Jointly owned income property, paying off 1/2 of mortgage

[raeoflyte]

Looking for suggestions.  I own a triplex with my parents.  Mortgage right now is appox. $184,000 at 4.125% interest, piti approx. $1450, pi $1040.  Gross income per month conservatively $3k a month.  My parents are paying off most of their debt, including their half of this mortgage.  

I have a few options --

1) leave it as is, and we'll pay it off in 9 years.  This would mean that I would have 0 income from the property, and possibly have to put in my own money at times until it is paid off.  Most years I take $3k a year.  A few I've probably done $5-$6 with a couple disbursements but only if the property can handle it, however I never put outside money into this property either.  We've done some decently priced maintenance and upgrades over the last few years.  

2) Ask company for a recast once my parents do the pay down.  Original maturity date is 2041.  Would lower my payment for minimal fees.  

3) Refi my half, leave my parents on title to the property but not on the loan.  Over 30 years a lower payment, but higher interest rate.  Shorter terms an option as well of course.  I haven't found out what the rates would be to do a 15 year term.  

4) My parents can pay off the entire mortgage and then will write a mortgage to me for the half I still owe.  

My parents aren't going to go with Phil's advice.  Dad has been stressed by the amount of debt they have (all mortgage), and paying it off is the right call for them.  I wouldn't have sped up payments, but the idea of having it paid off in less than 10 years is quite appealing for approach #1.  That's about the time frame that my oldest will go off to college.  

#4 leaves the most control with my parents.  I don't want to negatively impact any of their retirement plans, so it comes down if they feel more comfortable having that cash not tied up in anything or if they prefer knowing the property is free and clear.  We get a long well and we're already mixed together money wise.  

The refi is the least appealing.  The recast seems like a good middle ground assuming the mortgage company would do it.  Although I think I would use that as more of a safety net for years that have high expenses.  Years that went well I think I'd put any profit toward the principle so that we'd be moving toward free and clear sooner rather than later.  

What would you do and what options am I not considering? 

[haapai]

Perhaps if you elucidated the options more thoroughly, you would get more response on Tuesday or Wednesday.

There are ways of saying more that do not reveal personal information such as your income or the ages, health status, or income level of your parents or yourself.

OTOH, that information may be key to understanding the risk-adjusted rate of return of various option.

Funny, ain't it, how much of life is about choosing the best option out of several sub-optimal choices and ignoring the gallery that tells you that you are unworthy of concern because you aren't a perfect replica of something that they remember from microeconomics.

But I'm quite serious about the elucidation bit. A bit of time typing out what you wish that you could tell us, but probably should not, may clarify your thinking quite dramatically.

[Tiny]

DELETED most of my questions as they are answered by reading between the lines of the OP. 


Just another thought:  if the triplex is paying for itself - you and your parents are benefiting from the growing equity.   It's not debt  as per se - it's generating equity with little or no money from you and your parents.  

How does losing the mortgage expense - effect all you all's income taxes?   One of the benefits of an investment property is it's 'expenses'.   

[oped]

How much do your parents take out of the property annually? The same as you? Is that something they rely on? I guess i'm asking what kind of investment is this for them and how are they hoping to make use of it in their retirement? 

[Tiny]

One thing that's not clear - do you and/or your parents live in the Triplex? That makes a difference in possible responses (if you live there - it's paying off your home. If none of you live there it's paying off an investment.)

[debthaven]

3. I wouldn't refi from 9 to 30 since you're not struggling (as far as I know). 15 years, maybe.

4. I know a lot of people on YM have a problem with that. I wouldn't. I think you've co-owned property with your parents for years with no problems.

I wouldn't have sped up payments, but the idea of having it paid off in less than 10 years is quite appealing for approach #1. That's about the time frame that my oldest will go off to college.

1. This was our original idea with the property we sold a few years ago (because it was trashed by a tenant and we wanted out). That sounds like very good timing to me ... I would consider this as a great way to help fund your kids' college.

2. But, I would find out what the recast would look like before I made any decisions.

Tiny I'm obviously not Rae but I know she doesn't live there and I'm pretty sure her her parents don't either.

[raeoflyte]

Sept 2, 2019 12:37:24 GMT -5 oped said:

How much do your parents take out of the property annually? The same as you? Is that something they rely on? I guess i'm asking what kind of investment is this for them and how are they hoping to make use of it in their retirement? 

We've always taken the same amount.  When they payoff their part of the mortgage, since their portion of the expenses will be less, they'll have additional income. 

They don't need the income from this property specifically (the small amounts we've been taking, or the increased that they'll get), but they have other rental properties as well and the income is a piece of their retirement income.  They're in good shape financially.  

[raeoflyte]

Sept 2, 2019 12:41:21 GMT -5 Tiny said:

One thing that's not clear - do you and/or your parents live in the Triplex? That makes a difference in possible responses (if you live there - it's paying off your home. If none of you live there it's paying off an investment.)

Neither of us live there.  I did for 5 years when we first bought it, and my sister lived in another unit for that same time frame, but it's been strictly tenants for several years.  

I'm sure my parents are prepared for how the lower expenses will impact their taxes.  Their push though is to have less debt, to simplify things basically.  Unless I refi'd to 30 years I don't see my expenses changing much.  

[raeoflyte]

Sept 2, 2019 12:53:14 GMT -5 debthaven said:

3. I wouldn't refi from 9 to 30 since you're not struggling (as far as I know). 15 years, maybe.

4. I know a lot of people on YM have a problem with that. I wouldn't. I think you've co-owned property with your parents for years with no problems.

I wouldn't have sped up payments, but the idea of having it paid off in less than 10 years is quite appealing for approach #1. That's about the time frame that my oldest will go off to college.

1. This was our original idea with the property we sold a few years ago (because it was trashed by a tenant and we wanted out). That sounds like very good timing to me ... I would consider this as a great way to help fund your kids' college.

2. But, I would find out what the recast would look like before I made any decisions.

Tiny I'm obviously not Rae but I know she doesn't live there and I'm pretty sure her her parents don't either.

4 might not be a bad way to go.  At first I didn't like the idea that they felt like they had to, but the more I think about it, they may prefer to wipe out debt to others on the property.  It's not like they expect me to be able to payoff $90k of mortgage debt at this stage of life.  And they can earn some interest income from the loan to me.  It wouldn't be the best use of their money by YM standards, but there are a lot of paths to success. 

Tomorrow when I can call the lender and find out if they offer a recast and what the terms would be, I'll talk more with my parents.  They don't want to push their decisions on me, so they err on the side of neutrality, but if they have a preference I want to take that into consideration.  

[debthaven]

4 might not be a bad way to go. At first I didn't like the idea that they felt like they had to

Unless I'm missing something, raeoflyte, they DON'T have to. As you stated in your initial post, you have several options. They are CHOOSING to offer you that option.

if they have a preference I want to take that into consideration.

That is just one reason why they're willing to write you a loan.

[Rukh O'Rorke]

Sept 2, 2019 10:22:15 GMT -5 raeoflyte said:

Looking for suggestions.  I own a triplex with my parents.  Mortgage right now is appox. $184,000 at 4.125% interest, piti approx. $1450, pi $1040.  Gross income per month conservatively $3k a month.  My parents are paying off most of their debt, including their half of this mortgage.  

I have a few options --

1) leave it as is, and we'll pay it off in 9 years.  This would mean that I would have 0 income from the property, and possibly have to put in my own money at times until it is paid off.  Most years I take $3k a year.  A few I've probably done $5-$6 with a couple disbursements but only if the property can handle it, however I never put outside money into this property either.  We've done some decently priced maintenance and upgrades over the last few years.  

2) Ask company for a recast once my parents do the pay down.  Original maturity date is 2041.  Would lower my payment for minimal fees.  

3) Refi my half, leave my parents on title to the property but not on the loan.  Over 30 years a lower payment, but higher interest rate.  Shorter terms an option as well of course.  I haven't found out what the rates would be to do a 15 year term.  

4) My parents can pay off the entire mortgage and then will write a mortgage to me for the half I still owe.  

My parents aren't going to go with Phil's advice.  Dad has been stressed by the amount of debt they have (all mortgage), and paying it off is the right call for them.  I wouldn't have sped up payments, but the idea of having it paid off in less than 10 years is quite appealing for approach #1.  That's about the time frame that my oldest will go off to college.  

#4 leaves the most control with my parents.  I don't want to negatively impact any of their retirement plans, so it comes down if they feel more comfortable having that cash not tied up in anything or if they prefer knowing the property is free and clear.  We get a long well and we're already mixed together money wise.  

The refi is the least appealing.  The recast seems like a good middle ground assuming the mortgage company would do it.  Although I think I would use that as more of a safety net for years that have high expenses.  Years that went well I think I'd put any profit toward the principle so that we'd be moving toward free and clear sooner rather than later.  

What would you do and what options am I not considering? 

3k month rents and 1450 piti - but you are only taking 3-6k in income off it per year, is that correct? so about half of the rents-mortgage is being used for maintenance? 

Do you currently owe half the mortgage - 92k? So if your parents paid it off you would owe them 92k for your half? But you don't want to put any of your other income into this property?

Do I have that all right?

If your parents can swing paying this off, and then you take no income off it until you pay them the 92k+whatever interest you two agree on, I think that would be a good path. I understand not wanting to burden them, but if someone could set up a spreadsheet to keep track of what you owe, compound the interest each month, I honestly think that would be the easiest path for everyone - with the least extraneous expenses tacked on to it all.

If expenses are similar year to year, they would get about 20-25k/year after expenses, some of which would be credited towards your balance, and it would be pretty straightforward.

Although you might want to think about what would happen if there was a huge expense you needed to pay towards, or you hit some speedbumps and needed to take some proceeds along the way. 

[raeoflyte]

Sept 3, 2019 7:54:16 GMT -5 Rukh O'Rorke said:

Sept 2, 2019 10:22:15 GMT -5 raeoflyte said:

Looking for suggestions.  I own a triplex with my parents.  Mortgage right now is appox. $184,000 at 4.125% interest, piti approx. $1450, pi $1040.  Gross income per month conservatively $3k a month.  My parents are paying off most of their debt, including their half of this mortgage.  

I have a few options --

1) leave it as is, and we'll pay it off in 9 years.  This would mean that I would have 0 income from the property, and possibly have to put in my own money at times until it is paid off.  Most years I take $3k a year.  A few I've probably done $5-$6 with a couple disbursements but only if the property can handle it, however I never put outside money into this property either.  We've done some decently priced maintenance and upgrades over the last few years.  

2) Ask company for a recast once my parents do the pay down.  Original maturity date is 2041.  Would lower my payment for minimal fees.  

3) Refi my half, leave my parents on title to the property but not on the loan.  Over 30 years a lower payment, but higher interest rate.  Shorter terms an option as well of course.  I haven't found out what the rates would be to do a 15 year term.  

4) My parents can pay off the entire mortgage and then will write a mortgage to me for the half I still owe.  

My parents aren't going to go with Phil's advice.  Dad has been stressed by the amount of debt they have (all mortgage), and paying it off is the right call for them.  I wouldn't have sped up payments, but the idea of having it paid off in less than 10 years is quite appealing for approach #1.  That's about the time frame that my oldest will go off to college.  

#4 leaves the most control with my parents.  I don't want to negatively impact any of their retirement plans, so it comes down if they feel more comfortable having that cash not tied up in anything or if they prefer knowing the property is free and clear.  We get a long well and we're already mixed together money wise.  

The refi is the least appealing.  The recast seems like a good middle ground assuming the mortgage company would do it.  Although I think I would use that as more of a safety net for years that have high expenses.  Years that went well I think I'd put any profit toward the principle so that we'd be moving toward free and clear sooner rather than later.  

What would you do and what options am I not considering? 

3k month rents and 1450 piti - but you are only taking 3-6k in income off it per year, is that correct? so about half of the rents-mortgage is being used for maintenance? 

Do you currently owe half the mortgage - 92k? So if your parents paid it off you would owe them 92k for your half? But you don't want to put any of your other income into this property?

Do I have that all right?

If your parents can swing paying this off, and then you take no income off it until you pay them the 92k+whatever interest you two agree on, I think that would be a good path. I understand not wanting to burden them, but if someone could set up a spreadsheet to keep track of what you owe, compound the interest each month, I honestly think that would be the easiest path for everyone - with the least extraneous expenses tacked on to it all.

If expenses are similar year to year, they would get about 20-25k/year after expenses, some of which would be credited towards your balance, and it would be pretty straightforward.

Although you might want to think about what would happen if there was a huge expense you needed to pay towards, or you hit some speedbumps and needed to take some proceeds along the way. 

Yes on income.  We had some boiler issues and ended up spending about 30k when all was said and done and replaced it for a 2nd time, new bathrooms, etc. and we keep a decent reserve for the property so that we aren't each coming with "our own money" for expenses as they come up.  Everything is just paid from the property account.     

I own 50% and my parents own 50%, so all expenses and income have been split 50/50.  Of the $184k mortgage half of that expense is mine to pay back.  

The bolded part is my biggest concern.  Life isn't cheap right now and we're trying to cash flow a lot of things while staying on top of retirement saving.  This property isn't even a blip on my radar right now, but it would have to become one if I do that. 

[phil5185]

After over 35 years as a landlord I can tell you that the first law of landlording is definitely true, ie, " Never rent to a coworker, an acquaintance, a friend, and never ever to a relative, always have an arms-length formal agreement with a stranger. You need to be able to demand the rent on time or evict. You need to be able to say no, you can't mow the lawn or paint the bedrooms in lieu of rent. None of that works if you are renting to your cousin or bro-in-law, all of your management control is lost.

The same is true of partnering to own property - when you own with a college roommate, a relative, etc, you need a formal partnership contract - it lists the what-ifs. Eg, partner gets a divorce and leaves- his ex is now your new partner - or he dies and wife is now your partner. Lots of variations of that. Partner buys a new business out of state needs to cash out and take his half, yada. IMO, one big advantage of owning rentals is that you can do it without partnering, ie, a small DP and you are in business and free to make all decisions.

Look at your 4 choices - the common denominator is "partnering with a relative". You are at different stages of life - your partners are at their wealth-preservation stage, you are at your wealth-building stage. As good as your relationship is, you & partners have opposite goals and the goals are complex cuz everyone wants to please their 'opposites'. I would get away from this deal before some 'not good' stuff happens. Or you might be sitting thru some really dicey thanksgiving dinners.

I would sell it to your parents. They might pay pay off the note and own the unit free-and-clear. (It appears that is their goal). Or they might keep the loan (It's a 30 yr, FP, 4.125% loan,  I would retain the use of that money until the end of time.)

And you will be free to invest your equity in any way that you prefer - ie make a DP on a rental house, invest in the stock market, whatever you like.

[countrygirl2]

After over 35 years as a landlord I can tell you that the first law of landlording is definitely true, ie, " Never rent to a coworker, an acquaintance, a friend, and never ever to a relative, always have an arms-length formal agreement with a stranger. You need to be able to demand the rent on time or evict. You need to be able to say no, you can't mow the lawn or paint the bedrooms in lieu of rent. None of that works if you are renting to your cousin or bro-in-law, all of your management control is lost.

I offer that same advice to anyone.  Hubs has a niece that asked about a rental, thank goodness, it was not ready.  I am going to insist no.  First of all her mom isn't very clean and she wanted to have a room mate.  It may be an argument but if he pursues it I will insist on selling.  Not going there, that will be nothing but headaches.  

And I would also sell it to the parents if they wanted it.  They could end up in a nursing home eventually or who knows what.  I know you have had a good relationship, but if you want rentals, do it on your own.

We have son in our LLC, but he is a none voting, none acting, none participating person.  He is there simply to ease ownership over to him when we die or possibly give it to him if we are old enough and able. But as it is now, he has no sayso in the running of them.  

Hubs one time thought about a partnership with his dad, I nixed that.  The guy was a jerk, he would have been up here and us in Texas, he would have run off tenants or been a pain in the a** to deal with.  The tenant he had didn't pay him a lot and he was always after him for rent.  When we bought the place I let them know that was not going to happen, they were 2 months behind at first.  They caught up and are never late again.  I don't do that.  I don't want anyone parent or anyone in our business.  Yep, I'm a  hard nose and its worked well for us.

 

[Knee Deep in Water Chloe]

disclaimer: I don't know what recast means, so my suggestion might equate to a recast. 

What if you you had the property split into three properties? You own one, your parents own one, and then either you own the third or your parents own the third. Then, you wouldn't actually be legally tied to each other anymore than anyone else who owned one-half of a duplex or one-third of a triplex. 

[countrygirl2]

Spoke to soon, that renter we have not had a problem for the 7 years we have been here, their rent check just bounced today.  She works, he is a truck driver, this should be prime season.  So wonder what the excuse is they have said nothing, I will deal with it.

[raeoflyte]

Finally sat down with my folks again.  They prefer to pay off the entire loan and then I'll make payments to them for my half for the rest of the term at the current interest rate.  Works well for both of us.  

I know mixing money and family is taboo, and I am the first to give out the warnings of what can go wrong to anyone and everyone.  But it can also work out.  No one wants me to succeed more than my parents and vice versa.    I'm very grateful for the help and opportunities they have provided for me.