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Ask Dave

Sitting Down With the In-Laws

Ella and her husband have been renting from her in-laws. The in-laws want to talk to them about buying or renting this house. They aren't ready. What's the best way to talk to them about how to make this work?

QUESTION: Ella in Sarasota and her husband have been renting from her in-laws for about a year. The in-laws want to talk to them about buying or renting this house. They aren’t ready to buy a house. What’s the best way to talk to them about how to make this work now and in the future?

ANSWER: When you lay out your game plan, you’ll first do Baby Step 1 and put $1,000 in the bank, secondly become debt-free using the debt snowball, and thirdly using an emergency fund, at that point, you’ll be in a position to buy a home. What would likely happen is that your income would probably as much as double in the next two to three years it sounds like, which means that then you’d be out of debt very quickly.

I guess I would just have to ask them, “We would love to have this house, and we’d love to lease it while we’re paying off his student loans and then purchase it at that time. It looks like—if his income goes up like we think it’s going to—that’s about a three-year game plan. Would you be willing to let us rent it from you for three years and then purchase it at the end of that time? We’d like to lease it with an option to purchase it.”

It depends on what their goal is. When they say they want to help, is that $1,000 or is it $100,000? That’s what you’ve got to figure out. How do you spell help? I think that’s what you’ve got to get to the bottom of. We’ve got to define this so we can set some goals and make this purchase.

They could choose to charge you $1 for rent. In return, you pay what was rent and everything else you can squeeze out of your budget on this stinking law school debt. That gets you in a position to buy the house faster, and then maybe you pay full price for the house if you get free rent for two years or three years. It seems kind of silly to me while you’re trying to get out of debt that you’re paying them money that they’re going to put in an account and turn around and give back to you. Or if they just wanted to say, “Okay, pay us rent, but when you get ready to buy it, the house is worth $X, and we’re going to sell it to you much cheaper at $Y.” That would be an okay thing. Either way, you’re going to come out and win long term. It’s just a matter of if they were to ask what your best choice would be, I would say rent forgiveness. In return, you’re pledging money to throw at the law school debt, which gets them out of this house and you into it as owners faster.

If they would rather somehow participate in their giving to help you own a house at the time you actually make the purchase, certainly we’re not going to tell somebody how they have to give us a gift. If they’re going to ask and say, “How would you rather do it?” we’d rather just waive the rent for a couple of years. That gets us out of school debt faster and into a position to buy faster. I think that cash flow is very important in this scenario to cleaning up the law school mess. That’s how I’d get at it. But just ask them what they want to do, and if they give you the option for input, then maybe those are some ideas.