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  • Buying house with relative

    Due to family circumstances makes sense to buy house with relative to live together.

    House will cost 1mil.

    Retired relative currently has $4.5k per month income pre tax from SS and pentions (will have this permanently), has 500k in vaguard 401k and 500k in roth vanguard, and has 200k remaining on mortgage of a house bought for 400k that is now worth 700-800k (likely to sell moving forward).

    Exact numbers not clear but guess is relative will contribute ~1/4 of new house cost.  Any reason it would make sense for relative to put more down upfront? Pay as rent? How to protect from tax ramifications?

    Thank you!

  • #2
    Wow, there are so many angles to this. So relative is single? Has s/he lived in the current house at least 5 years? if so, s/he will be able to sell and exclude $250k LTCG per spouse.

    Owning a house jointly can be problematic if every little detail is not spelled out in a written and signed (notarized) agreement in the beginning. If relative dies, for example, will you have to buy his/her heirs out? Is s/he getting a 1/4 interest in the property? Will s/he share in all upkeep?

    A simpler solution would be for the relative to loan you the money for the downpayment and then forgive part of the loan in exchange for the cost of living there. Again, you will need to have a good written agreement and I would stipulate that you are not receiving rental income but reimbursement of shared living expenses (tax ramifications).

    It would be a big mistake to DIY this - you really need to work with your CPA and/or attorney on the details.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      there are so many ways this could go south. think really hard about whether this is the best or only way to accomplish your goals. at the least, have an attorney draw up an ironclad agreement that covers all kinds of eventualities.

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      • #4
        I would never do that. Things will go wrong that will cause great animosity.

        Either you buy it and lease part of the house to him for an amount fair to both. Or he buys the house and you rent from him. Never jointly own the house.

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        • #5
          Johanna, thank you! I find your replies interesting and informative throughout this web page . . .

           

          Relative is single and I am only child.  Very interesting regarding the LTCG/loan option and then forgiving the loan as rent.  I will have to do more research into this!

           

          Thank you!

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          • #6




            Due to family circumstances makes sense to buy house with relative to live together.

            House will cost 1mil.

            Retired relative currently has $4.5k per month income pre tax from SS and pentions (will have this permanently), has 500k in vaguard 401k and 500k in roth vanguard, and has 200k remaining on mortgage of a house bought for 400k that is now worth 700-800k (likely to sell moving forward).

            Exact numbers not clear but guess is relative will contribute ~1/4 of new house cost.  Any reason it would make sense for relative to put more down upfront? Pay as rent? How to protect from tax ramifications?

            Thank you!
            Click to expand...


            I might have one relative own it (probably the older one to get the step up in basis) and have the other relative pay rent.

            Hard to give much advice without more info though. Other than to say that somebody with a net worth of $1.2M and an income of something around $100K probably shouldn't buy a $1M home.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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            • #7
              Just knowing what kind of relative this is would go a long way.   

               

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              • #8
                I would never own anything major with anyone who wasn't my spouse.

                Too much potential for disaster.

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                • #9




                  Due to family circumstances makes sense to buy house with relative to live together.

                   
                  Click to expand...


                  There's no circumstance where it makes sense to buy a house with a relative...unless that relative is your spouse. But then calling your spouse your relative is weird and brings up a whole bunch of non-financial issues/questions.

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