Oddball house buying questions

[Juddog]

Since ATOT seems to have a fair amount of people in the housing industry, I thought I would pose this question.

Relative died (grandmother). House / property will be split 3 way amongst her three children (my mother, aunt and uncle)). They had expressed interest in keeping the property within the family versus selling to developers, as my great uncle lives next door and doesn't want to see the whole thing torn down and turned into a new development complex (which has been happening up and down the road in that neighborhood).

Grandmother had paid off house entirely and owned the property. I offered to potentially buy the house from the 3 siblings, if they can offer me a small discount to sell the house under market value so that I can use that as part of a mortgage loan / initial payment (called family equity or something along those lines).

Do you all think that's a fair offer? Basically the bank would own the house again and split the payment amongst the 3 siblings the way I understand it. I am afraid that the family will get greedy with it though and not offer a discount enough to count as the initial payment. From what I read about the loan, basically the house / property estimated market value minus the cost that it's bought for, if enough, can act as the down payment and closing fees for the house.

This way I would save the family some money so they wouldn't have to hire a real estate agent, but that money would instead go towards the down payment, etc..

I calculated out the mortgage payments to be approximately $100 more a month than what I'm paying now in rent, so it's definitely affordable. I don't expect the relatives to give up the house for free to me either; my family doesn't have a lot of money and I know they can use it. My only worries is that they will get greedy with it and want the full value, which would mean I would need the humongous down payment and wouldn't be able to afford it if that was the case.

--- update ---

6/17 Update - asked family about the possible gift of equity, they said no way - they want the full price. Oh well it was worth looking into at least. Even my mom wasn't willing to cut a portion of equity.

Family is annoying that way - they say they want to keep it in the family, talk about how nice it would be to be able to come back later and visit there, but don't offer any deals, tell me straight up that if I want to buy it I can make an offer to the real estate agent they hire who will take a cut of 6%.

We're talking about a little dinky house with $5,000 to $10,000 worth of work to make it livable that's only 1500 sq. feet, and the house itself only worth maybe $50k. Chances are whoever buys the property will bulldoze the house and build a new one. I'd be insane to purchase the house at that price with that much fixing up to do.

 

[Vette73]

Why have their names on it at all? If you want it buy them out.

But IMO it will not be worth it and someone will want way more then its worth among many other problems that will come up.

 

[Juddog]

Originally posted by: Marlin1975
Why have their names on it at all? If you want it buy them out.

But IMO it will not be worth it and someone will want way more then its worth among many other problems that will come up.

Do you mean it's not worth it due to the potential of a relative wanting to sell the home above market value? The mortgage I had mentioned would in effect be buying them out; I would exclusively own the property and the way I understand it is that the bank would pay them for the sale.

 

[Beattie]

Go to them with the offer. That's all you can do really. Just make sure that when you buy it, you own it. Then in the future, you can sell it or whatever you want to do without them and their feelings getting in the way. If that's going to happen it might be best not to get that house.

 

[Vette73]

Originally posted by: Juddog

Originally posted by: Marlin1975
Why have their names on it at all? If you want it buy them out.

But IMO it will not be worth it and someone will want way more then its worth among many other problems that will come up.

Do you mean it's not worth it due to the potential of a relative wanting to sell the home above market value? The mortgage I had mentioned would in effect be buying them out; I would exclusively own the property and the way I understand it is that the bank would pay them for the sale.

Sorry read it wrong. I thought you were going to have the mortage split and you pay their bill type thing.

You can try it, but i would low ball the value. Don;t offer what you can afford/its worth. I bet one of them will think you are trying to rip them off and they just know you have a deal with a devolper, worth more, another buyer lined up, etc...

 

[Juddog]

Originally posted by: Beattie
Go to them with the offer. That's all you can do really. Just make sure that when you buy it, you own it. Then in the future, you can sell it or whatever you want to do without them and their feelings getting in the way. If that's going to happen it might be best not to get that house.

Well the couple living next door that are relatives are both very old and not likely to last much longer. If they should pass then I would have no objection to selling the property to some developers in the area and making a profit. It's a small house but a huge property, something like 30 acres, in an area where developers have been gobbling up all the sales and turning them into suburban style developments.

 

[ViviTheMage]

that seems odd -- GMA paid it off 100%?

Now you will owe more to purchase it...man that just seems odd to me.

 

[Juddog]

Originally posted by: ViviTheMage
that seems odd -- GMA paid it off 100%?

Now you will owe more to purchase it...man that just seems odd to me.

Why would that be odd? My grandmother completely owned the house and property as they had bought the land about 70 years ago and literally built the house from scratch using their family at the time, but like I said the three siblings are not going to give it away for free - of that much I am 100 % certain.

They all can use the cash of what it is worth. I am not expecting the family to be nice and give it to me for free, my grandmother had accrued a bit of credit card debt, had no savings left, and her funeral alone cost $10k. The family will have to recoup that $20k somehow and they don't have a lot of cash to do it. My direct family (father and mother) has also never paid anything to help me along as far as schooling, car, etc. - anything I have done, I have had to work for in order to get.

 

[mugs]

Originally posted by: Juddog

Originally posted by: Beattie
Go to them with the offer. That's all you can do really. Just make sure that when you buy it, you own it. Then in the future, you can sell it or whatever you want to do without them and their feelings getting in the way. If that's going to happen it might be best not to get that house.

Well the couple living next door that are relatives are both very old and not likely to last much longer. If they should pass then I would have no objection to selling the property to some developers in the area and making a profit. It's a small house but a huge property, something like 30 acres, in an area where developers have been gobbling up all the sales and turning them into suburban style developments.

:laugh: The truth comes out. If this is your plan, I wouldn't use the "keep it in the family" angle to get a discount on the house. They'll probably be pretty pissed when you turn around and sell it when their uncle dies.

Originally posted by: ViviTheMage
that seems odd -- GMA paid it off 100%?

Now you will owe more to purchase it...man that just seems odd to me.

He didn't inherit the house, his relatives did. THEY will be getting what he's paying for the house.

 

[mshan]

I would consult with an estate attorney to make sure you don't inadvertently trigger a gift tax next year.

I believe upon inheritance, cost basis is converted to current fair market value. If your siblings sell to you at way way below market price, IRS might view that as a gift or loan you never plan to pay back and charge you a heavy penalty next year. Avoiding it might be as simple as filling out form 709 and just using up part of the lifetime exemption (i.e. don't have to actually pay any gift taxes).

Regarding your siblings, I would probably discuss with them what you think your potential profit might be down the road, and see if they are willing to give that up in return for money now.

Maybe you could create some sort of simple trust to hold title to the property between you and your siblings?

 

[Injury]

I can't really help you with your question, but it seems pretty stupid to me that your family would find it acceptable that you just toss money at a bank for something that's already paid for. If they really cared about keeping it in the family they'd just have you move in to it and be happy that the house isn't gone to someone who won't give a crap about it.

 

[Juddog]

Originally posted by: mugs

Originally posted by: Juddog

Originally posted by: Beattie
Go to them with the offer. That's all you can do really. Just make sure that when you buy it, you own it. Then in the future, you can sell it or whatever you want to do without them and their feelings getting in the way. If that's going to happen it might be best not to get that house.

Well the couple living next door that are relatives are both very old and not likely to last much longer. If they should pass then I would have no objection to selling the property to some developers in the area and making a profit. It's a small house but a huge property, something like 30 acres, in an area where developers have been gobbling up all the sales and turning them into suburban style developments.

:laugh: The truth comes out. If this is your plan, I wouldn't use the "keep it in the family" angle to get a discount on the house. They'll probably be pretty pissed when you turn around and sell it when their uncle dies.

Originally posted by: ViviTheMage
that seems odd -- GMA paid it off 100%?

Now you will owe more to purchase it...man that just seems odd to me.

He didn't inherit the house, his relatives did. THEY will be getting what he's paying for the house.

^^ Correct, my mother, aunt, and uncle inherited the house. I would be paying them. Yes my mom would want to charge me full price even though she already owns her own house, like I said, that's just the type of family I live in.

 

[mugs]

Originally posted by: mshan
I would consult with an estate attorney to make sure you don't inadvertently trigger a gift tax next year.

I believe upon inheritance, cost basis is converted to current fair market value. If your siblings sell to you at way way below market price, IRS might view that as a gift or loan you never plan to pay back and charge you a heavy penalty next year. Avoiding it might be as simple as filling out form 709 and just using up part of the lifetime exemption (i.e. don't have to actually pay any gift taxes).

Regarding your siblings, I would probably discuss with them what you think your potential profit might be down the road, and see if they are willing to give that up in return for money now.

Maybe you could create some sort of simple trust to hold title to the property between you and your siblings?

His relatives would pay the gift tax if applicable. And yeah, it doesn't sound like any of them are going to be hitting the $1 million lifetime exemption anytime soon. They may not even have to worry about it since there are three of them and each can give both the OP and his wife $12k without triggering the gift tax. I just realized I'm assuming the OP has a wife. I'm also assuming the OP is a guy. Or a lesbian I guess.

 

[Juddog]

Originally posted by: Injury
I can't really help you with your question, but it seems pretty stupid to me that your family would find it acceptable that you just toss money at a bank for something that's already paid for. If they really cared about keeping it in the family they'd just have you move in to it and be happy that the house isn't gone to someone who won't give a crap about it.

My family is just like that, nothing I can do about that. They want to keep it in the family but also want me to pay full price for it. I am hoping I can offer them a slightly under market value price in order to qualify for a loan agreement from the bank that would eliminate a huge $10k - $20k down payment and other buying fees.

 

[Juddog]

Originally posted by: mugs

Originally posted by: mshan
I would consult with an estate attorney to make sure you don't inadvertently trigger a gift tax next year.

I believe upon inheritance, cost basis is converted to current fair market value. If your siblings sell to you at way way below market price, IRS might view that as a gift or loan you never plan to pay back and charge you a heavy penalty next year. Avoiding it might be as simple as filling out form 709 and just using up part of the lifetime exemption (i.e. don't have to actually pay any gift taxes).

Regarding your siblings, I would probably discuss with them what you think your potential profit might be down the road, and see if they are willing to give that up in return for money now.

Maybe you could create some sort of simple trust to hold title to the property between you and your siblings?

His relatives would pay the gift tax if applicable. And yeah, it doesn't sound like any of them are going to be hitting the $1 million lifetime exemption anytime soon. They may not even have to worry about it since there are three of them and each can give both the OP and his wife $12k without triggering the gift tax. I just realized I'm assuming the OP has a wife. I'm also assuming the OP is a guy. Or a lesbian I guess.

Well that's right, not sure how you knew, but yes I am a guy and am getting married this summer in fact. The family whom I would be paying for the house (mother, aunt, and uncle) all would be attending my wedding in fact.

 

[Juddog]

Originally posted by: mshan
I would consult with an estate attorney to make sure you don't inadvertently trigger a gift tax next year.

I believe upon inheritance, cost basis is converted to current fair market value. If your siblings sell to you at way way below market price, IRS might view that as a gift or loan you never plan to pay back and charge you a heavy penalty next year. Avoiding it might be as simple as filling out form 709 and just using up part of the lifetime exemption (i.e. don't have to actually pay any gift taxes).

Regarding your siblings, I would probably discuss with them what you think your potential profit might be down the road, and see if they are willing to give that up in return for money now.

Maybe you could create some sort of simple trust to hold title to the property between you and your siblings?

Well my aunt, uncle and mother don't really count as siblings. They are the ones granted the property, not me.

 

[Juddog]

Originally posted by: mugs

Originally posted by: Juddog

Originally posted by: Beattie
Go to them with the offer. That's all you can do really. Just make sure that when you buy it, you own it. Then in the future, you can sell it or whatever you want to do without them and their feelings getting in the way. If that's going to happen it might be best not to get that house.

Well the couple living next door that are relatives are both very old and not likely to last much longer. If they should pass then I would have no objection to selling the property to some developers in the area and making a profit. It's a small house but a huge property, something like 30 acres, in an area where developers have been gobbling up all the sales and turning them into suburban style developments.

:laugh: The truth comes out. If this is your plan, I wouldn't use the "keep it in the family" angle to get a discount on the house. They'll probably be pretty pissed when you turn around and sell it when their uncle dies.

I am not trying to be sinister about it - I am getting married and saw this as an opportunity that I didn't want to pass up. I am tired of always renting in crappy apts. where I hear neighbors arguing with each other and having cops called, having cars in the parking lot get their windows smashed, and having someone held up literally 2 blocks from my apt..

I have a decent job, just don't have a huge lump of cash for a down payment. When I was on the phone with my mom and she mentioned that the consensus was amongst the family that they would like to keep it within the family if possible, a lightbulb went off and I realized this might be an opportunity for me to purchase my first home. I don't want to have to constantly worry about my soon to be wife getting mugged etc in the neighborhood we live in.

 

[BigJ]

Originally posted by: Juddog

Originally posted by: mugs

Originally posted by: Juddog

Originally posted by: Beattie
Go to them with the offer. That's all you can do really. Just make sure that when you buy it, you own it. Then in the future, you can sell it or whatever you want to do without them and their feelings getting in the way. If that's going to happen it might be best not to get that house.

Well the couple living next door that are relatives are both very old and not likely to last much longer. If they should pass then I would have no objection to selling the property to some developers in the area and making a profit. It's a small house but a huge property, something like 30 acres, in an area where developers have been gobbling up all the sales and turning them into suburban style developments.

:laugh: The truth comes out. If this is your plan, I wouldn't use the "keep it in the family" angle to get a discount on the house. They'll probably be pretty pissed when you turn around and sell it when their uncle dies.

I am not trying to be sinister about it - I am getting married and saw this as an opportunity that I didn't want to pass up. I am tired of always renting in crappy apts. where I hear neighbors arguing with each other and having cops called, having cars in the parking lot get their windows smashed, and having someone held up literally 2 blocks from my apt..

I have a decent job, just don't have a huge lump of cash for a down payment. When I was on the phone with my mom and she mentioned that the consensus was amongst the family that they would like to keep it within the family if possible, a lightbulb went off and I realized this might be an opportunity for me to purchase my first home. I don't want to have to constantly worry about my soon to be wife getting mugged etc in the neighborhood we live in.

Then don't come along and vilify your family for wanting to get full market value of the house when you're trying to make a quick buck off of them. You really think your relatives would be keen on selling you the house if they knew you'd be selling it once family members die?

 

[Juddog]

Originally posted by: BigJ

Originally posted by: Juddog

Originally posted by: mugs

Originally posted by: Juddog

Originally posted by: Beattie
Go to them with the offer. That's all you can do really. Just make sure that when you buy it, you own it. Then in the future, you can sell it or whatever you want to do without them and their feelings getting in the way. If that's going to happen it might be best not to get that house.

Well the couple living next door that are relatives are both very old and not likely to last much longer. If they should pass then I would have no objection to selling the property to some developers in the area and making a profit. It's a small house but a huge property, something like 30 acres, in an area where developers have been gobbling up all the sales and turning them into suburban style developments.

:laugh: The truth comes out. If this is your plan, I wouldn't use the "keep it in the family" angle to get a discount on the house. They'll probably be pretty pissed when you turn around and sell it when their uncle dies.

I am not trying to be sinister about it - I am getting married and saw this as an opportunity that I didn't want to pass up. I am tired of always renting in crappy apts. where I hear neighbors arguing with each other and having cops called, having cars in the parking lot get their windows smashed, and having someone held up literally 2 blocks from my apt..

I have a decent job, just don't have a huge lump of cash for a down payment. When I was on the phone with my mom and she mentioned that the consensus was amongst the family that they would like to keep it within the family if possible, a lightbulb went off and I realized this might be an opportunity for me to purchase my first home. I don't want to have to constantly worry about my soon to be wife getting mugged etc in the neighborhood we live in.

Then don't come along and vilify your family for wanting to get full market value of the house when you're trying to make a quick buck off of them. You really think your relatives would be keen on selling you the house if they knew you'd be selling it once family members die?

I am not trying to vilify anybody here - I don't know where you got that idea. I am not trying to get a quick buck off them, I am honestly interested in the house as my first potential ownership of property. I agree with my family on selling the house at market value. I was just stating that later on down the line in 5-10 years if I decided to move on to a different area of the country, the relatives next door would most likely no longer be there, and so any objection to selling the property would be negated.

 

[Juddog]

This is the "gift of equity" that I had read about. Apparently it's good for $12k per person, since the house will be owned 3 ways, would that mean I'd be eligible for $36k potentially?

Gift of Equity

Again I am not trying to make my family look bad; I wouldn't expect them to gift the house to me in a million years. That would be making an unrealistic demand on them, and I wouldn't consider that to be fair in the least.

 

[mugs]

Originally posted by: Juddog
This is the "gift of equity" that I had read about. Apparently it's good for $12k per person, since the house will be owned 3 ways, would that mean I'd be eligible for $36k potentially?

Gift of Equity

Again I am not trying to make my family look bad; I wouldn't expect them to gift the house to me in a million years. That would be making an unrealistic demand on them, and I wouldn't consider that to be fair in the least.

They could gift as much equity to you as they want. The $12k is just where the gift tax kicks in (or rather, above $12k it would count toward their $1 million lifetime exemption that they will probably never hit. Since you're getting married, they could each give you and your wife a $12k gift, for a total of $24k * 3 = a $72k discount from fair market value. That is, if they want to.

How much do you think this house is worth? 30 acres is a lot of land, and if they're developing in the area it's probably worth a decent amount of money. I'm surprised that you said the mortgage would only be $100/month more than your apartment, because it doesn't make much sense that you could get a house on 30 acres for $100/mo more than an apartment.

 

[mshan]

You should really take your siblings and all go together to a good estate planning attorney and a good real estate attorney to see what your options are.

Gift, Estate, and Capital Gains taxes all could get unnecessarily expensive if you don't structure the deal right.

If the house is liveable and won't be a money pit, why don't you also talk to them about moving in, and either covering their property taxes as "rent", or paying fair market rent and using the difference between their holding costs and rent paid to develop some sort of equity share in the property. Again, all should be discussed with appropriate attorneys so everyone understands exactly what will happen property is sold at hefty profit, and everything is in writing. http://www.craigvenezia.com/cobuying.htm

Anyone is allowed to give an annual tax free gift to someone else (I think current limit is $12000 per year from any given person) without having to file IRS Form 709 Gift Tax Form. If it's above that, you may want to fill it out so the IRS knows it's a gift, and not a loan you never intend to pay back (this is to avoid penalties from the IRS).

 

[Juddog]

Originally posted by: mugs

Originally posted by: Juddog
This is the "gift of equity" that I had read about. Apparently it's good for $12k per person, since the house will be owned 3 ways, would that mean I'd be eligible for $36k potentially?

Gift of Equity

Again I am not trying to make my family look bad; I wouldn't expect them to gift the house to me in a million years. That would be making an unrealistic demand on them, and I wouldn't consider that to be fair in the least.

They could gift as much equity to you as they want. The $12k is just where the gift tax kicks in (or rather, above $12k it would count toward their $1 million lifetime exemption that they will probably never hit. Since you're getting married, they could each give you and your wife a $12k gift, for a total of $24k * 3 = a $72k discount from fair market value. That is, if they want to.

How much do you think this house is worth? 30 acres is a lot of land, and if they're developing in the area it's probably worth a decent amount of money. I'm surprised that you said the mortgage would only be $100/month more than your apartment, because it doesn't make much sense that you could get a house on 30 acres for $100/mo more than an apartment.

Well the house itself is very small. One story house with 3 bedrooms, one bathroom, maybe 1500 sq. feet. The house itself would require thousands of dollars to fix up, bare minimum looking at $5000 in repairs.

The roof needs repair, the carpets have cat pee smell in them and need heavy cleaning / replacement, the kitchen floor tiles are jacked up and would need replacement. The cistern apparently is leaking and would require work as well. Basically the house hasn't been maintained much, if at all, over the past 10 years or so. It would definitely be a fixer upper big time. The house by itself wouldn't fetch more than $50k in this area and it's market.

Given the amount of land though, pre-appraisal leads me to believe it would be in the $125k to $175k range possibly as the high end.

 

[mshan]

post deleted.

 

[Vette73]

Originally posted by: mshan
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