're not buying quality, such as a house in a bad school district or a bit run-down or something that has been sitting on the market a while, expect to face challenges when it's time to sell. There are many places with small but decent homes for $200-300k that perhaps you can chip in on the down payment for and take an equity stake but your parents may qualify for a loan on their own.
I see no problem with this.
Financially, this might be okay. You pay 50% of the downpayment, presumably 50%(?) of the mortgage, and don't stay there (have to rent elsewhere), and in return you get 75% of equity? Not a terrible deal IMO. Only question is whether you'll be able to afford the place and your rent, but in 5-6 years, you'll know whether or not your prospects are stable and whether you'll have enough cash flow to make it work. For a 600k house, you will want to be earning at least around 200k. Probably a bit more in your case since you'll still be renting on top of that. So I'd say that as long as you're at the 300k+ mark, which if you stay in AM sounds quite doable in 5-6 years, you'll be fine.
Morally, I see no issue either. Your parents raised you, your sibling is still a kid and unless they're headed into finance too they're not going to catch up to your earnings anyimte soon.
But then, I'm yellow so maybe I'm just predisposed to think that all these other posters are selfish twats.
What else are you making money for, if not to help out the people you love and care about? Look, I wouldn't empty my savings account and liquidate every investment I have so they can have a three bedroom home with a pool, but if they have a modestly budgeted home they end up looking at, then I say go for it. Not everything in life has to be a question of dollars and cents, and while it may not be the right move in terms of maximizing returns, it may make you and your parents feel better about their retirement years.
The one thing I would say, is that if you're going to give them substantial help at significant cost to yourself, make sure all of that is in writing. As in, your ownership of the house, who owes what when there are capital repairs due, who gets what when they pass on. The absolute worst thing would be that you end up being their sole caretaker or if there is a significant fight over the home equity if their will isn't clear/is contested.
The other responses to this thread are very interesting, and I do think much of the divide stems from the American mentality of strong individuality versus the more immigrant mentality of filial piety. If I were in your position, I would strongly consider helping my parents with this (depending of course on what exactly my financial position is at the time of purchase) due to my cultural background and how I was raised.
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