OfflineHere's the deal:
Father in law just fell and broke his hip. Medicare won't pay because it's only a fracture, not a complete break. They are now frantic for monthly cash flow to pay for medical bills and long-term care for FIL in another city.
Their home has been for sale for over a year - it is out in a very rural area of CO, handyman built, odd layout, etc. but it does have two acres. FMV is about 180 and they owe 40k. My DH and I want to buy it so they can move on and get rid of their $1k monthly payment. They don't need to have the cash from the sale of the house anytime soon.
I've spoken to my CPA. If we buy it for $160 from in-laws, and we hold the house for three years, they can forgive up to $56k per year on the debt. So if we hold it we won't have capital gains when we sell it.
In-laws just need to get rid of $1k/month payment and don't need payout of home right away.
Questions we have are:
1. Can we get a loan for only $40k to payoff their loan and have in-laws "finance" the rest?
2. How far will a bank go out on a loan that small?
3. Can we do this with no cash out of pocket since there is equity in the house?
4. Are there other alternatives to finance this?
5. Is there something we aren't thinking about that we should be?
Thanks MUCH for any insights you may have!
Not quite understanding who can forgive the debt and why.
is the amount of the annual gift tax limitation that two people (parents) can gift to two individuals (14K x 2 x 2)
Always Looking to Acquire Houses | Always Looking to Amaze Investors
It's the IRS's rules and regulations for taxing on capital gains. It's just the way to avoid that portion of the transaction.
Yes, that is the calculation.
Since your in-laws are not in a rush to have the property, have them sign the deed over to you. Take a cashout home equity loan for 40K and then pay the in-laws an agreed monthly payment.
I do not know anything about the Tax stuff you mentioned.
Coast To Coast Property Investments
My experience is that banks will not finance anything less than $50k and I do not thing that they will go out 30 years. You are most likely looking at a 15 year amortization.
You cannot use the home equity as a down payment, you must put cash down. I know it seems crazy but that is just lender requirements.
I believe that Coast to Coast has given you some good advice. I believe that you should talk to either a title company or a real estate attorney to make sure that the order of events and the paperwork is completed correctly. You are looking at a Warranty Deed transfer for whatever is the amount you will eventual pay the owners. A home equity loan to pay-off their bank loan, a future promissory note/land contract to pay the remainder.
Why dont you just take over the mortgage, have them sign the deed over to you
and start paying the mortgage for them. You can sign a Purchase agreement
if you wish. You will free up the cash for them, maybe you can give them some cash up front as well and you can put a renter in there and start cashflowing the property.
Cathy B
Follow my progress at:
http://www.deangraziosi.com/real-estate-forums/investing-journals/44397/...
Thanks for your comments! We'll have to look into each of these options. thanks for helping us come up with a place to start.
We don't think the home will cash flow as a rental prop with a monthly mortgage payment of $1000. We want to help them out, but can't do it to our detriment.
That's why we are looking at financing it so we can get the payments lowered so it will cash flow.
thanks again!
Look for some private money...$40k @ 8% for 10 years is $485 PI. Super safe 25% LTV...should be a no brainer. Google "Utah private lender" for starters
I was just thinking. Why don't you create a land contract and have your in-laws keep paying the loan. Here is how it will work out:
Purchase Price: $160K
Finance Amount: $104,000 (with $56k gifted over 2 years)
Interest Rate: 5% (just a suggestion)
Amortization Term: 30 Years
Balloon Payment: 3 years
PAYMENT: $558.29
Your in-laws take your payment and apply it to their mortgage payment. After 3 years their loan should be paid off and you could sell the property and use the proceeds to pay off your in-laws.
Of course, I would recommend seeking the counsel of a real estate attorney to make sure that you can take advantage of any tax benefits and that the documents are drawn up correctly.