What to do with Grandpas house?

7 Replies

Hello,

My grandpa has a home in which he still owes 130k and is worth about 200k as it stands and alot more with a little rehab. He has asked me to help him refinance the house to my name, as he is no longer able to due to terrible credit and a fixed income. He would also like to pull out 20k in cash to spend on traveling and visiting family. What do you think would be my best course of action? Should I refinance the house which I have been told would take a bit longer since I am not currently on the title or should I buy the home from him for 150k leaving him with his 20k he would like. Or are there any other ways to work this out? He and my mother (who is his caretaker) would continue living there, essentially being my tenants. I have just recently became really interested in real estate and would like to buy and rent out properties. No matter what happens with this situation. 

Assuming there’s been appreciation you definitely dont want to just add your name to the title s you’ll be taxed on any appreciation. (Appreciation that would be tax free to them as their primary.). So the refi is out. You can buy it, assuming you’re an only child and they want to give you you $50k. But again if you ever sell you’re going to be taxed not that money. 

As a random guy in the street I’d say you’re better off paying closer to market minus 10-20% (they’ll save the  6-10% in closing costs compared to selling to a stranger.) then they can pay you rent.

Hello Julio,

I would keep family and business separated, and go by the numbers.

You make money when you buy real estate at a discount price (lower price than a similar house in your area), so If your grandpa agrees to your offer buy it.

If the fixed income you grandpa has access to, allows him to pay fair rent, then he and your mother should stay as tenants.   If that fixed income is not enough to pay fair rent, they might be better off moving to a smaller, newer place.

Now, what I would suggest him to do, is NOT to go on vacation or visit anybody, but to become your private lender and lend you that money at 7% so you can go and perform a couple of BRRRRs.
Once your cashflow gets a little bigger, then you, mom and your grandpa should go on a vacation together.

Best of luck with your project

Originally posted by @Bill Brandt :

Assuming there’s been appreciation you definitely dont want to just add your name to the title s you’ll be taxed on any appreciation. (Appreciation that would be tax free to them as their primary.). So the refi is out. You can buy it, assuming you’re an only child and they want to give you you $50k. But again if you ever sell you’re going to be taxed not that money. 

As a random guy in the street I’d say you’re better off paying closer to market minus 10-20% (they’ll save the  6-10% in closing costs compared to selling to a stranger.) then they can pay you rent.

 To clarify he is thinking of this as a gift to me, as well as a way for him to get some extra cash to enjoy and something we can both benefit from. So from my understanding, you think it'd be best for me to treat this as a transaction from him to me and simplify paying 80 to 90 percent of the market value on the house? How would I go about this, go directly to a lender and dealing strictly through them?

Originally posted by @Juilo Ortiz :
Originally posted by @Bill Brandt:

Assuming there’s been appreciation you definitely dont want to just add your name to the title s you’ll be taxed on any appreciation. (Appreciation that would be tax free to them as their primary.). So the refi is out. You can buy it, assuming you’re an only child and they want to give you you $50k. But again if you ever sell you’re going to be taxed not that money. 

As a random guy in the street I’d say you’re better off paying closer to market minus 10-20% (they’ll save the  6-10% in closing costs compared to selling to a stranger.) then they can pay you rent.

 To clarify he is thinking of this as a gift to me, as well as a way for him to get some extra cash to enjoy and something we can both benefit from. So from my understanding, you think it'd be best for me to treat this as a transaction from him to me and simplify paying 80 to 90 percent of the market value on the house? How would I go about this, go directly to a lender and dealing strictly through them?

Yes. You can’t refi because you’re not on the title. You don’t want to be simply added as you’ll have a tax liability for a gain he could take tax free. You’ll have to get a purchase loan. 

You could get a bank loan for the $100k, if you can’t qualify for the purchase price have your dad borrow you the balance and pay him fair interest against his fair rent. 

This is all assuming he wants to stay there instead of just selling and moving on. Once it’s a rental you can start expensing repairs and depreciating improvements. 

Originally posted by @Bill Brandt :
Originally posted by @Juilo Ortiz:
Originally posted by @Bill Brandt:

Assuming there’s been appreciation you definitely dont want to just add your name to the title s you’ll be taxed on any appreciation. (Appreciation that would be tax free to them as their primary.). So the refi is out. You can buy it, assuming you’re an only child and they want to give you you $50k. But again if you ever sell you’re going to be taxed not that money. 

As a random guy in the street I’d say you’re better off paying closer to market minus 10-20% (they’ll save the  6-10% in closing costs compared to selling to a stranger.) then they can pay you rent.

 To clarify he is thinking of this as a gift to me, as well as a way for him to get some extra cash to enjoy and something we can both benefit from. So from my understanding, you think it'd be best for me to treat this as a transaction from him to me and simplify paying 80 to 90 percent of the market value on the house? How would I go about this, go directly to a lender and dealing strictly through them?

Yes. You can’t refi because you’re not on the title. You don’t want to be simply added as you’ll have a tax liability for a gain he could take tax free. You’ll have to get a purchase loan. 

You could get a bank loan for the $100k, if you can’t qualify for the purchase price have your dad borrow you the balance and pay him fair interest against his fair rent. 

This is all assuming he wants to stay there instead of just selling and moving on. Once it’s a rental you can start expensing repairs and depreciating improvements. 

 Okay that makes sense, thank you. And yes I do believe that I would qualify for a loan on my own and the plan was to have him stay as a tenant. Would you suggest me financing this as my primary residence as I wouldn't mind staying here for a bit if it meant a better deal and what would be some downside to this? This would be my first property, so I'm sorry for all the questions and thank you very much.

You’ll get a better interest rate at a lower cost, with less down (if you want) as long as you’re willing to live there for at least a year. When I was buying I bought a new primary and a new rental every year until I had enough. 

If you decide to live there 2 years, then you have 3 years from the date you move out to sell, also capital gains tax free like your father will. So if it’s gone up a lot by then, that’s another judgement call you have to make. 

Originally posted by @Bill Brandt :

You’ll get a better interest rate at a lower cost, with less down (if you want) as long as you’re willing to live there for at least a year. When I was buying I bought a new primary and a new rental every year until I had enough. 

If you decide to live there 2 years, then you have 3 years from the date you move out to sell, also capital gains tax free like your father will. So if it’s gone up a lot by then, that’s another judgement call you have to make. 

 Okay that sounds great, again thank you so much for all the help.