Expert: Dick Dennis - 5/4/2006

Question
Dick,

We'd appreciate the input of an expert on our potentially sticky situation. My fiance, Jed, and I are interested in buying our first home. We've recently been offered the opportunity to co-own a portion of his grandparents' home, which they currently own, but do not reside in. They live in an assisted living home, and Jed's uncle is power-of-attorney. When the grandparents pass away, the house will be divided between three siblings: Jed's uncle, mother, and aunt. "Buying into" this house will allow them some income (from us, in the form of our mortgage) to help pay for the grandparent's care. In theory, this seems very alluring to us: the ability to partially own and live in a house we'd otherwise not be able to afford. The family sees this as an opportunity to let the house appreciate (the area is rapidly growing, but the house still needs some work.) However, we have many questions about the complexity of this arrangement. What are our options? We've heard of a scenario where we "buy on contract" from the grandparents, thus avoiding financing through a bank? Should we seek financing through more traditional means? How do we determine, when we sell, how to divide the profits? How should it be arranged if Jed and I decide we'd like the buy 100%, in time? Is there something you'd recommend or someone we should speak to who has experience in these types of situations? We want to make sure we have all details covered and questions (even the ones we haven't thought to ask) answered.

Any help, advice, or recommendations you can give would be much appreciated!

Thanks,
Alyssa

Answer
I like to make things simple, Alyssa. Since the grandparents own the house outright, why not have them finance your purchase alone? This way, you can do any fixups you choose and there will not be any confusion as to how you are to be paid back in the resale of the property when the grandparents pass.

While you are making payments, you are helping the financing of the grandparents assisted living. Upon their passing, Jed's uncle, mother and aunt get paid off when you refinance the property with a bank. In the meantime, you have shown a bank that you can make payments on time.

You should have the right to refi the property at any time. This way, the grandparents will be taken care of by their children with the grandparents' equity. The fact that you are making payments AND fixing it up to help with any appreciation should warrant you not having to make up for any additional value YOU help with your labor and money.

If you fail to make the payments to the grandparents as agreed, then you agree to move out within 30 days. You should incorporate all this into an agreement put together by a REAL ESTATE attorney.

I hope this helps. I wish you well.

Dick Dennis    dixiedee13@aol.com