Real estate and family

[Lindakimy]

I have a question and would like to get some input before making a decision. My older brother and his wife are retired, both accountants for the state where they lived, with pensions and social security. They bought a new house a few years ago and are now underwater. I am the "poor" one in the family but I do own my (far less desirable) house free and clear and have a very good credit rating because I have been careful to live well within my means for many years. My brother is at the point, given that his house can't be refinanced at a reasonable rate and has many, many serious problems - it's basically a lemon - that he is ready to walk away. However he lives in a state where that is more difficult. He doesn't want to jump into an even worse situation but he is edging over into desperation.

Lately my husband and I have talked about buying a property to rent out as an investment. Places are very inexpensive where we live with prices down and we could make more than we do with bank CDs and such. I shrank back from that (careful as I am) because it's fine if you have a renter but you have to come up with the payment if you don't. That scares me. Last weekend when my brother was visiting we talked about this and he said he would be delighted to pay a high rent if he just didn't have to worry any more about the place he has now and how it is tipping. We chatted a bit and looked up a few properties and they are considerably less expensive here that where he lives. I think he is seriously interested. We would love to have him and his wife nearby because we all get along very well and enjoy time together.

My question is whether this is a good thing. If my husband and I bought a place and rented it to my brother (whom I trust completely) for enough to pay us back for the down payment with interest within a few years and then dropped his rent to the amount due to the bank plus taxes and insurance but kept the property in our name with the provision that we would will it to him in case of our death...would that be a sound investment? It seems to me that it would help us (higher interest rate) and him (lower monthly cost and no more worry about the failing house he bought). Am I telling myself a story here?

Any thoughts? I am certainly not an expert on either finance or real estate. I would just like to get a bit more from my savings and also help my brother through a hard time.

[elleng]

1. Sounds interesting, but I have no real advice except

cross-post in 'Economy?'

[A HERETIC I AM]

2. I've been thinking about this for a few days now, so indulge me if you will.....

and I'll try and answer your basic question;

whether this is a good thing ( and ) would that be a sound investment?

I am by no means an expert on Real Estate. I have never bought a home (and I am 53) and have only rented.

But I know Bonds.

So lets consider this entire scenario as if it was a bond.

If you buy a 30 year Treasury, you will need a coupon or at least a yield of 3.33% to realize a doubling of your money. In other words, if you paid "Par" ($1000.00) for the bond, and it had a coupon rate of 3.33%, you would receive $33.30 per year in interest. Over the course of 30 years, you would get $1000 in interest payments and when the bond matures, you get your grand back. You doubled your money.

In the case of a 20 year note, the yield or coupon would need to be 5%.

OK?

So what you are suggesting is basically buying the bond, giving it to your brother and have him pay you a set amount for a specific period of time in order to pay you back for the initial purchase cost. After that he is going to give you the coupon payments. You also are going to set up this account so that it has a "Transfer on Death" provision. You guys die, your brother gets the bond, he keeps the interest payments and when it matures, gets the grand.

Does this NOW sound like a good "investment"?

Well.....no, not to me, anyway.

What happens to the house when the note is paid off?
How long will your brother live there?
Who is responsible for repairs and upkeep? You guys? That is how it works, generally. If I rented the house from you, I wouldn't expect to pay for a new roof, for example. I also have no expectation the house would be mine if you kicked the bucket either.

My advice is to talk with an attorney. Perhaps you could title the house inside a trust, making your brother the successor trustee.
Depending on the laws in your state, you may be able to set up an LLC and use that entity to buy the house. The point being you would be wise to seek some legal "insulation", if you will.

The thing is, regardless of how much you trust your brother, money does strange things to people. One must tread VERY carefully when entering into transactions with family members that involve large figures.

Be careful and good luck.

[Common Sense Party]

3. Don't do business with family.

Unless you really like awkward family gatherings.

[A HERETIC I AM]

4. Agree completely.

Hope you're well, CSP.

[Common Sense Party]

7. Doing well, AHIA. Doing mostly well.

How's life on the road?

[OllieLotte]

5. Loaning money to friends and family "changes" things.

It just does. I have done it several times and regretted every time. I will never do it again. Usually there are better ways to help as loaning them money really doesn't solve the problem long term.

[Common Sense Party]

6. It doesn't solve the problem, that's true. And if you want to help someone

short-term, you should just give them some money, no strings attached.

[A HERETIC I AM]

8. Agree again.

This situation came up for me only a few weeks ago. I was asked by one of my brothers to loan him some money. I just made it a gift and that way I know I won't be pissed or disappointed when the inevitable non payment occurs.

Life on the road is....well....what it is! Working constantly, as my last day off was the 1st of May. It's nice to get large and reliable paychecks again, let me tell you.

I am in Ft. Myers, FL tonight, having just delivered a 3 stopper here and Naples. I'll spend the night with my oldest brother (Not the lendee!), watch the Monaco GP and the Indy 500 tomorrow and after the race, head back north to reload in Jacksonville on Monday. That load is 4 drops in Charlotte, NC. Busy, busy, busy! I just hope new car sales hold up. As long as they do, I'll have plenty of work.

As a side note that may be of interest to you, I completed my 6 months with this firm in April and qualified for their 401(k). Putting 10% of the gross into it for now with 50% to AGTHX, 40 to a BRIC fund with very little IC (Mostly BR) in it, and the remainder in a MM fund. I'm liking South America much more than I'm liking China these days and this fund (a Franklin, if I remember correctly) has kicked ass over the last 5 years.

[Common Sense Party]

9. Glad to hear the work is steady and paychecks are reliable.

We're getting sold before too long, so I don't know where I'll be a year from now. Fingers crossed.

That BRIC fund sounds interesting; my FT funds haven't been doing well lately. A lot of plans have been getting rid of GFA lately due to recent performance, which means it's probably a very good time to get into it.

Take care and drive safely.

[Billy Patterson]

10. You right!

Yes I like the above post which you have written to know about the specified subject. Although you need to join mortgage communities to get more valuable answer.