Real Estate the Ramsey Way - Our In-Laws Spent $200K To Build A Suite Onto Our House

Episode Date: May 19, 2025

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate homeownership with confidence. Back to the phone lines. We go. We got Jen in Calgary, Alberta. What's up, Jen? Hi there. We have ourselves in a bit of a pickle, and I'd like to hear if you guys have some advice. Yes, ma'am. So what has happened is that my in-laws have built a granny flat like a suite attached to our house. And they've been living here for about two years now. And we find that my husband and I are not, it's just not what we imagined it would be. We're not really enjoying the dynamic and just the arrangement anymore.

And we don't know how to separate financially and just it's been a relational toll, taking a toll on our relationship with my in-laws. And yeah, we're really not sure what to do. The in-laws paid for the suite to be built onto your house? Yes. Ooh. Yes, they did. How much money did they sink into that? It was 200,000.

Oh, my word. Mm-hmm. That's not a suite. That's like a full-blown house they put on there. And how much did it raise the property value from what to what? The pro-like maybe 100,000. Oh, gosh. So it didn't even break even yet?

No. Like, yeah, it didn't. And now it's kind of created this unique house that it doesn't really raise the property value because it's not normal. It's not normal. Was it licensed? I mean, I don't know what. it is in Canada, but you have to get a permit for that in the United States. So did that change any of

the titling at all, or is it all still in your name? The title and everything is in our name. Our taxes have increased, but that's all that. Everything is in our name, my husband and I's names. And you've been paying the taxes on the addition? Yes, yeah. So they just paid cash for the $200,000? Yeah, yeah. What's happened? Without getting into all the nitty-gritty, give us a good summary of what is going on relationally where you guys are like, wow, this was a bad idea. Well, things financially get a little bit twisted. Like my husband and I, we don't make a lot of money. And so we're building up, it's an acreage property.

And so it takes a long time for us to build it up and restore it and make it look nice. But they want it to like look nice. So they want to invest more and more money into the property to like make it look good and like buy a tractor and stuff. and we just don't feel comfortable allowing them to keep pouring money into it, and we don't have the money to, like, split things half and half. How much have they done, aside from the 200K, how much other money have they invested doing the things you're talking about? They haven't because we just keep putting the brakes on with, like, landscaping and stuff.

Oh, so they're suggesting all of this, and you keep going, uh, not right now. Yeah, yeah. Or has your husband had a conversation with his dad? and his mom to go, hey, this isn't working relationally. Yes, and we've had, like, another issue was just the boundaries. Like, they're literally attached to our house. So, like, our boundaries, like, people would come into the house multiple times a day. And it just felt like there wasn't really a boundary of, like, our life and their life.

Well, sure. But, again, let me go back to the conversation. What came out of the conversation? Hopefully it was confrontational and doesn't have to be ugly. but hopefully your husband confronted this. What was their reaction? Where do we stand today? Like, we have told them that we're not happy with that dynamic,

and we've asked them to, like, because they do have a different, they don't live here 100% of the time. They have an apartment in, like, a different city by some other family members. So then we've, like, asked them to not come as much. And so that, yeah. How did they react? I still can't, I can't get a direct answer. from you. How did they react? What did they say? They were very hurt and they were very confused.

They felt like they didn't understand why, because it was like our idea in the first place to find them closer. So then they feel like they're so confused. Had you lived with them before? Like, had you lived with them in some capacity before the bright idea came to do this whole flat and add on to the house? Or that was just like, hey, we like you guys when we go out to dinner. let's live together. And did it go from zero to 100 like that? Well, there had been some instances like over the summer. Like we had spent like a couple of months in their house.

And unfortunately, like I, it always, yeah, it would kind of got to the point where we're like, okay, it's time to go home. Was this your idea or your husband's idea? I'd say it was more my idea because I lived, my grandparents lived beside us. And as a kid, I loved it. Sure. All right, another question. Because we've got to try to help you here.

And I still don't know, okay, we know they were hurt and confused. Where does it stand today? Was there any kind of conclusion or tactical conversation about what's next after you've hurt them and confused them? Where do we stand today? Yeah. What's your idea for them to fix this? What's the idea? Well, we did talk about physically moving the building and they could, like, put it on a different lot.

So detaching it from your house and them putting it on their own lot? Yes. Okay. Are they open? Are they open to this? Well, they kind of, but they feel like it's going to cost way more money, and then they're going to have to build a foundation and buy a lot, and it's just more and more money. So what was their response from a solution, or is there no conversation on an idea or two?

I heard your idea. What was their idea? Did they say sorry or stuck with this? Well, not really. Like, I feel like we're still trying to keep having conversations. They didn't, yeah, they didn't like the moving idea because it was going to be a lot of work and they feel like they don't want to deal with that. So tell me, tell me this.

And then we're just at a standstill. Tell me this. When you bought that, how long did you live in the house before you added your parents, before the parents added their deal to it? Maybe two years. So two years. two years. Let's look at this as mathematically as possible. So two years,

if you can remember back, how much equity did you have in the house at the two year point? It was like a bank reposition, and so we've been fixing it up. Just direct, try to direct answer it. Maybe like 50,000. Maybe 50,000. So let's pretend that that 50,000 was yours before they were ever part of this. So that 50,000 is yours. Now, if, I'd say more than 50 then with the land and stuff, sorry.

Okay, what would you say that? I would say like when two years ago the property would have been worth 200,000. Worth that, but what would your equity be in it? I don't know what you purchased it for. Well, we purchased it for 80 and we have it all paid off. So what I'm asking is what profit, if you had sold the house two years ago in the first two years, what profit would you have taken home? Because I'm trying to divide this up

so that you guys can talk about this in a fair way. Right, yeah. So that's your homework. Your homework would be to go back and say, at the two-year point, before you guys ever got involved, here's what we, here's the equity we had in the property.

Let's pretend it's 50,000, just for the sake of this idea. Then parents get involved. They spend 200,000. They do the thing. And now you've been living like this for a given amount of time. And that given amount of time,

out of time, how much then has the property appreciated further? Let's say it's appreciated another hundred thousand dollars, right? So now it's like, hey, there's a hundred thousand dollars of appreciation that really has to be split. If we get rid of this property, that's really what has to be split between the two of us. And the parents are going to have to realize they made a bad investment. That has zero to do with you guys. They just made a bad investment. They put too much into the property because the market is not giving it bad. And so that's not on you. That's on the market and that's on their choice.

So then Ken... I got to jump in. Tell me. Okay, I love the math thing and I think that's the homework. I'm going to jump in and say, this is a continuation of some very uncomfortable conversations to which you and your husband have to own the fact that you invited them in here. And did they spend too much on the addition, in my opinion? Yes, I think Jade's right.

But you blindsided them. And so I think you guys are going to have to start. solve this relationally over time, or you're going to have to make the tough decision, sell the house. You're both going to take the hit financially. That's the either or, and I wanted to just give you that. What I think are your practical choices. Ken is right. You're going to sell this house.

That $100,000, you're going to end up splitting down the middle. You're going to lose out and they're going to lose out. This was a bad choice. Kristen is up in Billings, Montana. Kristen, how can we help? Hi, thank you for taking my call. My husband and I have a slight disagreement. I have most of what our income is is rental houses.

And in 2023, we purchased four new houses that puts us up to 24. And we've already paid one of them off. We still have three outstanding mortgages. And the total for all of them combined is right about a $420,000. And I have a stock portfolio that has $560,000. thousand dollars in it. His idea is that we go cash it out right now and go to pay off the mortgages. I'm like, no, that's kind of my, that was my plan for retirement in case everything else went south. The way things are sitting up were scheduled to have all three of these other

mortgages paid off by the mid of 2028. And I don't see what would be the point of cashing out all of my stock portfolio to pay them off now if we're literally going to have them paid off in the next couple of years. Well, I don't think anyone's in the wrong here. I don't think anything is on fire. I do think we might need to get to the motive and heart behind it. And then we can look at math and go, okay, what mathematically should and would happen? We pay off the mortgages. We free up those payments, which we can now invest, right? So there's one side of it. It also reduces your risk. gives you more peace. We don't know what the next three years hold. I hope it's all sunshine and rainbows. The world is a wild place, right? We don't know what's going to happen with the tenants and all of that. And so it's going to give you a little more peace and less risk. On the other side, you have the stock portfolio. Is this your entire nest egg? For the most part, it's literally, that is mine aside from, I only work 26 hours a week doing

home health care, and so then I also manage our 24 rentals. But, so I only have 7,000 in a 401k of my own, and then he has 22,000 in his 401k. Okay. But other than that, that's really... Is this stock portfolio, non-retirement? Just in a taxable brokerage account? And what is it invested in? It's in a combination of mutual funds, independent, uh, stocks as well.

I've had it managed by the same gentleman for the last 20. I'm 41. And he's managed it and he gets somewhere between a 13, 14% every year return, even when the market took a crash in 20, 23. Okay. So I think he knows what he's doing. Yes. Okay.

And I just, I don't know if it would be worth pulling it out to pick because we bring in, if you average how we always have one or two tenants who is either late or misses a month but we bring in about 21 and a half thousand every month on rent so it's not like if we were to have to worry about there's enough to cover and what are the total mortgage payments that you're making right now the three of them combined the minimums would be 3,800 we're putting 10,000 a month on the other one on one of the three. So if you take $3,800 a month and invest it instead, you're going to be okay from 41 to 60, right? So you see his point? I'm just trying to, I'm playing devil's advocate

to show you the other side on top of the interest savings of not paying interest on these mortgages for the next three years, having them paid for. So again, I don't think there's anything wrong with following your plan and going, hey, I'm going to just, we're going to pay these off in the next three years. I think it's a great plan to have a fully paid off rental portfolio. You guys have done really well. Nothing is on fire. Nothing's going to put you in crazy risk. But I can see his point, and I don't think it's as bad as you think. I know you want a nest egg portfolio. The rental properties are part of your nest egg. You have 24 paid for rental properties. If you need money, you know where to get it. Either from the cash flow or you can sell one if worse comes to

worse. What's the total worth? Did you get that number? What is the total? All 24. What are they, what's the value? Well, our market here has been absolutely nuts. So I have the tax valuation is $4.2 million. I don't want the tax valuation. What, like, if you were to sell all 24 today, a modest projection on what you could get for them. Not a fire sale, but you get market value. What is the worth of all 24 roughly? I would say it's probably closer to $5 million.

Okay. See, that's the point George is making. I was kind of waiting to go, who cares about the $22,000 over here and the 24 there? Like, the $5 million is the number. And you can cash out of those at any time and invest that. You know, I mean, that's just a whole different ballgame. So I could see both sides as well. I really can't.

So is there a compromise where maybe we go, all right, once every year, I'm going to cash out enough to pay off one a mortgage? Split the difference. That would be entirely doable. There we go. I think that makes him feel a little better, and it does reduce your risk. It causes you guys to make a little more progress than you would have. And it causes you to slowly deplete this portfolio.

And remember, you're going to free up a payment that you can now invest on your own volition as you please. That's right. And so either way, this is a good problem to have. You guys are doing really well. No, we're not wringing our hands for you guys. You guys are in really good shape. I am the least worried about this. But I do think just some compromise would get you guys to an agreement and cause you to move forward

because this is living in your head rent free right now. It doesn't need to. No, that's good. You've got properties to manage. Yeah, absolutely. Way to go, Kristen. That's incredible. Five million portfolio.

Yeah, five million dollars. At 40 years old. You can do worse. She's right. She's talking about that area of Montana is going bananas. People wanting to get out there. You and I should have seen that craze. Should have done it.

We should have went out there and bought ourselves. You and I, could you imagine with our big cowboy hats and boots? Living off the fat of the land. It's always been a dream of mine. Yeah. I see one of us having a blister and the other a splinter. You know what? It really bothers me.

Never see a cowboy with glasses on. What's going on? You know what? You make a very good point. They all have 20-20 vision out there? I'm trying to think of the last major movie or television show that had cowboys in it where they were wearing glasses. Who said that you can't be a cool manly cowboy and have vision impairment? I'll tell you what I'm thinking.

I'm thinking Jason Priestley's character. He's from 90210. You don't even know that show. You're dating yourself. He had a character in Tombstone. And his character wore glass. But he was a wimpy guy. There you go.

That's what I'm saying. So I'm with you. I'm done with it. You know what? Hollywood needs to cast a cowboy with some glasses. And I'm available. You know? America's ready for it.

You think so? Yeah. A Middle Eastern cowboy with glasses? Hey, they call me the Costco cowboy, so I'm already halfway there. Who is they? The people. Is this a thing? Yeah.

As one person got in your DMs one time and called you the Costco? Costco Kelm. The amount of times people send me just Kirkland's signature related content would blow your mind, Ken. Well, you've made a big deal out. That's my fault. That is on me. So there it is.