Family Helping Family(our son buys our house)

Dateline: 29 May 2014

This is the rural farmhouse my parents moved to from the suburbs of Syracuse, NY when I was 15 years old.  The outside of the house still looks pretty much just like it did 40 years ago. The yellow arrow shows my bedroom. With no central heating, it was the coldest room in the house during the winter. Snow flakes would often drift in around that window during a bad storm. It would get so cold that a glass of water in the room once froze overnight. I kid you not.

I’ve told the story (in My Book) of how I was totally opposed to going to the bank for a loan to build my first house back in the early 1980s and, instead, was able to get a $10,000 loan from Jay Myers, my father-in-law. That relatively small amount was enough to get Marlene and I off to a good start. We built the house ourselves, repaid the loan in full, have added on a couple of times, never had a bank mortgage, and still live in the house. 

Were I to do it over again, I would do the exact same thing. And, frankly, I wish I could do it all over again because, though it was a lot of hard work, it is a downright good feeling to live in a debt-free home that you built yourself. Be it ever so humble...

For most of our married life, Marlene and I struggled to keep the bills paid. She stopped working when our first son was born (26 years ago) to focus on being a full-time mother. I made relatively little working as a carpenter and home remodeler. I never thought during those years of raising our family on my one income that I would ever (short of receiving some sort of inheritance) be in a position to help my children financially, like my father-in-law was able to help Marlene and I.

But then I wrote that Whizbang chicken plucker plan book. One thing led to another, and God blessed me with a successful Planet Whizbang home business. It was our low-expense, debt-free lifestyle and the success of the home business that has now allowed Marlene and I to do for one of our children much the same thing Marlene's father once did for us...

Yesterday, we sold my boyhood home to our middle son, Robert. We will hold the mortgage. No banks or bank loans are involved.

We bought the property in July 2010 because my step-father was seriously sick and had to go into the Medicare system. His only financial asset was a paid-off house and he was going to have to sell it. If we purchased it, he would be able to continue to live in his home when he wasn’t in the hospital or at a rehab center. It seemed like the right thing to do.

Our thought was that, after my step-father died, we would sell the place and be done with it. But Robert expressed an interest in buying it from us. The property is only three miles from our house. If Robert bought it, he would be nearby. If Robert got married and had children, they would be nearby. It is my hope that all my sons and all my grandchildren can continue to live nearby, so we can continue to be a close family and be around to help each other. That is, after all, what family is all about. 

After six months of waiting for a survey to get done and for a Medicare-related lien release technicality to get settled, we signed the papers yesterday. Marlene and I will hold the mortgage. Robert will pay us monthly for the next 12 years. The monthly payment is comparable to what it would cost to rent an inexpensive apartment in town. If he makes his payments as per the agreement, he will have a debt-free home on 25 acres when he is 35 years old. Sooner if he wants to pay ahead.

Our intention was to sell the property for no more than we paid for it (which was somewhat less than the market value in 2010) and to not charge any interest. But it turns out that you can’t have a no-interest mortgage. The government has rules against that. And they set a minimum interest rate (currently 3.5%) that must be charged. This is what my attorney told me. He should know, right?

So how do parents who don’t want to charge their son interest get around that? Well, in our case, we lowered the selling price. In the end, the principle and interest my son pays will equal the amount we would have sold the place for if we were able to have a no-interest mortgage. The only downside to the scheme is that I will have to pay income taxes on the interest he pays me. In the final analysis, I will lose money on this deal, but that is really beside the point. 

Is it a good idea for a parent to help their children to purchase their first home? I’ve asked myself that question. I determined years ago that I would not help my three sons buy their first car, and I didn’t (my parents didn’t buy me any of my cars). Each of our three boys worked and saved to buy their first cars. Two of them have continued to save and pay only cash for their vehicles. I will admit, I paid their auto insurance until they were 21 years old.

I think, however, that a house is different. I think it is harder these days for a young person to be able to build or buy a first home than it was in the early 1980s, when Marlene and I were dreaming of our first home. So, as we are able, we’re inclined to help. We’re not giving the house to our son. We’re helping him. There is a big difference. 

Besides that, as the pictures show, this house is not exactly a high class place. It’s a fixer-upper. A lot of sweat equity will be required. But it’s a solid house with a lot of potential. It’s a starting place. It’s an opportunity. And I'm confident that this is an opportunity this son will not squander.

Lord willing, I hope to be able to help my other two sons in like manner.

I'm wondering if any of you who read this can relate similar experiences of family helping family to acquire property without the need for a bank loan?

A view from the yard out to the back-25 acres.  A nice old  barn was once located right in the middle of this picture, with an old apple orchard behind. The barn declined from neglect  and rotted away. Robert has worked at leveling the area and cleaning out the brush.