Buying the Family Lake House

Debbie and her husband are on Baby Step 7. Her parents own a lake cottage they're about to sell. Debbie wants to keep it in the family and buy it but doesn't have the cash.

QUESTION: Debbie in Indiana and her husband are on Baby Step 7. Her parents bought a lake cottage 30 years ago. This past Christmas, her brother called to say he’s advising their parents to sell the cottage because he thinks they’ll need the cash. Debbie doesn’t want it to leave the family and is interested in buying it. Debbie doesn’t have the cash to buy it outright. Dave says they can’t afford this house.

ANSWER: Your plan sucks. I’m not going to tell you to buy a house on the lake no matter what the story when you’re borrowing money to do it—not on this show. I would not tell you to do that. I will try to figure out a way to fix this, though, and get the house for you.

You’re not going to be able to buy the house. You’re not close enough. You make $100,000. You could only throw $20,000 at it. You’re getting ready to go $100,000+ in debt to buy a lake house 100% on emotion.

We’re not going to borrow money from your rich aunt, but go to her and see what she presents. Maybe she wants to write a check and give it to the family. That’s fine. I don’t have any problem with that.

I would be okay with scratching up some more money. Here’s where I was trying to go a minute ago. If we could scratch up substantial money… Let’s pretend that the thing comes in at $150,000—actual appraisal. They agree to sell it to you for $130,000, which would be fair, and you could throw half of that at it and could come up with the other half pretty quick—like two or three years or something—I might option the thing for three years. Give them $20,000 today for an option to purchase it for $130,000 for the next three years and then save up the money and give it to them. Then you’re not financed into it, and I think you can pull that off with your income. I’m a little bit worried that you’re going to come up with that kind of money in two or three years if we don’t come up with some more other than $20,000 down. You might be talking about a garage sale and some other stuff to scratch together some money. I don’t know.

If I’m you, I’m going to try to keep it. I’m not discounting the fact that while I called this an emotional decision, emotions in these situations are a fair part of the equation as long as they don’t cloud your judgment to the point you put your family in a mess. You have a real reason to be very motivated to try to find a way to do this deal without it being debt. I would not borrow the money from a mortgage company to buy a lake house. Pay cash for toys—even family toys you’re very emotional about. Would I option it and scrape and save and work extra jobs and do some stuff to get to keep this in your family and you own it because you love the place? Yes, I would. Absolutely. And I don’t know exactly how the great aunt factors into this. Maybe she’ll give you as a gift a portion of the down payment or a portion of the purchase if not the whole thing. Then we can make it work that way. Avoid debt in this scenario. That’ll give you a guideline. Once you say that, then you’ll get creative to figure out ways to make this happen and keep it in the family.