Advice Wanted: Structuring Family-Owned Home for Wealth Building (MIL tenant)

[Joseph Julian]

Hey BP community,

Looking for some insight on a strategy my wife and I are putting in place to help her mom, preserve a family property, and build long-term wealth in the process.

Background:

My wife’s mother owns a home in North Carolina that she purchased years ago for about $90K. It’s now worth close to $300K, with ~$60K left on the mortgage. We’re stepping in to pay off the remaining balance and plan to structure it as a loan from us to her mom, with small monthly payments (around $500/mo) going back to us.

Here’s the plan:

• Pay off the mortgage entirely using our own funds.
• Transfer the deed into our NC-based LLC that we’ve formed for holding real estate.
• Formalize the loan agreement so her mom repays us over time while continuing to live in the home.
• Eventually convert the property into a traditional rental when her mom moves out or passes.
• Possibly tap into the equity via a HELOAN or cash-out refi to fund improvements or future acquisitions.

This home is meaningful to the family, but we also want to be smart about using it as a stepping stone for broader real estate investing. Our goals are asset protection, long-term appreciation, and eventually cash flow once it transitions to a true rental.

Questions for the Community:

1. Is it reasonable (and legal) to have her mom repay us for the mortgage payoff via a loan agreement while she remains in the house—even though we’ll own it via our LLC?
2. Would it be smarter to hold the property in a trust rather than the LLC for long-term family legacy and estate planning purposes?
3. Can we deduct expenses or improvements made on the property even though it’s not technically a rental yet?
4. Has anyone structured something similar with a family member paying below-market rent or repaying a loan while you prepare a home for future rental use?
5. Any pitfalls to watch out for with tax basis, depreciation, or gift/estate complications down the road?

We’re committed to doing this right. We want to help her mom stay in the home she loves, while also turning it into a generational asset under a smart structure.

Appreciate any insights or shared experiences!