Best way for my son to buy my house & I rent from him.

6 Replies

My son wants to buy my house from me & I will rent from him. This way I can retire & move back home, as I had to relocate for work.He would owe about $44,000. What is the best way to go about the sale, an attorney to over see the whole thing?
The house has been listed with an agent so he would have worked for 2 yrs for nothing, but I really can't afford to pay several thousand either. Your views, please.

What is the value of the home, and what is the loan amount & interest rate if there is one? Do you want to be off the mortgage? Do you want to make a profit? Can your son qualify for conventional financing. There are a lot of variables. We will need more information to give you a informed opinion.

I bought it for $113,000 in 2005. It's worth about $85 now & owe
$64. He was looking to help me retire & as a help on his taxes.
There would be no trouble with the financing. He would have to put 30% down & that's no problem. I want this to be fair for both of us.

What are the issues that make this different from a normal buy/sell agreement? Is your son going to get a conventional loan to buy the house or is he getting a loan from you?

If you are going to accept less money than the house is worth, the IRS will look at this as a gift from you to your son. The gift tax rules would then apply. A similar situation arises if you give him a loan (or he does some sort of payment plan instead of paying 100%). In that case, you would need to make sure the loan meets the IRS guidelines for a family loan so you can avoid the gift tax issue.

As far as the lease goes, the same idea applies. If you are going to pay rent which is normal for the area, you have no issue - just do a normal lease. But, if you are going to pay less, your son could run afoul of the IRS regarding a gift (same applies if you pay more rent, but you would be the gifting person). I have not researched this situation though, so I do not know how this is exactly handled -- I just know that you need to pay market rent to avoid it.

I am not sure how your state handles taxes to know if there is an issue.

As far as the realtor goes - I guess it all comes down to your written listing agreement. What are those terms and how long does it last? I've never signed a listing agreement that lasts more than a year, so I would think there is no formal problem regarding avoiding the seller's commission. If you feel bad about it, you might offer up lunch or something.

How much longer is left on the loan?

In my opinion.... You should carry the note yourself. Sell it to him for the full appraised value, but then "gift" him a max of $12000 a year (to avoid gift tax) till it reaches the loan amount. Def. have a lawyer & CPA who are familiar w/ estate taxes write it up for you.
Then to rent it back.
Come to a agreement on how much you will pay, and how much he will pay. Then have him rent it to you @ market & then he can gift the balance to you every year. Its a bit convoluted, but tax planning tends to be.
Understand I am not a lawyer, nor have I ever done this. But it makes sense to me.

Carolyn - what exactly are you trying to accomplish by this transaction?
Did you realize that if you were to start missing your rent payments (for whatever reason), your son is going to be on the hook? Not only this may hurt his credit, but also put you and him in the uncomfortable position.
(I am not saying you will miss payments, but what if?)

Addressing only and exactly what you put in the O.P.:

You asked how to do the sale. If between you and your son, you can do it with just a r.e. attourney and save some significant fees. This is ONLY for a case like this where both parties feel 100% safe and certain of no issues. Although for his financing, if conventional, you will have to follow with the cavets of his financing co., like title insurance.

As for realtor:
It's business. You say he would have worked for 2yrs without pay. You can also see it in the light that in 2yrs he has not gotten the job done either. It is what it is, you gotta take care of you. Hey, if the realtor got it sold but 20K below what you need, do you think he would have cut his commision in half to give you more cash? It's a personal choice if you want to donate to the realtor.

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