Chapter 1: What is discussed at the start of this section?
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Normal is broke and common sense is weird. So we're here to help you transform your life. From the Ramsey Network in the Fairwinds Credit Union studio, this is The Ramsey Show. I'm Jade Warshaw. Next to me today, George Campbell. You ready to get started, George?
I'm pumped. Let's do this.
Let's get into it. We've got Brandon, who's here locally in Nashville, Tennessee. Hey, Brandon, how can we help today?
Hi, good afternoon. I appreciate you taking my call.
Most definitely.
Well, I have a situation where I naively rented out my house to my mother about 13 years ago, and she's fallen on very hard times because of some very bad decisions. And after trying to move her out, we've identified maybe about $20,000 of damage as a very rough estimate that needs to be taken care of. And I'm trying to decide where I should take these funds from.
Okay. I'm assuming she has no money if she's fallen on hard times.
Yeah, that's correct. She actually owes more money than she has, so very hard times. How long has this been going on? Well, the past two years. She quit her job. She's been living off her retirement for the past two years, and she's exhausted all of those funds and has nothing left. When's the last time she paid rent?
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Chapter 2: How do I handle damages caused by a family member renting my property?
So I currently have about 19,600 liquid stretched across my banking accounts. I also have a paid off truck that I use as my daily driver. And I have a Mustang that I currently owe 9,000 on as kind of something I'm a little more sentimentally attached to than the truck, but the truck is my daily driver.
What do you, what the truck, what's it worth?
It's probably worth $30,000 to $35,000. Oh, wow.
So question, long term. So let's say your mom moves out. You cover the $20,000 in damages. What happens next? You bring another renter in who has the propensity to do the same thing. And now, again, you're on the hook for however much the damages are. What's the long term play here to not be in this situation again?
All right. Me and my wife are still kind of debating that question, whether it's worth keeping and renting out a little more legitimate with a very detailed lease agreement or selling the property, which I would prefer not to do. But that option is there to just to make all these problems go away.
So here's what I'm thinking. Let's talk about the $20,000 first, and then let's talk about, George and I can give you some ideas for the long-term play on this based on your finances. Yeah, I don't think your mom has the money. I think continuing to hound her about this is just going to be like you bashing your head against the wall. Fair enough?
Right. Yeah, no, I forgot the bruises to prove it. You don't have a landlord insurance policy? No, no, this was strictly just because I was trying to help my mom out. And she wasn't a legal tenant then. There was no deposit, nothing signed. Okay. So this is, it's on you. And I think that stinks to realize.
And we also need to take our part in owning that we made a whole lot of mistakes on our own that got us here. Number one was letting mom live there, kind of knowing that she wasn't in a good financial spot and probably this day would come where she didn't take care of the place. She can't afford to rent and we have to evict our own mother. Right. Everything you said is accurate.
I even let her know if she did move in with us that I don't I don't want to have her pay any rent. All I care about is her getting back on her feet. So I'm fully acknowledged that this is in my hands and I'm going to have to be the one to solve this problem. And she'll likely be your burden financially as well for the foreseeable future. That's right as well. That's one of my concerns.
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Chapter 3: What are my options for managing financial support for a struggling parent?
And what's it worth? $261,000, I'm sorry. Okay. What's it worth? Probably low $400,000 maybe.
And what about the rental? What do you owe on it and what's it worth?
The rental we owe $88,000. It's probably worth $240,000. So after selling it and everything, I'd probably pocket $140. What would you do with that $140 if you had that sitting around in an account? I would like to invest it into... you know, the S&P and the Dow or whatever would be best and just leave it there. I love that.
The thing about that plan versus being a landlord, it sounds like you don't love dealing with the physical issues, a tenant, the upkeep and maintenance. So if you could get a return by that money just being invested, and it might be even more than you would have gotten if you had a tenant.
I agree with that. Right. And I don't know if you've, I know you said you have a pension, but do you have a nest egg anywhere invested?
I do. I have a small investment with the Roth and the, or not the Roth, I'm sorry, the S&P and the Dow. Not very anything substantial worth talking about. It's $6,600, but I do have the TSP from my time in the military.
Then, I mean, I got to say, based on how this is hitting you as an inconvenience, I could see down the road this rental continuing to be an inconvenience. I like the idea of you selling it and taking that money and investing it for your future or however you think it would be best spent.
Especially with mom potentially moving in, you're gonna have your hands full.
Finally, mortgage rates have dropped, and you know what that means. People who've been sitting on the sidelines are about to jump back in to the housing market. So if you've been waiting to buy, this could be your window, but you've got to be prepared and do it the Ramsey way. You need to contact Churchill Mortgage, their Home Buyer Edge program. We'll be right back.
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Chapter 4: How can I balance financial responsibilities with family obligations?
Are they working outside the home as well? Yes. Okay. What do they make? Around the same. Great.
$100,000 income. Great.
We make six figures. So this is a solvable problem. Within the next month or two, we could probably scrape up enough to cover this if we live on nothing. So can you keep up with the payment for now? Yeah, yeah. Okay. I mean, that's what I've been trying to do. I mean... What's the payment? The carpet, it's like $322 a month. Okay. So you don't easily handle that.
On our screen, it says, should I do a voluntary repo? Is that what you were thinking about doing? So I called the dealership back, and I asked them, what should I do? And they said, your best bet is to do a voluntary repo with a credit hand. Oh, my goodness. Wow. I said... I said I just got my credit just went up 50 points last week. And like we've been really trying to do that.
And I don't want to do that.
I'm so glad you didn't listen to them. That is called set you up for failure. So I'm so glad that you called us instead. Yeah. You're bringing home over six thousand bucks a month. You're handling the payment. But we want you to get out of this because obviously it's not running and we don't want you in any debt anyway.
So, I don't know if you have other debt to speak of that's sucking up more of your income, but I would put this kind of as a top priority. My guess is if you listed your debts small to large, this is probably towards the bottom of the heap.
Um, yeah. Yeah. This is actually the last, this is my biggest bill.
Oh, this is your biggest bill. Okay, great.
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Chapter 5: What are the financial implications of buying a house for my mom?
And so that was kind of my question, whether this would be a good thing. Um, and my concern is that she would, uh, she would remain, um, continue to rent out the couple studio apartments within her house and whether you know, that would be an advisable thing to do.
So you'd buy the house, so she has the cash spending money. She'd continue to live in it, and you just kind of would bide your time until the day comes where the property would be empty and roll back to you?
Correct.
How much is the house worth?
I mean, on realtor.com, it's about $400,000.
Okay. Before I ask you if you have the ability to do this financially, how much is her Social Security and how much does she pull in from the rent?
So she pulls in about $2,000 a month for the rent, so $1,000 per studio. And her Social Security is about $1,000 a month.
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Chapter 6: How can I help my mom without jeopardizing my finances?
Okay. And she's able to cover all of her bills? She is. Okay, so why do we need even more if she's doing fine?
Perfect.
Well, just because she only has $50,000. No 401k, just $50,000 in a savings account.
What's she going to use the extra money on if she's living life?
Chapter 7: What are the risks of using a HELOC or auto loan for family assistance?
Increase her lifestyle?
Exactly. To be able to enjoy retirement and be able to travel. That's what she does. She just likes to travel. Understood. I feel like at this point, you feel responsible for her lack of retirement. Well, it's a way for me to, you know, get back to her and not necessarily responsible, but I have a couple rental properties, and so I'm just in a position where I can... How much money do you have?
In some way, I've got about $300 cash. Okay, so you couldn't afford it in full right now anyways. Well, I could, but my idea would be to... Take on a mortgage? No, if it's worth $400, my proposal would be to do it at $300 and be responsible for taxes, insurance, and all that.
Chapter 8: How can I approach my husband about a generous gift for friends?
That feels messy. So you want her to give you a 25% discount? Well, you know, we haven't really discussed numbers. And honestly, I could pull the $400,000 if need be.
But that's all your money. I mean, when George asked you how much cash do you have and you said $300,000, is that all your money, all your cash that you have?
No, no. No, it's just the liquid cash that I have.
Give us a full snapshot. Give us a full snapshot. Tell us how much debt you have. Give us a bigger piece of this so we can understand. How many properties do you have? How much cash do you have? What's in your retirement?
Yeah. So my home is paid off, and then I have two rental properties that are also paid off.
Okay.
And then liquid cash in the bank is $300,000. Okay. And then I've got a couple liquid accounts that are $200,000. Okay. So all in all, liquid cash and a couple accounts that are pretty liquid is $500,000. Wouldn't it be cheaper just to, if you want to bless her, cover the taxes and insurance on that house instead of you buying it? Well, I mean, paying taxes and...
That wouldn't really help her or afford her to be able to travel how she wants to. But she can't afford it is my fear. And right now it's sort of you're artificially propping up her life. Who knows how long she could live another 30 years. Right. She's in good health.
Or if the if the renters don't want to live there anymore. She blows through that money.
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