Home » My in-laws are still paying off the mortgage on two houses and want to build a third. What should they do?

My in-laws are still paying off the mortgage on two houses and want to build a third. What should they do?

by archyw

I often read your messages and never thought I would email you someday. I am contacting you to get your opinion on what my in-laws should do as they are at a crossroads and do not know which path to take. They would like to talk to a financial advisor about their situation, but have not taken the first step. Hope if you answer I could show them your advice on their situation.

My stepfather is 66 years old. He is retired and started collecting social security last year. That’s what he brings home. My mother-in-law is 57 years old and is currently still employed as an entrepreneur.

Here is the situation: they have two houses. The first house has a principal balance of $ 70,000 with about 15 years of mortgage – it can be estimated between $ 165,000 and $ 170,000. The second house has a principal balance of $ 150,000 and can be valued at $ 270,000. The first house is paid for by a friend whom they help so that they can get back on their feet. It is rented at $ 1,350 per month. The mortgage is $ 900 per month. They barely get away with the mortgage. The second is their primary residence.

They want to sell the main house and buy land to build another house. There is no problem with the current house. My mother-in-law wanted to buy a piece of land next to her sister so that they could help each other as they got older. Their main residence and the house they rent are 40 minutes apart. The land they intend to buy is 15 minutes from their primary residence.

They have a friend who owns multiple properties and advised them not to sell their first home because of the potential income that will come after it is paid off. They are tempted to keep it because of it, but they will have to refinance so that they can withdraw money to build their next house, which then increases the balance and the years remaining on the loan. The budget for the new home would be around $ 250,000 to $ 300,000, and the funds for the down payment would come from the sale of the main house and refinancing of the first house only.

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What would be your advice? Sell ​​both properties to finance construction? Keep the first home for income after it’s paid off? My mother-in-law would like to retire someday, and they’re at a crossroads and wondering which path they should take.

Thank you for your time and consideration. I hope hearing from you.


Worried stepdaughter

“The Big Move” is a Crumpe column that examines the ins and outs of real estate, from finding a new home to applying for a mortgage.

Have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at [email protected]

Dear concerned,

Your in-laws are lucky to have such a conscientious daughter-in-law, and I am glad that they seem to be approaching this important decision in a careful and deliberate manner.

Not everyone is meant to be a homeowner – the last year has put a lot to the test, and many have chosen to bail out completely. A March National Rental Home Council study found that 50% of owners of single-family rental homes had residents who had missed at least one payment since the start of the COVID-19 pandemic. Many were forced to sell their properties: 11% sold at least one property, while 12% sold all of their property.

I think your in-laws should consider selling theirs. It is truly noble that they helped their friend in times of need, but it looks like they may have found themselves overwhelmed. Although they are often vilified, owning a home isn’t easy – and cases like this are proof of that. I guess your in-laws aren’t likely to raise the rent to make sure they’re not in a precarious position on the house, leaving them with few options.

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My biggest concern, however, is the weather. Your stepfather is retired and on a fixed income, and your stepmother is not far from being herself at retirement age. Real estate investing is not for the faint of heart. Their friend told them that they should keep the house because of the potential income they could earn after the mortgage is paid off.

11% of homeowners who own single-family homes have been forced to sell one of their properties due to the pandemic.

If they don’t refinance, they’re at least six years away from that milestone. If they refinance, they just reset the clock. Let’s say they take out a new 15-year mortgage. By the time this is paid, your stepfather will be 81 years old. The average life expectancy in the United States is 78. Excuse my outspokenness, but I’m afraid your in-laws won’t have time to take advantage of any “potential” benefits they might see, let alone of the fact that they don’t seem to be able to afford to keep the house.

And remember, these profits are very potential. Who knows where the rental market will be in 5, 10 or 15 years? Who can say the home won’t be damaged in a natural disaster or need major upgrades to attract tenants? Depending on where they live, property taxes on investment properties could increase. There are a number of scenarios that could reduce the profitability of the property and increase its burden.

If they were to take the route of cash refinancing on their investment home to help finance the construction of their new home, it is not that simple. Refinancings on investment properties require larger down payments and carry higher interest rates than standard refis. When you factor in the loan closing costs, this limits the amount they can expect to receive. And if the bottom were to fall, they would risk losing this house on top of everything else.

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Refinancing an investment property often requires a larger down payment and a higher interest rate than standard refinancing.

Selling both houses would give them access to even more funds to build the house of their dreams. After all, this is probably the last house they could live in, and it is clear that they are looking to build their retirement. I also appreciate their foresight in choosing to live close to their family as they enter their golden years.

That they will do all of this now, however, is not a given. Yes, the market is hot right now in many parts of the country, and they could very well fetch a decent price on both homes. Unfortunately, the booming real estate market has pushed home builders to their limits at a time when they are already grappling with material and labor shortages. I’ve heard from readers who even asked their builders to back them up because of the excessive costs they were facing.

A better plan might be to unload their investment house first, so that they have that money hidden and available to use when they’re ready to pull the trigger. Hopefully the housing market will still be strong by then and they can expect to sell their main home for a decent price. Taking more time could give them a chance to save more and reassess their financial situation before tackling such an expensive and crucial business as building a house.

I hope they find this point of view useful – and please be gentle in presenting it to them. They are so lucky that you are looking out for their best interests, but I wouldn’t want that to turn into a larger fray as, unfortunately, sometimes financial and family matters do. I hope you continue to be so supportive and caring no matter what choice they make. Still give him encouragement and advice, even if he makes a decision you don’t agree with.


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