Skip to content
Creative Real Estate Financing

User Stats

7
Posts
2
Votes
Justin Sherman
  • New to Real Estate
  • Northern Virginia
2
Votes |
7
Posts

Advice on townhouse transfer from family member. (northern virginia)

Justin Sherman
  • New to Real Estate
  • Northern Virginia
Posted Dec 5 2023, 11:14

Hello, I'm looking for options/opinions/ideas on how to basically take over ownership of a retiring family members townhouse in northern virginia, for the purposes of renting it out long term.

You probably ask, "Why dont they just put it in a trust and name you the beneficiary?"
I don't want this to be a charity case , so I'm trying to figure out a way to "purchase" or "finance" the house without actually going through the traditional home buying process.  I.e. i want this person to get their equity out of the home (provided by me) without having the tax headache and drawn out process of a sale etc.. 

Folks local to the DMV area know how precious of a gift it is be able to have a lead on a nice townhouse , to not have to compete with other buyers and drive the house price up, so that is the advantage i have here, and i consider that a gift enough , without directly inheriting the house.

They arent hurting for the money, so im trying to think of creative or long term ideas, some things that come to mind:
1.) lump sum up front (maybe using irs gift limits?) and then split rent 50/50 until a limit is reached, once limit is reached i take over deed
2. ) somehow seller financing with a generous term

Please let me know if i am overthinking or getting too whacky with this, I'm just curious what others would do.

Some relevant details:
1/2 way through a 15 year mortgage
located in northern va
will be put in a trust regardless for asset protection
zillow estimate is 690,000


TLDR

want to take over family house to rent it out long term, but dont want it completely gifted to me, how can make sure owner gets paid over time?

User Stats

106
Posts
50
Votes
Brandon Wagner
  • Real Estate Agent
  • Northern Virginia
50
Votes |
106
Posts
Brandon Wagner
  • Real Estate Agent
  • Northern Virginia
Replied Dec 7 2023, 06:10

Sounds like a great opportunity!  You should definitely capitalize on it if your family is willing to work with you on this.  A few options I would recommend to you.  

1)  You can always have them sell it directly to you.  You don't have to put it on the market, and deal with the competition.  You can do this with a title company.  You may want to find an lawyer or an agent to help you with the paperwork.  The title company can probably provide this for you too.  (You can find an agent willing to do that for 1% of the sale price)

2) You can do the trust strategy too.  Although you may not want to, that is probably the most effective way for you to inherit the property and pay the least amount of taxes.  Just including it because it is an option.

3) You could discuss directly with the family member to find something that works for you and them in the creative finance space.  I wouldn't overthink this too much.  Just understand what monthly payment you need in the end, (with loan, taxes, insurance, utilities, etc) to still be able to make X amount of profit after you start renting it out.  Then set up the creative finance in a way that you can make money.

4) You could form an LLC or an LLP with the family member use that to define who is responsible for what, and how the cashflow/equity is split between you both.

5)  You could be the asset manager/property manager for your family member.  They own all of the house outright, you take a small fee of the rents for the work you do for them managing the property.  

Long story short there are lots of options. Just need to find what works for you and them

User Stats

7
Posts
2
Votes
Justin Sherman
  • New to Real Estate
  • Northern Virginia
2
Votes |
7
Posts
Justin Sherman
  • New to Real Estate
  • Northern Virginia
Replied Dec 7 2023, 12:37
Quote from @Brandon Wagner:

Sounds like a great opportunity!  You should definitely capitalize on it if your family is willing to work with you on this.  A few options I would recommend to you.  

1)  You can always have them sell it directly to you.  You don't have to put it on the market, and deal with the competition.  You can do this with a title company.  You may want to find an lawyer or an agent to help you with the paperwork.  The title company can probably provide this for you too.  (You can find an agent willing to do that for 1% of the sale price)

2) You can do the trust strategy too.  Although you may not want to, that is probably the most effective way for you to inherit the property and pay the least amount of taxes.  Just including it because it is an option.

3) You could discuss directly with the family member to find something that works for you and them in the creative finance space.  I wouldn't overthink this too much.  Just understand what monthly payment you need in the end, (with loan, taxes, insurance, utilities, etc) to still be able to make X amount of profit after you start renting it out.  Then set up the creative finance in a way that you can make money.

4) You could form an LLC or an LLP with the family member use that to define who is responsible for what, and how the cashflow/equity is split between you both.

5)  You could be the asset manager/property manager for your family member.  They own all of the house outright, you take a small fee of the rents for the work you do for them managing the property.  

Long story short there are lots of options. Just need to find what works for you and them


 Thanks so much for the response, you gave me a good sanity check.

It's not that I dont want the house to be in a trust (the current owner is putting it in a trust regardless, which i agree is very smart) i just want to make sure they feel "taken care of" financially instead of making a donation.  But I suppose if the house is going to a trust regardless, getting money to them probably is more of a personal finance/tax discussion rather than real estate discussion, so I appreciate your feedback there.

It will probably be a mix of trust ownership, me being asset/property manager, and sending them a check every month (and somehow a nice chunk up front).   I just wanted to make sure I wasnt missing anything special I wasn't aware of.     Thanks!

BiggerPockets logo
BiggerPockets
|
Sponsored
Find an investor-friendly agent in your market TODAY Get matched with our network of trusted, local, investor friendly agents in under 2 minutes

User Stats

1,379
Posts
713
Votes
Mohammed Rahman
  • Real Estate Broker
  • New York, NY
713
Votes |
1,379
Posts
Mohammed Rahman
  • Real Estate Broker
  • New York, NY
Replied Dec 7 2023, 13:14

hey @Justin Sherman - based on everything you've mentioned, a generous seller financing term may be worth it for you to look into. 

If they're on board, and you have some cash up front, you could set up a seller financing note where they finance the entire amount of the purchase - however this might trigger a due-on-sale clause with their mortgage. 

Alternatively - you could also do a combination and setup a wrap around mortgage (I have more details in my blog post on my website). 

Something else you may want to consider is a master lease. You pay them a lease amount that gives you equitable, but not legal, right to the home and then you lease it out to "sub-tenants." In this case you can have your lease payment to the owners go into a rent-to-own structure.

User Stats

456
Posts
290
Votes
Christian Ehlers
  • Real Estate Agent
  • NH & MA
290
Votes |
456
Posts
Christian Ehlers
  • Real Estate Agent
  • NH & MA
Replied Dec 12 2023, 08:50

Seller finance would be a clean and simpler way to set this up if you have money for a downpayment but cannot qualify for a traditional loan. If they are worried about the mortgage having the Due on Sale clause called you could set it up as a contract for deed instead so that the title doesn't transfer to you and the due on sale can't be called. 

Christian Ehlers Realtor Logo

User Stats

7
Posts
2
Votes
Justin Sherman
  • New to Real Estate
  • Northern Virginia
2
Votes |
7
Posts
Justin Sherman
  • New to Real Estate
  • Northern Virginia
Replied Jan 11 2024, 07:58
Quote from @Christian Ehlers:

Seller finance would be a clean and simpler way to set this up if you have money for a downpayment but cannot qualify for a traditional loan. If they are worried about the mortgage having the Due on Sale clause called you could set it up as a contract for deed instead so that the title doesn't transfer to you and the due on sale can't be called. 


 Thanks for the reply!  Just doing some quick googling on contract for deed, and it actually looks like it would fit my scenario perfectly.  When the payments are finished and the deed/title are in possession of the buyer, is there any Due on Sale at that point?  Also, is contract for deed a synonym for loan assumption, or is that still a separate/different process?

User Stats

456
Posts
290
Votes
Christian Ehlers
  • Real Estate Agent
  • NH & MA
290
Votes |
456
Posts
Christian Ehlers
  • Real Estate Agent
  • NH & MA
Replied Jan 15 2024, 09:33
Quote from @Justin Sherman:
Quote from @Christian Ehlers:

Seller finance would be a clean and simpler way to set this up if you have money for a downpayment but cannot qualify for a traditional loan. If they are worried about the mortgage having the Due on Sale clause called you could set it up as a contract for deed instead so that the title doesn't transfer to you and the due on sale can't be called. 


 Thanks for the reply!  Just doing some quick googling on contract for deed, and it actually looks like it would fit my scenario perfectly.  When the payments are finished and the deed/title are in possession of the buyer, is there any Due on Sale at that point?  Also, is contract for deed a synonym for loan assumption, or is that still a separate/different process?


 I'm assuming you mean when you pay off the remaining loan balance? In that case there is no longer a mortgage so there are no payments to have due on sale clause called on. 

A loan Assumption requires you to get pre-approved for the current in place loan as if you were a regular buyer, however not all loans are assumeable (primarily FHA and VA loans are). Contract for deed is essentially a work around to gain ownership and control of a property, keep the current financing in place but not allow the due on sale clause to be called because the Deed officially transfers to you at a future date (usually when the loan is paid off by selling, refinancing etc).

A good attorney will understand contract for deed in your state and be able to point you in the right direction. 

Christian Ehlers Realtor Logo