Mom passed away and trying to figure out what to do w/ her home

14 Replies

My mom passed away  tragically and unexpectedly in April 2017. She has a home in Riverside, CA worth approx 510k and  approx 330k is still owed on the mortgage. My 2 Brothers have been living there since she passed away, but one of my brothers will be moving out in the next 1.5 years and getting married. Once this happens, the remaining brother will be unable to stay in the property since expenses are too high. 

We have considered renting out the property (we could rent it out for about 2,400 per month and this would cover mortgage, hoa, property tax, insurance with about 300 left per month to put in reserves). Unfortunately, the house needs about 10-15k  worth of repairs  to get it to rental condition. We don'./t have this money (although we could find away to collectively come up with it)   and even if we did, we are concerned that this property would turn into a money pit for the next 27 years ( term left on the note). 

Another option that we have considered is selling the house and using the equity to put a large down payment  on a property so that my brother and his family could live there ,afford the mortgage, and eventually own the home in 30 yrs.  The problem with this option is that my brother would not qualify for a mortgage and would need a cosigner or I (or another sibling) would have to purchase the home in our name and then put the title in his name after the note is paid.   Im not very comfortable with this idea   because I already have a property in my name and will be getting married in the next year and a half and plan on purchasing other rental properties with my future husband. 

Is there a way to purchase a property in an LLC so it doesnt personally affect my credit? Or do you all have any creative solutions for us based on our needs?

Thanks in Advance...please know I am looking for advice not simply an invitation to speak with you privately

Updated over 2 years ago

Please know that my brothers and are are willing to forfeit our share of the profit so that my brother and his family have an affordable place to live.

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Hi @Jennifer Smith , Thank you so much for putting this out there. I know situations like this aren't easy to deal with, especially when there are 3 family members involved. 

I work for a local property management company and sell and purchase properties like this for my investors very often. At $300/month as a rental, that is decent cash flow in Riverside! I know it would take some money to get it back up to shape, but that isn't a bad option if you do want to go down that road to hold onto it. 

With regards to your brother getting married, I like the option of selling the property to help him purchase another one for his family. Have you had the chance to speak with a mortgage finance advisor? My finance team specializes in putting people in the right financial space in order to get the into a home. We have a lot of tools available to help put him on a path to financial opportunity and continue your goal as a family to create generational wealth. 

We should talk about this in greater depth because I think it would make sense to have this property put into a trust, have the trust sell it, then have the trust purchase the next home for your brother with the proceeds. Then that doesn't tie up your credit and name into the deal. 

My team can help provide you with a trust attorney, finance advise, and provide better insight on how to tackle this to make sure that it leads to a path of generational wealth for you and your family. The goal here should be, how can we help your brother get financially ready to purchase a home for his new family and still provide money for you and your other brother to go out and have a down payment for additional properties. 

There are a lot of ways to eat this elephant. I would love to discuss them further with you when you have some time. 

@Jennifer Smith

I'm not an expert, especially with the LLC question, but I wonder if these options would be viable:

1) Take out a HELOC for the repairs?

2) Would your brother consider a house-hack situation, where he lives on the property and rents bedrooms, instead of the whole house?

3) Would HOA allow the property to be a short-term rental? And again, your brother could live on the property as a manager.

Thank you all for your insight on this. I especially like the idea (@Tyler) of creating a trust. I will take all these ideas to my family and then at some point may contact Tyler for assistance with this in the future! 

This helps so much :) 

Sell it split the money and move on to whatever you want to do in life.  

Doing business with family typically never turns out good. 

Originally posted by @Jennifer Smith :

Thank you all for your insight on this. I especially like the idea (@Tyler) of creating a trust. I will take all these ideas to my family and then at some point may contact Tyler for assistance with this in the future! 

This helps so much :) 

Glad to have helped you out a little bit Jennifer! I'd be happy to help set you up with an estate planner to ensure that this goes smoothly for you. If anything, we can help you in a multitude of ways, so whatever you do decide, we can be there to offer expert advice! Cheers! 

Sorry for your loss.

Why not sell it, split the money even (or close to even) among you.  Why is your brother renting for a while a bad idea while he gets his credit up to buy his own house?  

I was thinking the same thing as @Account Closed , as my family is currently in a similar situation. 

Who is the PR? What does the will say?  The will directs what the PR does.  In our case, the will says to sell the house and distribute the funds to the heirs.  

When my grandma died, I had two uncles living in her house. There were three other siblings who had rights to the property. One of my uncles wanted to buy the house. three of the four siblings gave their share to him and he needed to buy out the fourth sibling. 

My point in telling you this is that each sibling has a right to the property (most likely). It is up to the individual what they want to to do with their share. If they want to give it to the sibling or cash out, it is a personal decision. 

Whatever you do, sell the property. Leasing this property with family will be a disaster. Selling is the only way to make is a clean transaction. If you gift to your brother, that is your choice. If you chose not to, it is also your choice and you are still a good person.

@Jennifer Smith

I replied on your other post but will add a few additional comments here about the trust:

You're in a tough situation. But there are several considerations and options you have available to you, all with their own positives and negatives. You would be wise to consult with a professional.

I'm not sure if you are aware of the parent-child exclusion from reassessment in California. Sounds like your mom didn't buy the property that long ago, but California allows children to receive property with their parent's assessed value of the property, with certain exceptions. If you do not qualify or apply for the exclusion, the property would be reassessed to its current fair market value. So, you may want to look into what your mom's assessed value is that she paid property taxes on and what the current fair market value is and see if there is a big difference. If you were to buy a new place, you would be paying property taxes at the fair market value of that property, which sometimes can account for a big discrepancy and jump in property taxes that you didn't foresee or account for. If your mom bought the property not too long ago, this may not be as big of an issue.

Was your mom's home in a trust or do you need to go through probate? If you have to go through probate, you likely will not have clean title to sell the house for a long time. If it was in a trust, this time frame is cut down drastically.

When you talk about putting the property into a trust, you'll want to consult with a CPA or attorney to understand the implications of doing so.  Trusts are subject to the highest income tax brackets at a pretty low dollar amount.  Depending on how much income you expect to earn each year, maybe this isn't too big of an issue, but be cognizant that you could be paying 35%+ (plus California up to another 13%) in taxes on the rental income if held in a trust.  This is all dependent on how the trust is structured and the terms of it.  Additionally, finding a lender willing to loan to a trust can be difficult sometimes, and it certainly is easier to obtain a loan personally.  Do not also forget about the transaction cost to setting up a trust to pay an attorney a few thousand dollars to do so, and possibly needing to file a separate income tax return for the trust, again, dependent on the type of trust.

Putting the property into an LLC is certainly an option, but you could run into creditor issues if one of the owners of the LLC (your brother) lives in the property. You would need to be very careful about how you run and operate the LLC if you want it to provide you liability protection. It is very difficult to obtain a loan directly in the name of an LLC that in all likelihood, the lender would require personal guarantees, meaning your personal credit is still tied up. An LLC with multiple partners would also require you to file a partnership tax return every year, and subjects you to a minimum tax of $800 a year in California.

You could always sell the property and take your earnings and go your separate ways. If you really want to assist your brother and fear he could not qualify for a loan himself, what you could potentially do is act as a mortgage lender yourself. You could lend him the money for a down payment, record a deed of trust against his property as a secured interest, document a promissory note, and have your brother pay monthly interest payments to you. This should help alleviate your credit score from being tied to a formal mortgage and allow your brother to remain on title alone. Of course, your cash is then outlaid and tied up in your brother's home and not available for use by you.

You also want to be cognizant of gift tax and income tax issues to some of the ways you have proposed the transactions. Giving money or property to another person and receiving nothing in return is a gift, and could require you to file a gift tax return and reduce your lifetime exemption.

Needless to say, there are several different options of how you could structure this, and these are only some of them, but each will have their own pros and cons. There are possibly hidden tax consequences to each option as well that you would be very wise to consult a CPA and an attorney about everything so that you do not unknowingly trigger some sort of major problem.

*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional assistance.

@Jennifer Smith I would sell bank your ! money and split it. Family partnerships are tough on rental properties. Who does the work? Who pays for big repairs? Are splits equal if you have unequal money or time in the deal?

Take your part and go buy your own investment!