Equity in Mother's home

5 Replies

Hello and thanks for any assistance.  Years ago I moved into my mother's house and began renting, as she moved out of state.  As roommate challenges and repairs began to stack, we worked out an agreement for a rent to own solution.  We have since paid off the mortgage.  The house is owned free and clear by my mother.  I did a remodel on it, bought another home, and now rent it out.  We have agreed that I am to pay her roughly $45k, in $500 monthly payments until paid off. 

My intentions are to pay her off immediately, and use my current "equity/ownership" in the home to reinvest.  I estimate the house to value at $120k or more, currently.  Ideas?  Legal/Tax hurdles?  

Thanks again!!

Many lenders will want the title to be seasoned for a while (used to be at least 6 months) before they would let you do a cash out refinance.

@Nicholas Reece You could have a big issue here. The problem with transacting with family is that the transactions are not arms length, meaning you have an incentive to support your family and cut them deals. 

You are paying her $45k for the home, yet it's worth $120k. That will surely raise some eyebrows at the IRS and you both may incur some serious tax issues. 

I guess I left some more of the details out.  I lived in the house under a rent to own agreement for almost 8 years.  Our agreement was based on me paying the mortgage off and then paying her a $40k thereafter.  The excess was added because of some assistance with taxes(not escrowed for the last few years) and part of the replacement of the roof.  I'm not really, only, paying her that amount for the house, but also have the years of payments made from me to the bank.   Also, something to be said, the value of the house has appreciated quite a bit in the recent Houston market, as opposed to the assumed value 7 years or so ago, before the roof, and complete remodel(paid for and work done by me). 

Thanks for the input guys.  As of this morning, I have a title company drawing up a warranty deed(spoke with title company).  After the 6 month period, I will be able to cash out(spoke with the credit union).  The issue with the taxes will have to be addressed at that point.  But with a warranty deed, how do I remove my mother at that point.  I'll do some more reading on the site, but feel free to leave any suggestions. 

@Nicholas Reece 

I would have a CPA! Make sure you understand the tax implications so you don't get in trouble. 

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