What should I advise my mother?

[Farrar]

My mom is a widow and lives alone. She has a small house in a great neighborhood with lots of friends. She tricked the house out to suit her and it's all on one level, no stairs, no threshold shower - not that she needs these things per se yet (though her knees are bad and stairs are increasingly a pain, though one she can still deal with), but basically it's a very good house to age in. It's also just a block from the grocery store.

 

BUT... she still has a mortgage and is on a fixed income. She's worried about long term.

 

So... because the market has gone bananas in her neighborhood and her house is so beautifully tricked out, she could sell it now, fast, and make a bunch of money. Then, she could remove her tenant from the other house she owns (the tenants are already on notice - they're long term renters with her and they understand), pay off the small mortgage that remains on that house, and either fix that house up and flip it or just stay there.

 

The other house is much bigger. It has a much bigger yard. There are stairs, though not many (it's a split level). It would need some work to trick it out to her standards, though she'd easily have the money to do it after selling the current house. The neighborhood isn't right in the city like her current 'hood. It's still an okay, cute neighborhood. The houses there are much cheaper, but the market is also doing really well there and many places are being fixed up - going from okay to very nice. It's not too far away from her current neighborhood and she feels that while she would lose her community in some ways, her church groups, her book club, her garden club, etc. would all still be things she could easily still be a part of.

 

If she does this, it would give her a project (she loves renovating) but also a huge stress (moving and renovating). It would lessen her living expenses by saving on the mortgage, plus more money in the bank from the sell of the current house. She might have enough after fixing up the old house to sell it and get a condo or something back closer to where she'd rather be, but the way the market is, she might not, not without taking on a mortgage again, which would kind of defeat the whole purpose.

 

I feel like this is tough. Right now, she's really exactly where she wants to be. And she could potentially stay there and be financially fine for a decent while. If she had a countdown timer of her exact death, we'd totally know what to do. With the except of little things (like, she needed some big dental work, she had a small skin cancer removed, etc.), she's in good health, but she's also a lifelong smoker and both her parents went from lung cancer. She refuses to talk about it, but it's my gut feeling that that's how she'll go too.

 

What would you advise her to do? If it matters, I'll add, my relationship with her is so-so and we live several hours away. We're not in a position to fully support her, though we would figure it out if we had to. She has no interest in moving here - she'd like to stay in her community.

 

Oh, I know. I'm going to make a poll!

 

ETA: If she doesn't move, she'll definitely sell the other house, but because it's in a less valuable neighborhood and is just a less valuable home, it won't cover the mortgage for the current house.

 

 

Edited January 7, 2018 by Farrar

[JudoMom]

Could she sell the other house and use any profits to pay down the house that seems to suit her better?

[Catwoman]

The current house and neighborhood sound perfect. I think she should stay there as long as possible and if finances get tight, worry about it at that time.

 

Is the rental property income covering her mortgage on the home she’s living in? If not, would selling the rental property give her enough profit to pay off the mortgage on her home? Would the interest income from the proceeds of the rental property be enough to pay her mortgage each month?

 

I would consider her comfort and happiness to be more important than worrying about financial issues that may never even occur. There is a lot to be said for being safe and having friends and neighbors nearby that your mom can count on.

[Bluegoat]

Is there a third option, where she sells the second house and uses the $ toward the mortgage of her own house?  Or sells both?

 

One thing that might help would be to create a visual timeline, based on her age and where she'd be with the property.  At some point there is a good chance she'd have to leave and go into some kind of assisted care - if she looks at all the financial and age elements visually, it might be clearer what she'd like to do.

[catz]

Could she sell both and move somewhere like a senior condo or apartment in her current community that might have step up care and social events going on all the time?  My parents have had a winter home in a senior community since they were in their 50's and they had SO much more fun there it seems like they have in their boring summer house which is just in a regular community.  And they have the ability to add support and services as time goes on.  My dad is deceased now but my mom still enjoys it.

 

I would not encourage an aging widow to move into a project situation.   Not that she can't have projects and hobbies - she absolutely should.  But home remodeling can be really stressful and long term.  Health can really turn on a dime during those years. 

[Cosmos]

Yeah, selling the other house seems so obvious, I'm guessing there must be a reason it's not listed as an option.

[Farrar]

She wants to sell the old house if she doesn't go there. The income from that house covers the small mortgage for it and a little more, but doesn't cover all of her current mortgage.

 

If she sells it, it won't pay off her current mortgage. It could potentially reduce her payments, possibly even a decent amount. It's unclear. She could sell it fast for a smaller profit and it would likely move. Or she could fix it up... though if she's right in it and right there, I'm less clear about how much more it would net her. Either way, not enough to pay her current mortgage.

 

It's just a less valuable neighborhood and house.

Edited January 7, 2018 by Farrar

[Liz CA]

Is your mom an outgoing person who makes friends easily? Does she tend to isolate or seek out new contacts, friendships? 

Community, friends and general support that we get from those are so important, especially later in life.

I see that this is a dilemma because one wants to be financially secure - or as secure as possible - but also live where you feel "at home."

 

I am wondering like Judo Mom if she can sell the rental - perhaps for less than her house - but still for a profit and put the profit toward her current mortgage?

[J-rap]

If she's happy where she's at and it works out for her age-wise, I'd sell the rental and even pay off her current home if possible.  Stay in the current home.  Use the extra money to hire someone to cut her grass, shovel, etc. if necessary.

[Farrar]

She is a friendly, outgoing person for the most part. She can get in conflict with others sometimes... but everyone can. This old house belonged to her husband - it was the house he had bought not long before they met. They lived in it together with one of his children for many years before leaving for a much nicer neighborhood and cooler old house years ago. When they were there, they didn't love the neighborhood. It was originally all build fast for new tech workers in the 70's and still has a bit of a blah vibe, especially compared to her funky, 20's bungalows, everyone has art in their yards neighborhood now.

[Rosie_0801]

Sell the other place, stay where she is and get a housemate to help cover the mortgage payments.

[Seasider]

I would advise her not to move from her current location. There are a bajillion unforeseen costs that arise in a move. Keep that property as an uncomplicated asset that can be sold when she is no longer able to live in it (which may never happen).

 

If the rents are rising with home improvements in the rental neighborhood, she might should consider raising the rent at the end of the current lease and maybe doing whatever updates necessary to warrant a larger rental fee.

[solascriptura]

I think that she should stay in her current home and do everything possible to reduce her current expenses.  Maybe she could sell her second property and aggressively pay down her mortgage.  Could she get a housemate for her current home?  Is she currently living way beyond her means and going into debt?

[Elizabeth86]

Could she sell the other house and use any profits to pay down the house that seems to suit her better?

This was going to be my suggestion too.

[JFSinIL]

Is there space for a roommate in her current house if she needs someone to share the costs of staying there, if need be down the road? Otherwise could she sell the other house now, pay down her mortgage where she is as much as possible, and stay put. Eventually either bring in a roommate or sell that house, too and move into assisted living.

[Pen]

Stay in current house. And look at possible ways to lessen financial difficulty. Is there an extra bedroom she could rent out?  Could the other house be made to earn more money for her?

[hornblower]

sell both & buy something more suitable and cheaper in the same neighbourhood - maybe a condo or townhouse. 

[prairiewindmomma]

I also think she should sell both and move to a condo.

[EMS83]

If she's socially connected to and active in this community, it's the healthiest place for her.  It's also the best guarantee that people around her will have her back and be keeping an eye on her as she ages.  That's about priceless imho.  Sell the rental for as much as she can (i.e. flip it now), use the proceeds to pay down her current home, and hope medical troubles don't hit until her mortgage is paid off.

 

ETA: AND it's the perfect house to age in, so definitely stay unless the mortgage is really cost prohibitive.  

Edited January 7, 2018 by CES2005

[gardenmom5]

is she making a fair rent on the other house?  you said the market there is going up - is the rent going up appropriately?

could she do minimal fix up - as in, don't spend very much (new paint, carpet, paint the cabinets) to make the other house presentable  - and sell it?  could she use that to pay off the other mortgage, and pay down the one she has?

 

I wouldn't advise her to move into a house with stairs.

 

eta:  - I'm hesitant to even advise selling the rental, and would need more info. a rental is capital that generates income.  so, generally more active buying markets also generate higher rents.  how much rent does it generate?  how many expenses?  how soon would it pay off the other mortgage, how much of her mortgage payment would rent on it pay?

Edited January 7, 2018 by gardenmom5

[Word Nerd]

That’s a tough decision, but I’d be inclined to encourage her to stay in the good house snd sell the other one.

[Carol in Cal.]

Is she mostly thinking about this plan because her taxes on the sale of her current primary residence would be little or nothing, while the entire sale price or most of it of the rental would be taxable?  Has she actually run the numbers?  She really should consult a realtor about actual home values and selling expenses, and also a tax professional who understands real estate tax law *cold* about what her tax picture would look like in each of the two options.

 

Personally I would think that the current residence is where she should stay longterm.  So I'd try to figure out a plan for that.  Maybe get a roommate for a while, and pay down the mortgage aggressively; or maybe look at raising the rent on the rental, or both.  

 

I haven't checked this lately, but although for a while you could just move into a rental for 2 years and then sell it with 'primary residence' favorable capital gains treatment, that law changed to a much more complex and less favorable one some years back.  However, if she lived in the house historically, the old laws might apply to some extent.  Or not.  Or the laws might have changed since the last time I researched this.  That's why she needs a real specialty person to consult about it.  In my case it would be a combo of a real estate lawyer and an accountant.  

 

I would strongly recommend getting that homework done before picking either path.  

 

Does she live in the Silicon Valley area?  Out here, even those old, shoddy 70s tract houses are going up in value, fairly considerably; and rents are increasing as well.  That is worth considering, too.

[AK_Mom4]

If a condo in the current neighborhood is where she wants to be long term, sell the nice house and buy a condo, and leave the renters where they are as a source of income.

 

But if what she really wants is to just stay put, leave the tenants in the other house as a source of income and wait and see if the market changes for selling that house. If it ever makes financial sense to sell that house and lose the income source, then consider selling it then. Talking to a realtor might help identify what that tipping point is.....

 

Otherwise, I would take the risk on aging in place and let tomorrow’s financial problems wait for tomorrow,

[eternalsummer]

I voted stay, but it would be a much clearer decision if we had the numbers.

 

[ErinE]

How old is she? If she's in her sixties, I think either option might work. If she's in her seventies, I would advise her to think long term and consider selling both to buy a condo-maybe in the desirable neighborhood. It's a conversation I've had multiple times with my parent, late sixties, and there's been more talk recently about selling the house and buying a condo.

 

Also, colon cancer is second to lung cancer in smokers so that would also concern me.

Edited January 8, 2018 by ErinE

[Farrar]

The response is much stronger than I would have anticipated. That gives me a lot to think about. Thanks for everyone's thoughts. The resoundingness of the answer makes me feel like she should stay put... In response to things people said...

 

People may not be getting just how different in value these two homes are. The one she's in now is worth probably twice as much as the other despite being less than 20 minutes apart. She's only been in the current house for a few years (she bought it to downsize after her husband died) but she bought at a good time, just before the market in that hood went way up. The old house... the market is likely to steadily improve, but it's not going to explode (unless, say, Amazon moves in with a second headquarters up the road like people are hoping, but I think it's unlikely).

 

Getting a roommate is impossible in the current house. It's essentially a one bedroom (it started as a two bedroom and there's technically still a second bedroom, but it's not configured right for two people - it's clearly meant for a couple or a single person - it's really little). The other house would have plenty of room for a roommate... but there'd be no market for it there. And besides, that would be my mother's idea of hell on earth.

 

Part of the problem is that she's not sure where she'd like to be long term. Ideally, with no money issues, in the current house. The condo idea is more like, this would be a more affordable way to get back to the more central city living she likes and might make sense anyway as she gets even older. She is 70. It's always hard to think and talk about this stuff, but my gut feeling says she won't make it past 80. I mean, you just never know, and I'm a pessimist at heart. I hope she's around a long, long time, honestly, and right now she's in such good shape (she does all her own gardening still, she walks the dog, she does yoga several times a week, she's active with volunteering and reads a ton, etc.) that it's hard to imagine... 

[Farrar]

Oh, two other things people asked...

 

She isn't making much in rent from the other house currently. Fixing it up could get a little more, but not enough to justify the cost to fix it up. It's not in bad shape currently, just needs an update. The rental market there isn't booming really either.

 

There's nothing smaller or cheaper in her current neighborhood, not really. She got in at a decent time and now houses like the one she fixed up are becoming teardowns - they rip them up and put in McMansions in their place that take up the whole lot and look weird and are basically made to be group homes for grad students. Or they double their size with crazy expansions. She might be able to find a condo in an adjacent neighborhood - which was what she had in mind as a future possibility... but real estate friends told her not to count on it - that the market was moving fast enough that by the time she'd gone through the cycle of selling the current house, fixing up and selling the old house, and looking to buy again, too much time might have passed and she shouldn't count on it.

 

[eternalsummer]

The response is much stronger than I would have anticipated. That gives me a lot to think about. Thanks for everyone's thoughts. The resoundingness of the answer makes me feel like she should stay put... In response to things people said...

 

People may not be getting just how different in value these two homes are. The one she's in now is worth probably twice as much as the other despite being less than 20 minutes apart. She's only been in the current house for a few years (she bought it to downsize after her husband died) but she bought at a good time, just before the market in that hood went way up. The old house... the market is likely to steadily improve, but it's not going to explode (unless, say, Amazon moves in with a second headquarters up the road like people are hoping, but I think it's unlikely).

 

Getting a roommate is impossible in the current house. It's essentially a one bedroom (it started as a two bedroom and there's technically still a second bedroom, but it's not configured right for two people - it's clearly meant for a couple or a single person - it's really little). The other house would have plenty of room for a roommate... but there'd be no market for it there. And besides, that would be my mother's idea of hell on earth.

 

Part of the problem is that she's not sure where she'd like to be long term. Ideally, with no money issues, in the current house. The condo idea is more like, this would be a more affordable way to get back to the more central city living she likes and might make sense anyway as she gets even older. She is 70. It's always hard to think and talk about this stuff, but my gut feeling says she won't make it past 80. I mean, you just never know, and I'm a pessimist at heart. I hope she's around a long, long time, honestly, and right now she's in such good shape (she does all her own gardening still, she walks the dog, she does yoga several times a week, she's active with volunteering and reads a ton, etc.) that it's hard to imagine... 

 

 

My dad smoked 2 packs a day from age 12 to age 74, when he died of COPD complications.  No cancer, but cigarettes did get him.  At 60 he did not have significant lung issues.

 

His mother smoked her whole life, although I don't know how much per day.  She died at 88 from pneumonia, having had it about a dozen times.  

 

Will she not have the house paid off in 10 years?  Could she have it paid off in 10 years if she sold the cheaper one or reduced expenses now somehow?

 

The thing is, if she runs out of money in 10 years for some reason, she'll also probably be at a point in life where she needs some sort of assistance - to live with family, or have someone live with her, or move to assisted living (which I would avoid at all costs, personally - it costs an arm and a leg anyway).  So I don't know that living in the cheaper house at that point would really make a huge difference - she'd still have to figure out something else anyway.

 

That said, while it is wise to consider what she might do for the last 5-10 years of her life (say from 80-85 or 80-90), it makes sense to weigh what she would prefer for these 10 years.  If she loves where she is and it is ideal for her now, I wouldn't rush out of that.

 

But running the numbers will help.  Literally how many years does she have at current expense levels in her current home?  Can she reduce expenses?  What will you do when she runs out of money?

 

 

For reference, my grandparents in law lived in their own home at about 80; they'd lived their most of their adult lives and it was my grandmother in law's childhood home.  It was paid off long since and they had $500k or so in the bank and made, oh, $5k or more a month in combined pensions and SS and etc.?  But it was not possible to stay in after various waves of grandkids finally moved out of the top floor apartment, because it had stairs and was large and hard to keep up.  So the family decided to move them down to AZ (several states away) to live in half of a duplex owned by a relative.  They both got depressed and declined signficantly.  Eventually the relative came into a bunch of money and wanted the grandparents out so they could sell the duplex or something.  Grandparents were moved into independent living back in their hometown, declined signficantly again, and grandfather died 6 months later.  Grandmother was moved into a slightly cheaper apartment in the independent living (3k/month instead of 4k/month) and eventually into assisted living in the same complex (room with shared bathroom instead of independent apartment, basically, same cost because more CNA visits and cleaning.)  Now it looks like she is set to run out of money in a few months and I think they are just going to put her in a state care facility.

 

 

I don't know what the ideal solution is.

[Farrar]

Her area of professional expertise from back when she was working is issues around palliative care and death. She definitely has a strong vision of what she wants... and has long term in home care insurance that she pays for which she is hopeful will help her achieve that vision. And a whole group of aging in place people. And like, copious documents about specific situations.

 

I think she can stay in the house for a decade before money gets too hard. Assuming that the economy doesn't go insane or inflation doesn't go insane or... that sort of thing. It's definitely a stress for her knowing that the money will run out eventually.

[eternalsummer]

After a decade she'll have a fair amount of equity in the house or no?  I guess it depends on the housing market to some degree.  

[Farrar]

I think the market and the equity will be decent. The industry of her city is a university that is doing quite well and will for the foreseeable future. The city is growing and has a lot "going on" so to speak. It's very hip right now. Unless the whole country takes a big downward turn or there's another housing bubble, the equity in the house and the value of the house are going to continue to at least keep pace with inflation and probably surpass it. So, yeah, after a decade, when she's dead broke, she could still sell the house, HOPEFULLY, make a bigger profit on it than now, and live on that in some fashion for some amount of time.

[eternalsummer]

Will she be dead broke in 10 years?  Is she living entirely off savings?  That is a lot more dicey.

 

Grandmother in law still makes some amount of money per month - I think 3k or so, which is a lot for a single person with no particularly expensive habits (she's 90 something, so hard to have expensive habits), but assisted living takes up all of that money and more, and of course she still has to buy drugs and etc.

 

On the other hand, if someone had moved her in with them 5 years ago, she'd still have lots of money in the bank.  Assisted living is expensive.  Hiring home health aids, even CNAs who get paid a pittance, honestly, for what is really pretty difficult work, is expensive.

 

 

Grr this whole topic always raises my blood pressure, I have to go eat a cookie or something :)  I admit that I kind of want to see your mom's house now.  My mom is 70 and smokes and doesn't plan to quit.  She's in great health now and still works part time and all, but I don't see her making it to 90 either.  Could, though.  At any rate she says she'd rather live in a tent in Mongolia and freeze to death than live with me or in a nursing home or any of that.  She owns her home but is just barely even on the mortgage (she owes about what it's worth) and I figure she'll probably stay there indefinitely.  She can afford the mortgage on her part-time income and her SS and retirement, but when she quits working she'll have to either have her other debts paid off or refinance or something.  It is a decent home for aging in place, though - 3 bedrooms but all one level, easy to maintain, knows the neighborhood, etc.

[Ellie]

There's nothing like living in a house that has no mortgage. I'm voting for that.

[Frances]

I think the market and the equity will be decent. The industry of her city is a university that is doing quite well and will for the foreseeable future. The city is growing and has a lot "going on" so to speak. It's very hip right now. Unless the whole country takes a big downward turn or there's another housing bubble, the equity in the house and the value of the house are going to continue to at least keep pace with inflation and probably surpass it. So, yeah, after a decade, when she's dead broke, she could still sell the house, HOPEFULLY, make a bigger profit on it than now, and live on that in some fashion for some amount of time.

In ten years after much more will be paid off on both homes, perhaps after selling the rental and applying the proceeds to the mortgage on her current home, the balance would be low enough for her to qualify for a reverse mortgage and continue to live in the home she loves.

[SKL]

I agree with selling the other house and reducing the mortgage payment on the current house so it is more manageable.  It sounds so perfect for her for the long haul, which may not be true for the other house.  I also would not want a bigger house in my old age.  More to clean, heat, maintain.  Also it sounds like there would be more to worry about in the other neighborhood.

[LucyStoner]

Sell the rental, pay down the mortgage as much as possible on the house that is where she wants to be and is set up to age in place.  Then re-finance that to the lowest monthly payment possible.  She can revisit selling it if she outlives her assets.  It doesn't sound like staying means she'd be unable to sell and buy a senior condo later on down the line.  

Edited January 8, 2018 by LucyStoner

[mom@shiloh]

I think it's huge that she has connections in her current neighborhood, especially since you aren't local.  It sounds as if there are people there who will keep an eye on her and who she can depend on for little things.  Moving is disruptive.  I'd encourage her to stay put.  

[Pen]

IF the second house is paying for itself from rent money, could she keep that so moving to it could be a back up option for if she runs out of money for house number 1?

 

Can her expenses be gone through very carefully to see about places they could be cut back?

 

Might you be able to become a co-owner with her, perhaps in a way that could help to pay off mortgage or otherwise preserve house number 1 so that she could live in it more reliably long term, and then it would become yours upon her death?  Or could some sibling of yours do so perhaps?

 

To me, things like being able to walk to a store are huge for aging in place.

[KungFuPanda]

I'd sell the larger home and keep her in the one that's more appropriate for aging in place. Use the profits from the sale to reduce the current mortgage. Then later, if necessary, sell the nicer home to fund a condo or retirement community.

[gracefor5]

i voted "bananas" only because if she sold the other house would it bring her current mortgage down to a more manageable time of pay off. Since she seems to be handling it well now, maybe it'll cut down the duration enough. Seems a shame to leave such a loved house and neighborhood.

[Annie G]

I'd sell the rental but not pay down the mortgage. Just use it to help her cover expenses, since it's unlikely she'll pay the mortgage off within the next ten years.  If she's going to have a mortgage, just go with it and when she passes you can sell the house to satisfy the mortgage. 

Are you an only child? If so, maybe in ten years when she is out of money you can cover the housing cost and recoup it after the house sells after she passes. 

 

 

[Bootsie]

If she has a community around her in her present surroundings and she can manage it financially for the time being, I would suggest she stay put.   There are many factors that could come into play whether the house is something that she can afford long-term.  If she has a fixed rate mortgage, that should be a fixed expense over time.   Some communities have maximum amounts by which property taxes can increase for senior citizens.  Her expenses may not rise much over time. Unless there is some reason to believe that she would not be able to easily sell the house in the future, she could sell it when needed.

 

I would also advise her to sell the rental house.  At her age, I would be concerned about having rental property that has a mortgage on it.  Expenses, and the hassle of maintaining that house, can add up.  I would recommend taking the proceeds from the sell of that house and putting them in a reserve fund to cover added expenses on her current house if she needed to at some point.  I have no idea of what type of price range you are talking about (a small mortgage means very different things in different parts of the country).  But, if she could sell a house for $150,000 and has a $30,000 mortgage, she would have $120K to put in a reserve fund.  If she is currently meeting her expenses, she would not need to touch the money.  At some point in the future, if she needed she could pull out $1000 per month to cover rising expenses for 10 years.  

[Pen]

I think the market and the equity will be decent. The industry of her city is a university that is doing quite well and will for the foreseeable future. The city is growing and has a lot "going on" so to speak. It's very hip right now. Unless the whole country takes a big downward turn or there's another housing bubble, the equity in the house and the value of the house are going to continue to at least keep pace with inflation and probably surpass it. So, yeah, after a decade, when she's dead broke, she could still sell the house, HOPEFULLY, make a bigger profit on it than now, and live on that in some fashion for some amount of time.

 

 

She shouldn't wait till dead broke time to try to sell.  It might be that it would not sell immediately.

 

Any chance of her city expanding out toward the other house enough to make that much more valuable within the next ten years?

 

 

Any other alternatives such as a retirement community she could move to now where she could still maintain current friendships?

 

If an actuary did an evaluation, what would be her expected life span at this point?

[kitten18]

I'd sell the rental but not pay down the mortgage. Just use it to help her cover expenses, since it's unlikely she'll pay the mortgage off within the next ten years. If she's going to have a mortgage, just go with it and when she passes you can sell the house to satisfy the mortgage.

Are you an only child? If so, maybe in ten years when she is out of money you can cover the housing cost and recoup it after the house sells after she passes.

I agree. I would keep that money accessible and use it for expenses.

[KarenC]

What about asking another elderly lady to rent a room in the adapted house?  Would she enjoy the company or does she like her privacy?  It would help cover expenses.

[TechWife]

Can she sell the house she is currently renting out and use the proceeds to pay down the mortgage on the house she is currently living in?