Purchasing My Grandmothers Home

Member since 2020 · 13 posts · 2 votes

Hello All! My grandfather recently passed and my (paternal) grandmother is looking to sell her home. My mother lives on a fixed income and is currently renting an apartment. My plan is to move my mother into my grandmothers home after purchasing it. I’ll let her rent it from me (At and extremely low rate that won’t cover the new mortgage, but again, it’s mom!).

I’m trying to go about the best way to purchase this home from Grandma without realtors. I’m in North Carolina. Because of the new “CARES ACT” I believe I’ll be able to pull from my 401K penalty free to buy the home outright.

I may also consider financing the money from a private lender.I want to know what I need to do in order to make this transfer smooth and seamless (if there is such a thing) without having to get realtors involved.

Thanks in advance everyone!!

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Joe SplitrockPro Member

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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

@Chris Bell be aware that renting below fair market value to a relative would disqualify the property as a rental property, which means you cannot claim expenses. This is to prevent people from buying a property for a relative to live in under market value, to generate a tax loss.

https://www.irs.gov/taxtopics/tc415

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Marian Smith
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
6y
@Jesus Garcia Good point. Grandma could probably use the money but with covid it is worth quite a bit more than usual to have a stress free family transaction. But maybe pay market value minus realtor commission, family discount and fixup and have grandma tote part of the total price. If you get a bank loan they will require an appraisal. You could finance 100% if Grandma loans you 30% down and bank finances 70%. grandma gets 3.5% vs .06% and a bit more money. You use 100% OP money and at today's rates, what a deal.
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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
6y
Originally posted by @Chris Bell:
Hello All! My grandfather recently passed and my (paternal) grandmother is looking to sell her home. My mother lives on a fixed income and is currently renting an apartment. My plan is to move my mother into my grandmothers home after purchasing it. I’ll let her rent it from me (At and extremely low rate that won’t cover the new mortgage, but again, it’s mom!).
I’m trying to go about the best way to purchase this home from Grandma without realtors. I’m in North Carolina. Because of the new “CARES ACT” I believe I’ll be able to pull from my 401K penalty free to buy the home outright.

I may also consider financing the money from a private lender.I want to know what I need to do in order to make this transfer smooth and seamless (if there is such a thing) without having to get realtors involved.

Thanks in advance everyone!!

You really NEVER need a Realtor(R) / agent / broker. (Remember: not all agents / brokers are Realtors(R).)
Whether your state requires it or not, an attorney is ALWAYS recommended. You ARE signing contracts and dealing with lots of potential issues. Best to have someone on your team who can help you cover all the bases.
Yes - the inheritance / estate issue is a genuine concern. However, that pertains to grandpa since grandma is still alive. You'll need to have your attorney review his estate and see if he left a will indicating how his share of the property should be handled.
My $0.02 ...
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Andrew S.
Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
6y
I recently did a similar in-family transaction (I was the seller) and after a lot of input from CPAs, attorneys (and this board actually), I ended up paying for an appraisal to get an unassailable/documented market value. Then, I had an attorney (ours is an “attorney” state, not a “title company” state) setup the closing (including title search/ insurance, etc = attorney fee about $400 total). In my case, I took back a note for part of the sale price and basically gifted the down payment (that gift was large enough so I have to file a gift tax return, but no gift tax is owed).

The entire transaction was straightforward and completely on the “up and up” from a tax and inheritance point of view. Yes, going full market value did bump my capital gains taxes up a bit (but now my daughter will benefit from a higher base if/when she decides to sell). Capital gains will be irrelevant for your grandma if she lived there for two of the last five years.
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K Smith
Reno, NV · Member since 2019 · 2 posts · 0 votes
6y
So, I'd like to dovetail on Chris's question, if that's not in too poor a taste. I have a similar situation except I'm moms POA, so in a sense I'm buyer and seller. Dad passed, moved mom to assisted living for her safety and comfort. I want to rent her house to offset the cost of her assisted living expenses, but the house needs lots of work. I have started repairs out of pocket, but without owning it makes repairs is difficult. Since I can't live there, (my job is far away), lenders are asking for 25 - 30% down which is ridiculous IMHO. Should I have a loan officer transfer the loan and title over to me like Percy mentioned above. Or, should I sign sales contract with mom pay off her existing loan & have her sign a deed transferring ownership to me as Marian suggests. I have great income, work history, and credit score, but no bank seems very interested. My goal is provide mom with a sustainable retirement living income. Selling to someone else would bring bottom dollar and only cover a couple years living expense, but renting would allow her to stay there indefinitely. She likes her assisted living place so I want her to stay, but paying the bill there has been a challenge to say the least. With my experience so far I'm thinking traditional banks and a mortgage wont really help me. Any thoughts, is this similar to Chris' situation?
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