Mother-In-Laws Condo: Gift or Purchase

[Sherwin Kim]

Hey All,

Happy Holidays and New Year!

I am reaching out because I have a multi-part question with some caveats.  I think the Bigger Pockets Community is the best to reach out and find the right answers. I like to write in outline format because I believe it is easier to respond to and clearly outlines everything I want to portray.

Background:

• My wife and I live in a condo in Los Angeles owned by my mother-in-law
  • • My mother-in-law is willing to gift us the property
  • • My mother-in-law wants around $100k and to go in together on a rental property near Palm Springs
  • • My mother-in-law still owes $170k on the condo we live in and has about $390k in equity on this place
  • • My wife does not want to leave the condo to start acquiring properties, because my mother-in-law will sell it

• I want to start investing in real estate
  • • I want to own the property we currently live in, to show lenders that I have an asset that makes me reliable to loan money to

• Title Agents/Lenders
  • • Want us to purchase the home from my mother-in-law
  • • Want us to purchase the home between $300-400k or do a cash-out refinance at around the same amount
  • • Have evaded a discussion around a gift

Questions to Bigger Pockets:

1. 1.  How does she gift the property, where my name and my wife's are on the title/deed to the condo?
2. 2.  I don't mind taking over the loan, but I would prefer to keep the loan amount relatively the same in the event any challenges 
3.      were to come up with my first investment as I am just starting this journey. Is that the right way to think about this?
4. 3.  Is there a better way to acquire this property other than a gift?

[Henry Clark]

If you take a gift you will need to pay gift tax

Forget the out of town investment.   Get this one digested before moving to your next deal.

 Talk with your banker about debt to income levels given your scenarios to see if you are okay. 

Buy subject to her loan staying in place. That way you have lower interest rate. This might mess her up on DTI on her next deal.

Still do your due diligence on the condo. 

Unless all three of you have your act together, recommend you get financing and purchase outright from her. 

Did she live in the condo in the last 5 years for 2 consecutive years?  If so then she won’t pay taxes on the sale.