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The future of residential real estate

Several weeks ago, one of the longtime choir members passed away. A widower, he lived in the neighborhood, in a very nice 1950s home just one lot away from the park. He probably was the original owner.

At least three adult children were at the memorial service. The house has not gone up for sale. Sometimes you see lights in the place at night. So it’s possible that one of the kids is living in it. Or it’s possible that the heirs are still trying to straighten out the estate and so aren’t selling the place until they reach some agreement on the distribution of the proceeds.

If I had several children and were affluent enough to live in that area, I’d probably will the house to the one who most needed a nice place to live and then distribute the rest of the estate fairly to the rest of them.

Just now I know of at least four houses in the neighborhood where people have died or gone off to the nursing home and family have moved in. One couple with a baby had moved into her parents’ home and assumed the mortgage some time before the crash. In the ensuing deprecession, they both lost their jobs. She started baking incredibly rich cookies and peddling them through farmer’s markets and gourmet grocery stores; although the enterprise took off and has now gone national through the Internet, it still doesn’t match what they earned when they both had full-time jobs. She said they managed to get by because the mortgage payments were very low, compared to what they would have been paying had they bought a newer place.

Another couple moved into her mother’s house with their two kids. That house was paid off, a true windfall for the young family. And a friend of La Maya and La Bethulia’s, now withering away in Hospice, had “sold” her long paid-off home to her daughter; to keep it legal, she was making “rent” payments to the daughter. The daughter and her husband, who live in Alaska, plan to keep the house to use as a winter home.

In all three cases, owners had bought the houses so long ago that even at today’s depressed prices the places would have sold at a considerable profit. All three houses are in neighborhoods where prices are not especially depressed, anyway. If any amount remained on the mortgage, the payments were ludicrously low compared to what you’d pay to buy the house.

I suspect this is going to develop into a pattern. Real estate, despite the drop in prices, is out of sight and unaffordable for many young people. Policy-makers are beginning to talk about encouraging people to rent rather than to try to buy property, and after the late, great housing crash, many people in their 20s and 20s see little sense in throwing money into residential property. Still, most Americans would still rather own a house than rent an apartment, and talk notwithstanding, some see evidence that over time, owning works better financially.

It makes sense, then, that if a parent’s home is in a livable neighborhood—reasonably safe with access to an adequate public or even private school—the heirs would want to keep the house in the family. If it’s paid off, with the savings you could put your child in a private or parochial school, rendering the quality the local public schools moot.

So, I wouldn’t be surprised to see more and more younger families moving into deceased parents’ homes. As the baby boomers start to pass, this could become a trend.

8 thoughts on “The future of residential real estate”

  1. I’ve heard many stories of unfairness arising from this practice when there is more than one heir. EX 1: sick mom had grown daughter and husband, no kids, move in w/ her for the 2 years before she died. She left them her house in Pasadena, which was worth a huge amount of money. The three kids (2 brothers plus favored daughter) split the little money that was left. Great hostility and conflict arose among the children, the other two of whom had children. I was told this story by my sister-in-law, who said the mom could do what she wanted. True–but I said that she was basically disinheriting her grandchildren and splitting her own children. I have a feeling the mother didn’t realize quite how much her home was worth. So I think parents should think it through to the next generation. The funny thing was that the favored daughter was very wealthy and childless–she and her husband retired in their late 40s and live off investments.

    EX2: Again, mom left house to daughter, resulting in lawsuits….don’t want to go through the whole story.

    Why not just have the children “buy out” the one who might want the house.

    I have two children and I hope they will stay in touch after Mr FS and I shuffle off…

  2. Yeah, unless you make some preparation to leave a fair amount to the kids who don’t get the house, or you arrange for the one who gets the house to buy out the siblings, you’ve got a problem. One strategy might be an insurance policy. But unless you’ve bought a whole life policy, when you reach a certain age term policies expire and you can’t buy enough to equate to what each kid would get if the house were sold.

    Hmh. There may have been some reason for Favored Daughter to have been favored. Possibly the other kids neglected Mom in her old age. That happens. In two instances, friends of ours had children who were so emotionally distant from their parents that they wouldn’t even come to their funerals. One guy had decided he didn’t like his father’s politics–Dad was a pillar of the local Democratic party, hardly a wild-haired radical–and so refused to speak with him or have anything to do with him. Another old boy was a very nice man, with no drinking or abuse issues; neither one of his children came around when he was dying or would even respond to messages that he was about to die. If I had a kid who would have little or nothing to do with me, or who treated me unkindly, and another kid who took care of me in my dotage, you can be sure the caretaker kid would be rewarded.

  3. Here is one of those advantages of being an only child. My dad (an only) inherited his parents’ house about the time he and Mom split up. I ended up with both their houses. I lived in the grandparents house for several years before moving out of state. I realise I was very fortunate in my situation.

    What I’m wondering is how the mortgage companies feel about children picking up an existing mortgage. Presumably as long as the payments are made, they’d never notice, but would all the other arrangements, ie insurance, etc. still be legal? Both houses were long paid off before they came to me, so I never had this question to address.

  4. That’s a very interesting observation. In our will, we’re leaving everything 50-50 for the two kids. IMO, it’s the only fair way to go about it. Even if down the road, one child makes more money than the other, we don’t want to punish the one earning more by giving him less (many people do that). As for the house, I’ve never been attached to any house so I could care less what they do with it – sell it and split the profit, live in it, or one sell his 1/2 of the house to the other…

  5. I guess this is only a good strategy if you picked parents who have paid off their house by the time you could use it. But if you picked the wrong parents at birth, you’ll have to fend for yourself….

  6. My parents are adamant on the even split (4 kids). A couple generations ago my mother’s grandmother’s house was basically squatted by one of the heirs leading to a giant fight and a broken family. It took like 30 years to get the halves of the family to talk to each other, and to the next generation they are essentially strangers. All because some one’s father grabbed a house and didn’t pay out.

  7. @ Dave– Isn’t that a shame? It’s so important to write a will, distribute copies to your heirs, and store a copy at your lawyer’s or your accountant’s office.

    My mother was permanently enraged at her cousins after her grandmother, who brought her up, promised to pass her diamond rings to her and the cousins quietly grabbed them. So much did this stick in her craw that one of the last things she said to me on her deathbed was “What are you going to do with my diamonds?” As if I cared about her diamonds. {sigh}

    Similarly, SDXB was alienated from some relatives who made off with — get this — his uncle’s fishing hat and all its hand-made fishing lures. The old guy had promised to SDXB. But someone else wanted it, and in our friend’s absence they slipped it out of the house.

    Neither of these bequests were in writing. Therein lay the problem.

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