Why Buying a Home with One of our Kids may be a Bad Idea - Podcast Transcript

Hi and welcome to The Next Chapter podcast… where we delve into one of the 130+ topics in our new book. You know… if there’s one thing Monika and I have learned… both personally… and through the thousands of hours of face-to-face conversations with our clients over the past 30 years, it’s that… in life, what happens to us and around us may not be our choice, but how we respond always is… if we change the mindset, it will… truly change our life.

In todays podcast titled “Why Buying a Home with one of our children may be a bad idea”… we’re going to delve into one of the most challenging and often misunderstood decisions a family can undertake…. and that is the Intergenerational or Extended Family Lifestyle.

Now… we touch on this topic several times throughout The Next Chapter and… that’s because this lifestyle choice appears to be an important… but often misinformed trend that’s impacting families today… from the millennial children and their Gen-X parents to their baby boomer grandparents. Realtors across the country are regularly approached by clients who are considering buying a home or going to live with one of their children or another family member… including their parents, grandparents, maybe a sibling or other extended family member.  

Why? Well… the reasons vary from trying to help our children who can’t save enough to get into the real estate market… or midlifers who feel the need to become caregivers to their parents… to their aging parents who don’t want to go to a Seniors Home due to stories they heard from the Covid-19 era.

Now… as I mentioned, this podcast is based on the insights and shared wisdom from those thousands of client conversations Monika and I have been part of… and we hope are helpful for those listeners who may be considering the purchase of an intergenerational home with one of their family members. And to reflect on the Big WHY… why is it they feel the need to do this and WHAT HAPPENS if it doesn’t work out.

Listen… we totally get the fact that… that for some, this can be a very fulfilling experience… but it’s also one that warrants serious consideration and sound legal advice to avoid some of the speed bumps or… frankly some pretty serious sink holes that participants in this endeavour may fall into. One observation from our decades of personal real estate experience is this… the term of an intergenerational home arrangement is typically less than seven years.

Why?... well, simply… because life happens! And that’s why approaching this topic as if the parties are forming a business partnership is crucial to their long-term health… and this includes their financial, mental and emotional well being of those involved… but also their parent and sibling relationships, as well as the associated family politics. Messy… oh…it can be! And often leaving irreparable scars for generations.

OK, so what is an intergenerational home?

Let me explain… today, more than in recent generations, we’re experiencing a rebirth of the traditional extended-family… living in a multigenerational home.

Historically, it was quite common as many families immigrating to Canada and the United States over the past 250 years brought their values, their customs, and… their culture to their new adopted country. And, with the growing number of newcomers in to both Canada and the US in recent years, coupled with our current housing shortage, this trend is expected to continue. As a result… we felt it was important to share these insights.

When the first generation arrives in our country, they were committed to doing whatever it took to get established… to find work… to educate their children, and, most importantly… to buy a home for their family. As their children grew up, they continued to live together until each child was married and the family had helped them get a home of their own. In many cultures, one child would typically remain in the family home after they married and, in time, become the caregiver to the aging parents.

However, by the third generation, that of their grandchildren… this sense of duty had typically changed, with the aging parents being placed in a nursing home… and in doing so, transferred the role of caregiving to institutions and others so their children could have a life! If that sounds cold, it was… but that had become the trend from the 70’s through 2000. But the twenty-first century has seen a reversal in this trend.

Why?... well.. one reason has been the cost of care in these institutions is rising faster than the pensions or available savings of those who need this level of care. Also, in a home with 2 working parents, creating an intergenerational home with their parents who may still be agile and active can save on daycare costs and ensure their children get the best of care… but this can often rob their aging parents of the independence and peaceful later years they had worked all their life for.  

On the other hand, the sandwich generation often find themselves in the dilemma of raising their own children while trying to provide their progressively aging parents with a more personal level of care than homes for the aged would typically provide.

And finally, the exponential rise in home prices during and since the Covid-19 pandemic has seen the promise of home ownership slipping away for many young families. And whether out of duty, a sense of guilt or a commitment to keep their children and grandchildren from having to move far away to afford a home of their own… many aging couples may be considering the sale of their home and investing in shared family home with one of their children.

We are often asked if the intergenerational home is an extended family lifestyle choice or is it a family business?

The answer is… Yes!... It’s both! And … it needs to be treated as such for the following reasons. While the intent of our book - THE NEXT CHAPTER - is to be a valuable resource; Monika and I, as the authors… strongly recommend the importance of proactively seeking legal advice in all such matters. The small investment for independent professional advice will be the most important decision a parent can make to preserve long-term family unity… both today… and after they are gone.

Oh!... and by the way, we also recommend independent legal advice for all family members who are to be party to this investment to do this, as well. “But that’s money we could put toward our purchase” you say! YES! But if the advice you get is that it’s a bad idea for some or all of the parties, it will be the least expensive insurance you ever purchased.

If the parents have financial means and are considering investing with one of their children in the purchase of a suitable intergenerational home… before even starting to shop for the home, the following steps are strongly recommended:

• If there are other siblings who will not be part of this new intergenerational home and will not be contributing to the purchase of the home or to the ongoing care of their parents… but will be beneficiaries of the parents’ estate after their passing - it is strongly recommended that the planning for the parents’ estate and for the dissolution of the intergenerational home is a “business” decision and should be agreed upon by all parties and legally documented in advance before even starting to shop for a property.

• In spite of best intentions, as with matrimonial matters, not all extended family or intergenerational homes go as planned. And it’s important to remember that it’s typically been several decades since the parent(s) and the child who they’ll be living with have shared a home… and lot’s of stuff can pop up and get in the way of the bliss they envisioned. We all have baggage and some of us have not let it all go yet…

The parents’ independence, lifestyle choices, and the freedom that being empty nesters may have allowed them means there will probably be a period of adjustment. And… while many adapt… some don’t, some won’t, and others simply can’t.

So… for these situations, a “shotgun clause” typically found in most business partnership agreements should be set up in advance as part of the family’s legal agreement and this would allow for the orderly and least painful dissolution of this partnership.

What is a Shotgun Clause? Well, it’s like a Marriage Contract that spells out what the parties agree to and in the event they don’t, won’t or can’t… then it provides for the orderly dissolution of the arrangement and distribution of the assets and accumulated equity on a predetermined basis… note that I said predetermined – that means up front when cooler heads and fewer outside influencers were weighing in. Messy… you bet! It can be but doesn’t need to tear the family apart if it’s done prudently and with the proper advice.

 

Sadly, the lack of preparedness and the idealistic belief that everything will be fine or work itself out has led to many painful and unnecessary family feuds. The blame game starts, then sibling rivalry can raise its nasty head and parties take sides… culminating in a near “Hatfield and McCoy” family war as the tragic outcome.

• Where the parents have a substantial estate, their lawyer may often recommend settling the estate in advance of initiating any extended family arrangement. In this scenario, once the value of their estate has been determined, finalized and communicated to all parties, then and only then is it recommended that the parents and the family member with whom they will be buying the shared home can move ahead with their “business agreement”. This ensures that when the parents have passed, the family member who shared this as their family home will not be required to sell the jointly-owned home to settle their parents estate.

Let me illustrate how this happened for Ralph and Joan – the names and situation are for not real but situations like this are common.

Like many of us… Ralph and Joan had a dream. It was not their first marriage, but neither had children when they’d met, and being instant soulmates they went on to have two children together. It was a great match as Ralph was a dreamer and Joan was the practical and financially astute one. They had wonderful marriage, great kids and things had gone pretty smoothly.

Fast forward thirty years… Ralph was getting close to retirement and looking forward to moving to a quiet country property with some acreage and a spacious home with a view. Joan had inherited a parcel of land from her grandfather, which, until now, had not seemed all that valuable. Then one day, Rachel, their daughter, approached them with the idea of selling the family home and building an extended family compound on her mother’s sixty-acre inheritance. Rachel’s husband, Martin, was a skilled builder, and over the next eighteen months, they designed and built their 6,500 square-foot custom family compound.

Their son, Matthew, and his wife, Kate, were also keen to be part of his parents’ dream and had been part of the planning process but were not there to help with the construction.

But as the story goes, “in spite of the best laid plans and expectations,” life happened… although Matt and Kate moved in, within a year they were headed back to the city! Why?... well, Kate was a city girl, had never lived in the country, hated the isolation and was constantly afraid the coyotes might attack Fifi, her dog. As they had not been financially able to contribute when the home was built and planned to invest later, obviously that wasn’t going to happen and would certainly impact Mom and Dad’s retirement fund.

 

Then after two short years of “livin’ the dream, well sort of… Ralph and Joan were told that Rachel and Martin had split up and Martin was moving out. Although Ralph and Joan owned the majority of the home, as Rachel and her ex had contributed all their savings and mortgaged the rest of their share in the property… this would need to be dealt with.

 

Joan had been very prudent with their investments and was able to pay off Rachel’s mortgage… and then met with the family lawyer to ensure Martin who had forfeited his share in the divorce would not benefit if and when they did ultimately sell the property.
Sadly, there are so many stories that end badly and although the details may differ, the outcome continues to repeat itself over and over.

 

And while the intergenerational home is a wonderful concept… it’s much more difficult to maintain over time than it would appear. In Ralph and Joan’s case, only two years had passed before life happened and their dream was forever dashed. Their children, Rachel and her brother Matthew had been such great friends growing up and everything seemed perfect, at least in principle. However, their son’s wife, Kate, and their daughter’s husband, Martin, had not shared this closeknit past.

 

The epilogue was even more sad… you see their family home was so unique to their family dream that it was very difficult to sell because of how it was designed and the $2 million price tag which Ralph and Joan hoped would allow them to go back to their old life… well, many months later it finally sold for a fraction of that leaving them stressed, broke and in ill health. Their children no longer talked to one another and were now both divorced.

While the concept of building or buying an intergenerational or extended family home can seem ideal for many, the objective of telling Ralph and Joan’s story is to highlight the potential risks… and highlight some of the assumptions that are often glossed over but can impact the success of such a venture.

 

What Monika and I have learned through the experiences of families like this… who have bravely embarked on this journey is simply… that life as a couple can be challenging enough, but when additional adults and their children are added into the equation, it can create the potential for way too many variables and personalities to successfully manage.  

 

And… unlike when the children were growing up, this new arrangement is supposed to be a democracy… but over time, it becomes less clear who’s really in charge. Even with sound legal advice, all relationships are made up of imperfect humans who… like us, have the potential to change their minds.

Joan and Ralph were deeply invested… emotionally as well as financially in their “castle on the hill.” As it had been in Joan’s family for several generations, it was particularly heartbreaking to think they would have to sell it and give up their extended family dream. Watching their grandchildren growing up had been part of their growing-old plan and now that had been torn away, as well.

In summary, preparedness is the key! While the proceeds of a parent’s estate are typically not be distributed until their passing, before investing in any intergenerational property, all beneficiaries to Mom and Dad’s estate should be advised… by the parents… with their lawyer present and preferably with all relevant members present – to be advised of the terms in their will. Oh! by the way… the Will is not a negotiation – this is a firm decision that was Mom & Dad’s alone to make! Sharing it now is a courtesy and a necessary step before moving ahead but this could highlight a potential storm ahead if this meeting did not go well. But… better they all know now thought rather than later!!!

 

And, as I mentioned earlier, settling their estate with the other beneficiaries in advance protects the family member they’re investing with so that on their passing… it remains the family home of their caregiver and his or her family members.

 

The greatest wish of most parents is that their legacy be a cohesive family who will continue to come together long after they are gone. From the experience of most families who have gone down this intergenerational home route, the result tends to be quite the opposite. Despite best laid plans and family meetings, in hindsight, siblings and other beneficiaries seldom feel their share of the estate was fair or equitable.

And, while each family dynamic is different, the last word on this topic is to be prudent and to realistically assess the risks and benefits to all parties, including the impact on the legacy Mom and Dad want to leave behind. Although family unity over time is typically the goal… when we pass, for many families… the money and property left behind tends to be the great divider. But that’s a topic for another podcast…

 

With that prudent and well thought-out lifestyle plan you have developed with your spouse or partner, you’re able to make the right decision for yourselves. Remember… in life, what happens to us and around us may not be our choice, but how we respond (not react)… always is. Change the mindset and you will change your life.

 

Thanks for your interest today and we hope this was helpful. Feel free to give us a call at 1-855-755-BOOK, and give us a thumbs up or subscribe so you don’t miss any of our Next Chapter episodes. So… until then… remember, as one door in life closes another opens – change the mindset, change your life.