<p>My mother has had a series of financial setbacks and can no longer afford to keep her home. My husband and I would like to buy a small condo for her...it would be a little bit of a stretch, but we are fortunate in that we have nearly paid off our home and have some wiggle room with some extra careful budgeting (it would cost approx $150K, with us putting about 30% down). What would the effect be on financial aid and/or taxes, (not sure if we were to qualify for any, anyway, but just for the sake of analysis, let's assume we qualify for some, since our income is not that high)? What would be the best way to do this? I would appreciate any and all input...thank you!</p>
<p>We did a similar thing for my in-laws. The way that we did it was that we bought it; the home is in our name, but they live there. It is considered a second home for us, not rental property. We get to deduct the mortgage interest on our taxes, which is a good thing. We did not apply for financial aid, so maybe someone else may have more input - but, from what I know, it may negatively impact your financial aid situation. I believe that your primary home doesn’t count “against” you, but a second home is considered in your assets. You may want to check with an accountant to see what is the most advantageous way for you to do this.</p>
<p>I believe that some Us also look at your equity in your home as an asset, so that might also “count against you” in FAid. Your acccountant or tax advisor might be able to help advise you about this issue, especially tax aspects (while mortgage interest remains deductible).</p>
<p>We did not apply for FAid because we had done it once when our kids were applying to private school years ago & we had a lower income & the form that was processed said our family contribution would be most of our take home pay!</p>
<p>Since your mom has had financial setbacks, it probably would be more protective of her if she does not have assets in her name, but check your situation out with your accountant, tax advisor and/or attorney.</p>
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<p>One of my nightmares, both as a daughter and as a parent…</p>
<p>The equity in the 2nd home would definitely be considered as an asset for financial aid purposes – but over the short term you aren’t going to build much equity. In order to make the down payment you will have to draw on some other asset (such as savings), that would also be counted for financial aid purposes. In other words if you have $100K in the bank, or if you have $50K in the bank and $50K equity in a 2nd home – either way, you have $100K worth of assets.</p>
<p>We count our blessings that so far, all of our extended family is able to have sufficient assets to live a comfortable life.</p>
<p>Calmom makes good points about the $100K, whether its in the bank or equity in a real estate down payment, it will be counted as assets.</p>
<p>Would your mother pay rent?
How soon will your kids be going to college?
Is the condo likely to appreciate?
Would it be a good investment for you to buy her current home instead?
Would it work if she moved in with you?</p>
<p>To see how much this property could affect your FAFSA, print out a paper copy of the formula and work through all of the numbers: <a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/101310EFCFormulaGuide1112.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/101310EFCFormulaGuide1112.pdf</a></p>
<p>Good luck to all of you!</p>
<p>My mother had moved to a condo years ago,( to downsize) and was living there along with trips through hospital/rehabilitative facility/senior centers for the last several years of her life.</p>
<p>I was trying to get H to go along with my plan to rebuild our detached garage into a mil apartment when she died at one of the rehabilitative centers while recuperating from a pacemaker implant.</p>
<p>I don’t know if buying is a good idea in your area- ( I don’t think it is in mine), it might be better to find some place for her to rent while you figure out next steps.</p>
<p>The mortgage + taxes + insurance + condo fees will probably run you $800-900/month (maybe more), plus whatever the opportunity cost is of the $45,000 you are putting down. This doesn’t factor in repairs and renovations that you will have to pay for as the owner. When you buy it you will have to pay several % in closing costs, and when you finally sell the place, you will pay another 5%+ in commissions and other costs.</p>
<p>You will have to weigh the risks of the value going down vs. making a profit if the price goes up.</p>
<p>Furthermore, getting financing for condos is extremely hard these days, especially if it is not going to be owner-occupied. Many lenders won’t touch a condo unless the development is more than 50% owner-occupied.</p>
<p>What can you rent a comparable apartment for? If it is anywhere close to what your monthly carrying costs are going to be, I would rent. Fewer headaches, you can more easily move her if you need to without having to sell something, if she has any income at all you might be able to get away with the lease having her name on it rather than yours (even though you are going to help with the rent), which lowers your liability.</p>
<p>Unless you are sure she is going to be there for years, I think renting is the better option.</p>
<p>Maintenance fees for condos can be much higher (especially in HI). Some of them run significantly higher than our property taxes–have heard of them for $1000/month JUST For the maintenance fees!</p>
<p>I agree that renting an apartment or condo is a good option and allows significantly more flexibility for all concerned than purchasing real estate for her at this time, especially if she may need some sort of assisted living down the road & then you’d have to figure out about reselling and/or the hassles of managing/renting to others.</p>
<p>However, IF she is going to pay rent for the condo that you own, and IF this covers the monthly mortgage, fees, repairs, etc., all that you have laid out is your down payment. When you sell it, you essentially get this back plus whatever extra equity you have in it, which she has essentially paid, plus appreciation -though of course you have to pay income tax on the rent and capital gains tax on appreciation - but it may still work out in your favor.
Warning, though - even though she is your mother, she may not pay rent the rent to you if she is having financial difficulties, or she may be late with rent and you will still have to make the payments.</p>
<p>If you are housing her, are you also taking over the administration of her day to day financials?</p>
<p>If you decide to treat the condo as a rental dwelling instead of a second home, there are pluses and minuses.</p>
<p>Pluses: everything gets pushed onto schedule E, which means all expenses will be deductible - mortgage interest, taxes, condo fees, insurance, repairs, depreciation, etc. This will lower your income tax bill.</p>
<p>If you are not itemizing your deductions (schedule A), this may be the only way to get the tax advantages, unless the interest + taxes are enough to push your deductions higher than the standard deduction amount.</p>
<p>Minuses: You will have to charge a market rent for this to pass muster with the IRS. You will have to pay taxes on the income. You will have to file 1040, schedule E, and some other forms. You will have to figure out depreciation. You will have to pay capital gains on the recaptured depreciation when you sell. Whatever exists for tenant/landlord law in your area will now be applicable to you (this could involve licensing fees, inspections, who knows what).</p>
<p>For FA purposes, if you are filling out the Profile, you could take a hit. A school may/will probably disallow some of the deductions on your schedule E (depreciation especially). These disallowed deductions will be “taxed” by the school at a much higher rate than the income tax rate you are paying.</p>
<p>A Profile school could conceivably disallow a schedule A deduction for interest and taxes as well for a second home, I suppose, if they can tease that number out of your tax return.</p>
<p>If your mom can contribute to the costs, the best scenario might be to treat the condo as a second home, and have whatever contribution your mom makes go into a 529, which is only assessed at 5.6% of the year-end balance. At least until you are done with college.</p>
<p>Just thinking out loud…</p>
<p>*Maintenance fees for condos can be much higher (especially in HI). Some of them run significantly higher than our property taxes–have heard of them for $1000/month JUST For the maintenance fees!
*</p>
<p>Can not agree more.</p>
<p>My mom, had a 5 bedroom split level house in a very nice small development in a suburb of Seattle wa- darkroom, full finished basement, mature native landscaping.
It was paid for, (by my father life insurance), but she didn’t like the bi-monthly cost of having someone come mow her lawn. ( you also pretty much had to drive most places & while it was within walking distance of elementary, middle & high schools- I did not want to live there)</p>
<p>She bought a brand new condo, in a schmancy part of Bellevue. As soon as the builders warranty expired, the outside siding/finish needed to be completely redone.( this took over a year) Plumbing needed to be redone as did the wiring. Not only did she incur her portion of these costs, but every time someone decided they needed to redo the carpets ( which was every year or so), she had to pay that, " maintenance costs that included hiring " landscapers" to blow leaves around, rip out the plants that the previous company had installed & put in something else that was going to be needed to be ripped out because they weren’t appropriate for where they were planting them.</p>
<p>But most of the people in the building, had much more money than my mom did, so they just paid up.</p>
<p>We only now have sold it- over a year after her death, I have no idea what price my BIL got for it. They are building condos so much in our area, that some developers are having to drastically cut prices & even try & rent them out.</p>
<p>One big issue with condos and the foreclosure crisis is residents not paying their condo fees (nor their mortgages). When this happens, the rest of the residents have to pick up the slack or maintenance doesn’t get done.</p>
<p>[Housing</a> Distress Pits Neighbor Against Neighbor - WSJ.com](<a href=“Housing Distress Pits Neighbor Against Neighbor - WSJ”>Housing Distress Pits Neighbor Against Neighbor - WSJ)</p>
<p>This may be a grey area; some schools take into account your expenses for supporting an elderly parent. It is an important enough question that I would call financial aid.</p>
<p>Also, especially if the condo may be sold in the near future, don’t assume you will make any profit and you could well take a loss on the condo. Newer condos may be subject to construction defect lawsuits & their maintenance fees and litigation expenses are paid by guess who? Don’t necessarily assume you will make ANY profit on any resale down the road, depending on where you’re looking at purchasing, especially if you don’t have enough cushion financially to ride out further drops in the real estate markets (who knows).</p>
<p>I have always been astounded by mainentance fees and how they can get–look into what they are, how long they’ve been at that rate, any obvious improvements that are likely in the near future, etc. before deciding whether to buy any condo or townhouse or anything that will have you on the hook to share “common” expenses. Boards control what happens with condos & they can have factions and make it difficult for any particular individual to have what they think is most reasonable & prudent.</p>
<p>I’m not sure if this option is available where you live, but when my Mom became widowed and couldn’t handle her big rural farmhouse any more, she researched options and found a “continuous care” senior living campus. It begins as independent cottage living, followed by assisted living (whenever that becomes necessary) in a central building, followed by a full hospital-style nursing home (when needed), all on the same campus. </p>
<p>Her current independent cottage living is not expensive but allows her to access all the on-campus activities and programs for senior citizens. For better and for worse, she’ll never have to move again. She has her car, use of her own kitchen whenever she chooses (or buys cafeteria-style in the central dining hall if she’s not in the mood to cook). My brothers live a mile away.</p>
<p>She chose a cottage in the least expensive part of the campus to save money for the long haul. She finds it cozy and nice, despite some loneliness and adjustment issues that haven’t gone away after 2 years 
It is certainly a wise use of money, and costs much less than condos in her area.</p>
<p>Thank you for all of the suggestions. To clarify, we live in Southern Cal and condo prices are as low as we’ve ever seen them in the area we are thinking of buying (attractive area approx 4 mi from ocean)…my mother has social security of approx $1600/mo after medicare, and she is able to use a portion to help with expenses…it’s just not enough to maintain her large home on which she owes much much more than its worth. (LONG story…my father died three yrs ago after a prolonged illness and it was a financial DISASTER for various reasons resulting in huge debt and ruined credit). We have a little time since she is trying to short sell her home…I’m hoping for the best…thanks again.</p>