Dear Helaine: I own a single-family home in the Silicon Valley. There's about $1 million equity in it and an annual property tax of $2,000 (thanks to Proposition 13, which limits annual tax increases).
I no longer live in the area. I advised my adult children that they could live in the house by building a second story and renting out the first floor, much as I am doing now. (I'm currently receiving about $6,000 from a tenant.) That way, they could build the second story with some of the equity that's in the house, and their mortgage payments would be covered by the rent.
But the kids seem to think it would be better to sell off the home and pay off their student loans, and with the remaining amount, purchase another home in the Silicon Valley. The issue: Their property taxes would likely be -- based on what they say they are looking for -- about $25,000 annually.
I am old school. I think they would gain additional value by adding the second story, and they could pay off their student loans with their lower cost of living because the mortgage and property tax would be much less. Please advise! -- Hoping to Help
Dear Hoping to Help: You've made your children an extraordinarily generous offer. Instead of being grateful, your children are quibbling over the terms of the deal. So let me spell this out: We are not obliged to give our children down payments for homes, or aid and abet them in financial decisions we consider shortsighted. In this case, the home is your home. At the same time, your children are not obliged to take you up on the offer you've made, either. They could continue to rent elsewhere, or save up their own down payment (something I would imagine is rather hard to do in Silicon Valley).
So I am going to ask you: What do you want to do? Why do you want to give them this home? Are you sure doing so won't jeopardize your own finances? You could, after all, continue to rent out the home and keep it in reserve should your children change their minds, or if you decide to return to this rather expensive part of the country.
Or are you tired of being a long-distance landlord? In that case, you could sell the home and, again, if you wish, give some of the proceeds to your children for their future, or simply invest the money. What I wouldn't do? Take an action you vehemently don't want to do because your kids happen to wish it.
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