Buying Grandma's House

[Tiffany Miller]

Hi there! My grandmother owns a duplex that she wants to get rid of. She is willing to sell it to me for $60k. Both units need a lot of work (sound structure, but extremely outdated) and I'm currently awaiting a contractor's estimate to have them rehabbed. Comps in the area are $200-$250k, but I would like to rent the units out. Can I purchase this home from her without using a realtor or going through a traditional mortgage? I know she would add me to the deed if necessary. She just wants to make sure she gets her $60k.

Thanks for any help with this!  I own my own home, but am a newbie to RE investing :-)

[Frank Chin]

@Tiffany Miller

You don't need a realtor to do a real estate transaction in this case, but you should have an attorney, preferably someone knowledgeable about estate planning. 

Based on the facts as presented, the property will be sold to you at a greatly reduced price. If it's from an unrelated third party, it's handled as a regular sale. But between family members, intrafamily, there may be gift tax issues involved. The trick is to set it up so that it would involve the least taxes involved, or in the best case, none. She can do annual gifting, or if she does not have such a large estate, a one time gift that does not exceed the lifetime limit for tax free gifting. For you, you'll assume her basis so you'll pay the proper capital gains when you sell.

Then does she want the $60,000 right away? If she can do seller financing, in which case you'll give her a note, and pay her off, perhaps in a matter of a few years. On the other hand, they do issue mortgages for $60,000 particularly for  property so undervalued, produces rent etc. I can't give you exact advice here as I don't know your credit worthiness.

These are the issues if you do it the right way. Some folk do it under the radar and just quit claim.