Navigating Family Finances: Deed or Rent?

When Charlotte and her husband found themselves in a financial dilemma, they turned to Dave Ramsey for advice. The couple owns two homes, one of which they rent out, and they were considering whether to deed their second, smaller home to her husband's parents or have them pay rent. The parents, who are planning to move into the couple's smaller house, would also have Charlotte's husband's sister move into their parents’ home. The couple's main question was whether they should deed the house to the parents or have them pay rent equivalent to their mortgage. They also wanted to ensure they kept everything legal and maintained good family relations.

Ramsey's initial advice was straightforward: avoid complicated family real estate deals. He cautioned Charlotte that real estate transactions with family members can quickly cause tension. "You're skating on thin ice asking for trouble," Ramsey said. Charlotte explained that they owe $190,000 on the house the parents would move into, which is currently worth $380,000. She worried that if her husband's parents took out a mortgage at market value, their monthly payment would increase significantly, from its current rate of $1,100 to around $1,800 or more. With the couple's desire to help, they were looking for a solution that wouldn't burden their parents financially.

Ramsey's Solution: Sell the House to Them

Ramsey's main advice was to sell the house, not deed it or rent it. He suggested they sell it to Charlotte's parents at a discounted price, which would still give them a good deal. In this case, Charlotte and her husband would receive the proceeds from the sale, and the parents could secure a mortgage like any other homebuyer. Ramsey said that this approach would avoid the complications of deed transfers and rental agreements while still giving the family a fair deal. He emphasized that this would also keep everything legally clear. If Charlotte's parents were to simply move in and act like the owners without officially purchasing the house, it could trigger a clause in their current mortgage, potentially leading to foreclosure. "If you do what’s called a contract for deed," Ramsey warned, "your mortgage company could foreclose on you."

Avoiding the Emotional Pitfalls

Besides the legal and financial considerations, Ramsey also highlighted the emotional challenges of lending money to family. "The borrower is slave to the lender," he said, noting that when money is involved, even with family, relationships can become strained. By selling the house, Charlotte and her husband could avoid the awkwardness and potential resentment that can arise from being a landlord or lender to family members. Keep It Simple and Legal Ramsey's advice boils down to this: if you want to help family, keep business transactions business-like. Selling the house at a discounted price, having the parents secure their own mortgage, and avoiding any rent or deed transfer agreements is the best way to protect both your financial and family relationships. If you're facing a similar dilemma, it's always a good idea to consult with a financial advisor or legal expert. They can help you navigate the complexities of real estate transactions, ensuring that your decisions benefit everyone involved without unintended consequences.

In conclusion, when faced with the decision of whether to deed a house to family members or have them pay rent, it's essential to consider the financial, legal, and emotional implications. By following Dave Ramsey's advice and selling the house to the parents at a discounted price, the couple can avoid potential complications and maintain strong family relationships. It's crucial to consult with financial and legal experts to ensure that the decision aligns with everyone's best interests.