Indiana, PA - Indiana County

SMART MONEY: Couple disagrees on whether to rent or buy

on February 09, 2014 1:49 AM

DEAR BRUCE: My husband is 76 years old, and I am 73. We currently live in our own home. He thinks it is time to sell and move to a rental apartment closer to our children and to our physicians. I would sell (albeit reluctantly) if we purchased a condominium. I am reluctant to be at the mercy of landlords and neighbors; he wants freedom from the responsibility of a house and wants to use more of this money to enjoy life.

The area we would move to is more expensive than where we live now. If we rent, we would also lose the tax benefits of the interest on our mortgage of approximately $375,000. Selling the house would net us $200,000, which we could invest.

We are living within our budget, but do not have much left for travel or gifting our children. At our age and in our circumstances, is it better to rent or buy? — M.F., via email

DEAR M.F.: I can appreciate your husband’s desire to be relieved of ownership responsibilities, and your desire to have some control. But I am on your husband’s side on this. You can likely rent a lot cheaper than it will cost you to own the same type of condominium. The tax benefits are not even a factor, in my opinion.

The one line in your letter that troubles me is “gifting your children.” Why in the world are you worried about “gifting the children”? When you pass away, which in both of your cases should be years from now, if there is money left, you can leave it to them. If there is no money left, so what?

The idea of giving up a better lifestyle so you can give money to your kids, in my opinion, is insanity.

DEAR BRUCE: My son is 55 years old and wants to buy a condo in Florida. By mistake, he put his wife’s name on the house after four years of marriage. They both had bad credit at the time. He also refinanced the house for her to buy a business, but she ended up leaving him for someone else. The house went into foreclosure. They don’t have children together.

Because of the foreclosure, he cannot get a mortgage. He has worked 20 years at the same job, makes good wages, plus he has a 401(k) with savings, but needs collateral backup.

I am 80 years old and live alone. My house is valued around $230,000. I live on Social Security. Should I put my house in his name? Can I co-sign for him in Florida? I know it will be all in his name.

I have lost my other two sons in the last six years, and he is all I have left. Of course, he insists he wants me to move to Florida to be near him. He has always been good to me, but I am a very independent, lively person. — D.C., via email

DEAR D.C.: I can sympathize with your wanting to help your son. On the other hand, he did make a mistake and it’s going to cost him.

You mentioned you live alone in a $230,000 house and your income is Social Security. It may very well be that you may wish to convert that home to cash. Even at a 5 percent return rate, which is easily available, investing the money would give you another $12,000 or more a year, which would likely allow you to live essentially rent-free. You may say you are living rent-free now, but you have taxes and all the other expenses that come along with owning a home.

Yes, you can co-sign for him. Although I am not certain that would be the way to go because your only income is Social Security and the income from the house, should you sell it. Furthermore, I see no reason for you to jeopardize your lifestyle because of the mistakes he made.

Whether or not you wish to buy a condo in Florida and let him live with you is another matter. Alternatively, you could rent a place in Florida for the two of you where he pays part of the rent as well as you. I would not co-make a loan with him to buy an apartment; it won’t be to your advantage.

You mentioned you are a very independent, lively person, but there still could be some advantage to living close to him. Other things being equal, co-rental of an apartment in Florida, in my opinion, would be the best deal for both of you.


 

Send questions to bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided. The Bruce Williams Radio Show can now be heard 24/7 via iTunes and at www.taeradio.com. It is also available at www.brucewilliams.com.

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