Would you give money to close friends to live in same neighborhood?

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jkushne1
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Would you give money to close friends to live in same neighborhood?

Post by jkushne1 »

We have close family friends (older husband/wife) that are essentially family (she's basically acted as a 2nd mother to my wife) who sold their previous home and are trying to move into the suburbs. As home prices have skyrocketed, they have so far been unsuccessful finding a new home and have been living with my family for several months which has actually been very beneficial for both parties (help with child care but not charging rent for instance). During this time, they've fallen in love with our neighborhood and their goal is that they want to move into the same neighborhood (~200 homes). I do not know their finances but from what they say, our neighborhood is at the top of their budget but they can still afford it. Their issue is that with the current market, homes are selling for much higher "than they should" and a few of the homes are then getting out of their price range by a relatively small amount.

My spouse and I have had a discussion and we were debating about giving them money to allow them to get into the neighborhood. On surface level, posting this on a financial forum would likely receive a hard "no" but here are the competing ideas that are going through our heads.
-We can afford it. We'd likely only be giving them 5-15k and it really wouldn't affect our financial future at all. While still early in my career, we have our financial ducks in a row.
-It would be a gift, not a loan. I hate hate the idea of them owing money back as a loan so it would just be a straight gift.
-Having them in the neighborhood walking distance would mean a lot to my wife and kids. In terms of happiness, I'd much rather spend 5k, 10k, or more to have them more in our lives in comparison to some other random home purchase. We care about this couple THAT much.
-Am I doing them a "favor" (enabling them?) by giving them money to get in the neighborhood from a cash flow standpoint? As mentioned, I don't know their finances but they state they could afford the homes prior to the recent price surge over the past 6 months. So if some gifted money got them back to costs where the homes were selling pre-craziness, then supposedly a non issue.

Would you do it if you were in my situation? And how much money would you be willing to give?
HomeStretch
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Re: Would you give money to close friends to live in same neighborhood?

Post by HomeStretch »

No, I personally wouldn’t gift the money to a friend or family member as I wouldn’t want to encourage them to live beyond their means. A house that’s a stretch financially to purchase also comes with higher ongoing expenses for property taxes, insurance, utilities, maintenance, etc.

Your friends’ house fund should be increasing rapidly as they are living rent free and have banked their prior home proceeds.
mptfan
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Re: Would you give money to close friends to live in same neighborhood?

Post by mptfan »

No, no and no.
jkushne1 wrote: Sat Apr 03, 2021 5:50 am On surface level, posting this on a financial forum would likely receive a hard "no" but here are the competing ideas that are going through our heads.
There is no "but," all of the "competing ideas" going through your heads are already baked in to the hard "no."
greengates
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Re: Would you give money to close friends to live in same neighborhood?

Post by greengates »

I would not recommend it. Beside the financial reasons you stand a good chance of changing the quality of your friendship. Not worth it.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Jack FFR1846 »

If you help them buy a house out of their price range, are you then going to pay the increased insurance cost? Increased property tax cost? HOA extortion money?
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Re: Would you give money to close friends to live in same neighborhood?

Post by Mr. Rumples »

If you give them the money and then they then give money to a person or cause, or waste it, would you object?
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celia
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Re: Would you give money to close friends to live in same neighborhood?

Post by celia »

jkushne1 wrote: Sat Apr 03, 2021 5:50 am ...our neighborhood is at the top of their budget but they can still afford it.
Why don't they look for a house in the lower prices of the neighborhood? Maybe they can work with a buyer's agent to help find one.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Triple digit golfer »

If friends offered us money to move into their neighborhood, I'd tell them to go pound sand. I would never want somebody, friend or otherwise, to offer me money to buy something that they want me to be able to afford.
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jabberwockOG
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Re: Would you give money to close friends to live in same neighborhood?

Post by jabberwockOG »

Bad idea as others have posted. More expensive homes comes with higher ongoing costs and expenses. Best to stay out of getting involved in close friends finances and major purchases like real estate, if you want to remain close friends.
liksah
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Re: Would you give money to close friends to live in same neighborhood?

Post by liksah »

I don't really have much advice to offer because your relationship with this couple is only for you to judge. Perhaps if I was such close friends with someone I would consider the same thing... I do agree that unless you, on your end, can look at this money and pretend it never existed (as in, you've given it away and it's done..) - your relationship might change or be somehow affected by it. Money has a strange way of changing power dynamics and creating trailing resentment.

For example, what if you help them with this cash, they buy the home, and then 3 years down the line decide that you know what, we don't really like this place, we are gonna go somewhere else. How would you feel in this scenario? Is there any underlying resentment based on an expectation that they will live near you forever? After all, you want to help them buy this place because you want them to live close to you.

This is why perhaps a loan may be a better option. Respect on both sides while conveying that - you know what, we really do want you all to live close to us.

It's something definitely worth thinking through. Also, your post reminded me of this blog post I read a while ago: https://www.mrmoneymustache.com/2021/01 ... kr-review/

I read that blog a lot and MMM is supposed to be pretty financially savvy. So hey, if he can help a friend out like that, I'm sure there's something to learn from it.
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winterfan
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Re: Would you give money to close friends to live in same neighborhood?

Post by winterfan »

If they were my mom/dad or MIL/FIL, I would in a heartbeat because I would love to have either in walking distance. And in the future, it would be easier for elder care. For friends, probably not.

If your friends are living rent-free in your house, aren't they able to save up the money pretty quickly, or are they retired? Even though it's mutually advantageous, that's a pretty nice gift by itself. I would not accept money from a friend anyway. It's too weird. They may feel the same way.
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Re: Would you give money to close friends to live in same neighborhood?

Post by TomatoTomahto »

OP, you’ve gotten a lot of advice here. Tbh, I’d probably do it but I’d be afraid of changing the relationship. If there way to do it without them knowing it was a gift from you, I’d do it.

Maybe I’m not a good BH. :(
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Re: Would you give money to close friends to live in same neighborhood?

Post by Carguy85 »

$5-15k is couch/pocket change when it comes to homes. If that somehow enables them to get in to a home that they wouldn’t have been able to get otherwise then they must be at the top of what the bank says they can borrow and most certainly can’t afford it. Give them $15k as a gift but not if it is actually going to cause them to get into something that is bad financially for them. On the flip side it would be way out of bounds to actually determine what their budget should be unless if they just outright shared their financials. If you care about their long term well being over your near term wishes then no...don’t give them any money. In addition, like others have said, monetary gifts could possibly change dynamics of what sounds like a good thing right now.
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Re: Would you give money to close friends to live in same neighborhood?

Post by wolf359 »

Carguy85 wrote: Sat Apr 03, 2021 7:00 am $5-15k is couch/pocket change when it comes to homes. If that somehow enables them to get in to a home that they wouldn’t have been able to get otherwise then they must be at the top of what the bank says they can borrow and most certainly can’t afford it. Give them $15k as a gift but not if it is actually going to cause them to get into something that is bad financially for them. On the flip side it would be way out of bounds to actually determine what their budget should be unless if they just outright shared their financials. If you care about their long term well being over your near term wishes then no...don’t give them any money. In addition, like others have said, monetary gifts could possibly change dynamics of what sounds like a good thing right now.
+1

Just because the bank says you can afford it doesn't mean it's a good idea. Banks are considering the maximum loan amount you can pay back. The fact that you may want a life and pay for other things as well are not part of their analysis.

Stretching to buy a home also puts you into a neighborhood and with peers who CAN afford that environment. They'll face constant subtle peer pressure for lifestyle inflation.
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Re: Would you give money to close friends to live in same neighborhood?

Post by alpenglow »

A number of years back, my in-laws had a dream of going on a certain trip. They talked it up to everyone they knew. It was all planned and they were excited. Then they claimed they couldn't afford it and had to cancel. They talked that up too. Well, one of their friends offered to pay for the trip and my in-laws took the money. Long story short, it ended up souring the relationship.

I know this story isn't about a house, but it involved a similar amount of money. Gifts of this nature can have unexpected impacts on relationships. I'd vote no.
Ramjet
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Re: Would you give money to close friends to live in same neighborhood?

Post by Ramjet »

No, because as you stated you don't know their finances. Is it possible they can afford the top of their budget easier than you think and they are just being frugal?
Last edited by Ramjet on Sat Apr 03, 2021 7:14 am, edited 1 time in total.
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Re: Would you give money to close friends to live in same neighborhood?

Post by KlangFool »

OP,

Based on your description of your friend, they are not LBYM. Hence, I seriously judge their assessment of they can afford the house. It is a hard no.

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Re: Would you give money to close friends to live in same neighborhood?

Post by hoofaman »

The difference is only 5-15k? Couldn’t they just borrow that and work a part time job to pay it back quicker?
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Re: Would you give money to close friends to live in same neighborhood?

Post by JoeRetire »

jkushne1 wrote: Sat Apr 03, 2021 5:50 am We have close family friends (older husband/wife) that are essentially family (she's basically acted as a 2nd mother to my wife) who sold their previous home and are trying to move into the suburbs.
They sold their home without having already secured a new destination? Why?
I do not know their finances but from what they say, our neighborhood is at the top of their budget but they can still afford it.

My spouse and I have had a discussion and we were debating about giving them money to allow them to get into the neighborhood.
You don't know their finances. You say they can afford it. But you say that they can't afford it.
All of that is confusing.
Would you do it if you were in my situation?
I would mind my own business and let them purchase a home they can actually afford.

But since it's your money, assuming you and your spouse are both on board, you are of course free to offer some to your friends. Don't be surprised when they say "No" and things get awkward.
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Re: Would you give money to close friends to live in same neighborhood?

Post by KlangFool »

hoofaman wrote: Sat Apr 03, 2021 7:14 am The difference is only 5-15k? Couldn’t they just borrow that and work a part time job to pay it back quicker?
The simple answer is it is not only 5K to 15K.

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Re: Would you give money to close friends to live in same neighborhood?

Post by invest4 »

While well meaning, this is simply not wise...including the potentially unexpected impact / effects on your relationship with them.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Trader Joe »

jkushne1 wrote: Sat Apr 03, 2021 5:50 am We have close family friends (older husband/wife) that are essentially family (she's basically acted as a 2nd mother to my wife) who sold their previous home and are trying to move into the suburbs. As home prices have skyrocketed, they have so far been unsuccessful finding a new home and have been living with my family for several months which has actually been very beneficial for both parties (help with child care but not charging rent for instance). During this time, they've fallen in love with our neighborhood and their goal is that they want to move into the same neighborhood (~200 homes). I do not know their finances but from what they say, our neighborhood is at the top of their budget but they can still afford it. Their issue is that with the current market, homes are selling for much higher "than they should" and a few of the homes are then getting out of their price range by a relatively small amount.

My spouse and I have had a discussion and we were debating about giving them money to allow them to get into the neighborhood. On surface level, posting this on a financial forum would likely receive a hard "no" but here are the competing ideas that are going through our heads.
-We can afford it. We'd likely only be giving them 5-15k and it really wouldn't affect our financial future at all. While still early in my career, we have our financial ducks in a row.
-It would be a gift, not a loan. I hate hate the idea of them owing money back as a loan so it would just be a straight gift.
-Having them in the neighborhood walking distance would mean a lot to my wife and kids. In terms of happiness, I'd much rather spend 5k, 10k, or more to have them more in our lives in comparison to some other random home purchase. We care about this couple THAT much.
-Am I doing them a "favor" (enabling them?) by giving them money to get in the neighborhood from a cash flow standpoint? As mentioned, I don't know their finances but they state they could afford the homes prior to the recent price surge over the past 6 months. So if some gifted money got them back to costs where the homes were selling pre-craziness, then supposedly a non issue.

Would you do it if you were in my situation? And how much money would you be willing to give?
I would give them the money.
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Re: Would you give money to close friends to live in same neighborhood?

Post by New Providence »

Yes, it is your money and you can do whatever you want with it.

Many a posters in here always suggest to donate to charity. So, are you supposed to donate money to strangers but not to people you like???

Make use of you money in the best way possible for you. There is no greater reward than helping others. Sad there's so little human kindness to go around these days.
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Re: Would you give money to close friends to live in same neighborhood?

Post by TomatoTomahto »

New Providence wrote: Sat Apr 03, 2021 7:59 am Yes, it is your money and you can do whatever you want with it.

Many a posters in here always suggest to donate to charity. So, are you supposed to donate money to strangers but not to people you like???

Make use of you money in the best way possible for you. There is no greater reward than helping others. Sad there's so little human kindness to go around these days.
I agree with the sentiment, but would be worried about changing (for the worse) the relationship. Can anyone think of a way to “anonymize” the gift? It is below the annual gift exclusion, so that’s not an issue.
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Jacotus
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Re: Would you give money to close friends to live in same neighborhood?

Post by Jacotus »

As others have said, this has downsides that 1) if they can't swing an extra $5-15k, they can't afford it, and 2) it can change the nature of the relationship.

On the other hand, it sounds there is a truly meaningful relationship between your two families. Having a very close family friend in the neighborhood is something that can make an extraordinary difference to quality of life.

I think it depends on the actual nature of your relationship with your friends. This is something only you know, not any of us. People would not hesitate to set up this arrangement with their parents. But know the risks going in and don't do it unless you feel comfortable having a conversation with your friends beforehand about the risks of such an arrangement.
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Re: Would you give money to close friends to live in same neighborhood?

Post by mrspock »

And if they take your money, and turn around and sell the house in 1-2 years (say housing goes up big time, they want to cash in)... what then? This would setup all sorts of perverse situations which would harm your relationship — and make no mistake: if you got upset if they did that.... it’s you who are the jerk, not them. A gift is a gift, what they do with the money after that is none of your business.

If you disagree with this statement in the slightest, or would be upset if this happened, you shouldn’t gift the money.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Katietsu »

I think it is a perfectly acceptable use of $15,000. As long as you can give with no strings and no judgement on their future spending. Relationships need not be soured by gifts. I can give as many positive examples of family and friend gift giving as there have been negative examples here.

My concern is with the fact that you do not know their finances. I would not want to help get them into a situation that is risky and potentially unsustainable without ongoing help. Unless you can be assured that you are advancing their financial future not jeopardizing it, I would not move forward.
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Re: Would you give money to close friends to live in same neighborhood?

Post by kelway »

jkushne1 wrote: Sat Apr 03, 2021 5:50 am re selling pre-craziness, then supposedly a non issue.

Would you do it if you were in my situation? And how much money would you be willing to give?
What makes you confident that they would accept this gift? I sure wouldn't. Mostly, I find myself wishing I wasn't such a loner and could have friends I consider that close. Like others have said, if 5-15k allows them to eek into the neighborhood, then that leaves them clearly at the very top of their range, which isn't a good place to be.
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Re: Would you give money to close friends to live in same neighborhood?

Post by J295 »

If we were deciding something like this, the discernment would be based on relationship not finances.

If we thought all things considered it was a likely plus for the relationship we would move towards giving. We would try and put ourselves in the recipients’ shoes when discerning (many people are not good receivers of gifts, as noted in some of the posts above).

Only you know all the nuances of the relationship to know whether this would likely be a wise relationship action. It takes special people on the giving and receiving end to have this work.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Sandtrap »

1 Not a good time to buy. Overinflated market.
2 15k gift. Friend buys house. In 3-5 years something changes and they need to sell and move. Then what?
3 Friend buys home with 15k gift. Falls on hard times and can’t make mortgage payment. Do you help?
4 etc.

OTOH if you are all long time “ohana” (family) then of course it can be a wonderful thing to do.

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Re: Would you give money to close friends to live in same neighborhood?

Post by bluebolt »

TomatoTomahto wrote: Sat Apr 03, 2021 8:08 am I agree with the sentiment, but would be worried about changing (for the worse) the relationship. Can anyone think of a way to “anonymize” the gift? It is below the annual gift exclusion, so that’s not an issue.
I've discussed this with an attorney a while back - the check would come from their firm and they would charge a fee and keep me anonymous.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Jags4186 »

Not only no, but if I were the friend I’d be offended.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Metsfan91 »

Yes. For a mom - definitely yes. And no 2nd guessing.
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Re: Would you give money to close friends to live in same neighborhood?

Post by stan1 »

Sounds like they have been living in your house for several months without paying rent? This is already beyond a typical friendship so I don't think most advice will apply to your situation. Do what you think is right but first I'd talk to them, have good communication, and really understand the situation.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Nowizard »

Your comment about what would be expected from this site is accurate and to be expected since most decisions are based on rationality from the Boglehead standpoint rather than consumer psychology. However, an elevated approach does include the question of why do we attempt to maximize our financial standing if not to use the money to maximize our broader lives which includes support in various forms of others. Full consideration of personal circumstances is beyond the goal of the site but well within the goal of individual posters. The combination of practical and emotional decision processes represents one of the primary issues in a balanced life. More to the point, it appears that there are two major issues, one of which has been answered. You are already experiencing an interaction between the concrete offering with a financial benefit (Housing) and repayment that is occurring through services provided through the friendship. The missing piece is not knowing the finances of the other party. There is a "Need to know" factor there in order to establish your own boundaries. Other than that, the decisions are yours and only have to lead to a "yes" response to the question of whether you can accept the consequences of them after completing due diligence.

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Re: Would you give money to close friends to live in same neighborhood?

Post by TomatoTomahto »

bluebolt wrote: Sat Apr 03, 2021 8:56 am
TomatoTomahto wrote: Sat Apr 03, 2021 8:08 am I agree with the sentiment, but would be worried about changing (for the worse) the relationship. Can anyone think of a way to “anonymize” the gift? It is below the annual gift exclusion, so that’s not an issue.
I've discussed this with an attorney a while back - the check would come from their firm and they would charge a fee and keep me anonymous.
Would they have more than 1 possible benefactor? Wouldn’t they ask you?
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Re: Would you give money to close friends to live in same neighborhood?

Post by dbr »

This seems to me to be an example that comes up here from time to time of a relationship question and not a financial question.

I don't see money of large enough magnitude to ask the question being involved here. A person can often easily give or take tens of thousands of dollars in money with no consequence while one can change the nature of a relationship forever over hundreds of dollars. That result is not due to money but rather to exposing implicit attitudes and crossing boundaries.

As to the relationship question, I would not initiate anything and let your guests decide if they want to ask or not. If they were to ask for help, such as you taking a second mortgage, then you could decide the issue as presented.

A different question is how much of this is really about you figuring out now long they are going to be in your house, as much as you want to rationalize that this is a good thing.
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Re: Would you give money to close friends to live in same neighborhood?

Post by nisiprius »

Maybe. Since "We'd likely only be giving them 5-15k and it really wouldn't affect our financial future at all" this is not at all a financial question and entirely a human question.

I wouldn't rule it out just because it's unusual and just because there is a potential for problems. What on earth is the point of even having money if you can't use it to achieve things you want to achieve? The risks are obvious but these days every day I am reading people in Bogleheads taking obvious financial risks that are much larger. On the grand scheme of things deciding to get married is a human risk, deciding to have kids is a human risk... People spend much more money to achieve much less precious things than the cultivation of a really warm friendship. The risks are that you'll spend the $5,000-to-$15,000, fail to achieve what you are hoping for, and possibly sour a friendship--maybe just a little, maybe a lot.

My biggest reservation is that you're asking strangers on the Internet about this... and that you are starting out half-expecting a "hard no," both of which suggest that you yourself are leaning negative about this and haven't admitted it fully yet. I mean, if it's the right thing to do for you, you should be experiencing something resembling an irresistible impulse, "this is right and I'm just going to do it and the heck with what anybody thinks about it."

One pertinent question is whether they can afford to live there once they have the house. I'd do a reality check: is their income about equal to the median for the town? If they aren't close enough friends to discuss things like that with them, or to openly accept a low-five-figure gift from you, then I'm not sure what you're proposing is a good idea.

Here's one anecdotal data point pointing in no particular direction.

When we bought the house we're living in now, it was the days of double-digit inflation and prices were skyrocketing. We were close friends with another couple, also with kids, living in the same apartment complex. They were listed in our wills as our children's guardians if we both died. Neither couple thought we could swing a single-family house, but we thought we could go in together and buy a two-family. We decided to do it. And then my wife and I found a house we could afford--just barely--so we went ahead and bought it. And the other family was angry with us for betraying them, moving into our house and leaving them stuck in their apartment. But we stayed friends, a couple of years later they found a house in another town, a couple of years after they got an unfriendly divorce, we stayed friends with one of them for a while and when gradually lost touch. And then five years later I woke up at 3 a.m. and shook my wife and said "Honey! Honey! We forgot... they are still named as guardians of our children in our will!"
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Re: Would you give money to close friends to live in same neighborhood?

Post by grogu »

I’m coming at this from a slightly different perspective than most of the others: Are you and your friend certain that $5k-15k is enough to move the needle from “barely or not being able to afford it” to “comfortably affording it”? I am trying to wrap my head around how such a relatively small amount of money could make a substantial difference on a major purchase. I would think that could only be the case if the purchase price were about $100k or less. Conversely, on a $250k house, a $10k difference only results in about $40/month monthly payment; that’s more than a rounding error but not a whole lot more. If $40/month is going to make a difference in their budget, then I don’t think they can afford the house, even with your gift.

The posters who caution you about the personal-relationship factors raise valid points that you should consider, but I wouldn’t let that be dispositive if you and your friend were otherwise OK with all of the potential possibilities of what could happen.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Goal33 »

15k shouldn’t be able to move the needle housing wise.
dbr
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Re: Would you give money to close friends to live in same neighborhood?

Post by dbr »

Goal33 wrote: Sat Apr 03, 2021 9:44 am 15k shouldn’t be able to move the needle housing wise.
I agree. The idea that 15K is the operational issue means there is a lot more going on here than just these people needing a little financial help.
michaelingp
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Re: Would you give money to close friends to live in same neighborhood?

Post by michaelingp »

dbr wrote: Sat Apr 03, 2021 9:55 am
Goal33 wrote: Sat Apr 03, 2021 9:44 am 15k shouldn’t be able to move the needle housing wise.
I agree. The idea that 15K is the operational issue means there is a lot more going on here than just these people needing a little financial help.
Actually, the OP says 5 to 15K. This makes think there may be some sugar coating or unrealistic optimism going on. $5K would hardly help someone buy a new car, much less a house. Originally I was thinking that since most people don't like hand-outs, a loan would be a better way, but loans have their own pitfalls if the borrower cannot repay.

How about finding a "fixer-upper" that the friend could afford and offer to pay for a new kitchen or whatever makes sense? That would leave the friend to cover the mortgage and taxes. If a friend (or family member) offered me a new bathroom or something, I would say yes, and I think there would be much less chance of things going south.

My guess is the whole question is moot, because the friends will not accept that large a gift.
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Re: Would you give money to close friends to live in same neighborhood?

Post by TomatoTomahto »

nisiprius wrote: Sat Apr 03, 2021 9:32 am And then five years later I woke up at 3 a.m. and shook my wife and said "Honey! Honey! We forgot... they are still named as guardians of our children in our will!"
Whoa! That’s a real wake up moment and a good opportunity for a PSA to check your legal documents regularly.
I get the FI part but not the RE part of FIRE.
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Re: Would you give money to close friends to live in same neighborhood?

Post by Marseille07 »

So the friends sold their old home, living with the OP's family (not paying rent, presumably?) and unable to place a winning bid (even with the proceeds from old home) on a house in the same neighborhood.

I don't think they can afford it. Even if an extra 5k~15k wins a house, what if they struggle to make mortgage payments? Do you keep giving them money so they don't get foreclosed?

If you really want to give them money, you need to have an honest conversation about their finances and really determine if 5k~15k makes a difference.
Last edited by Marseille07 on Sat Apr 03, 2021 10:28 am, edited 1 time in total.
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Brianmcg321
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Re: Would you give money to close friends to live in same neighborhood?

Post by Brianmcg321 »

If you want someone to stop being a friend, give them money. It will change the relationship drastically.
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Re: Would you give money to close friends to live in same neighborhood?

Post by LadyGeek »

Discussions of dishonest behavior or bypassing the law is totally unacceptable. I removed a post suggesting tax evasion.

This thread has run its course and is locked (relationship issue). See: Acceptable Topics and Subforum Guidelines
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