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Buying a property with a parent
Old 03-28-2015, 10:02 AM   #1
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Buying a property with a parent

I'm about to help out my DM with a the purchase of a coop (condo).

I'm looking for any suggestions or things to watch out for.

The details: she moved to Fort Lauderdale last summer and rented a condo for a year to "test drive" living in Florida and see if she could handle the summers. Seems like she can and really likes living there. She's been taking an annual winter trip down their for many years and has friends there.

She's found a nice coop that is about the same size as the condo she owned up north - 2br/2bath in decent shape with a nice view.

Financially she's fine. She has a teachers pension and some modest savings. She's never gotten into financial trouble and lives within her means.

The cost of the coop is roughly the same as her old condo up north. The old condo had a mortgage on it. If she could finance the coop, she could afford the mortgage.

The main issue for her is that coops are rarely financed down there. Banks won't do it (or rarely) although some sellers will finance the sale.

My idea is to not loan her the money, but rather go halves with her. I'd match the money she has from the sale of old condo to pay for the coop in full.

We'd set up an agreement where we own the place 50-50. We each contribute 50% of the full purchase price, then, when it's sold, we split the proceeds. She would be responsible for all other reasonable expenses - taxes, HOA fees, normal upkeep. The same as if she owned it outright. If there is any big changes need to the place (like updating a kitchen, not that this place needs that) that would affect the selling price, we'd both have to agree on it and chip in for it 50-50.

She will have the right to sell when she wants (say when she moves on to independent living or whatever).

After talking with a local attorney down there, the common form for this type of agreement is a trust. We put all the details into the trust agreement.

The money isn't a huge thing for me (though it's pretty big deal to her). Roughly $75K for each of us. I hope to make a some profit from it when we resell it, but fully understand we could lose money on the deal too.

My motivation is (1) make it easy for her to have a nice place to live down there - no deals falling through because of financing trouble (2) make her life a little better - basically she won't have to pay on a mortgage and so she'll have a little more spending money to enjoy life and can preserve her savings (3) the possibility of a modest profit over the lifetime of the deal.

DW is cool with it. As are my siblings. DM and I get along well.

I'm just asking here for any advice from folks who may have done something similar.
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Old 03-28-2015, 10:20 AM   #2
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It is a very nice gesture. It can still get complicated. Someone might move in with her, or she might develop cognitive issues, and these could get in the way of you trying to move her out or sell down the road. Putting the unit in a trust is not a bad idea, especially if the trust allows you (or a sibling) to act independently of her - under certain circumstances - if she becomes less cooperative.

A couple of tax issues you might want to look into, just in case. One, property tax might not be deductible. Another, a trust owner might not be eligible for Florida homestead protection, which limits the annual increase.

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Old 03-28-2015, 10:45 AM   #3
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I would worry about the same issues that Michael mentioned: cognitive decline (it happens to all of us eventually, if nothing else takes out sooner.) and/or her finding a nice companion and moving that person in... and they become a defacto tenant and are hard to move out when it comes time to sell.

These are real issues. A person moving in with your mom can be asked to sign an agreement at the time they move in - but you need to discuss this with your mom ahead of time. My dad moved in with my stepmom and my stepmom updated her trust to require a specific window of time be given my dad to move out, if she preceased him. I think the window was 1 year. That would allow him to find another place, and recover from grief. It also made it clear to her children that they would get the house - but not to kick out my dad. (My dad died first so it was a non-issue... but it was something that was formalized legally, just in case.)
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Old 03-28-2015, 01:45 PM   #4
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I would worry about the same issues that Michael mentioned: cognitive decline (it happens to all of us eventually, if nothing else takes out sooner.) and/or her finding a nice companion and moving that person in... and they become a defacto tenant and are hard to move out when it comes time to sell.
She's been on her own for 45+ [edit] years, so I doubt anyone moves in with her now, but you never know. Good idea to put something in the wording of the trust about anyone else living there.

As to the taxes, when I ran this by my CPA we was all about trying to avoid any capital gains when it's sold. But basically, there's no way around them. And I'm fine with that.

I will find out if she can deduct the property taxes when she pays them.
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Old 03-28-2015, 03:32 PM   #5
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I am on the board of a co-op. The only entities that loan on co-op shares are located in NYC metro. There are +s and -s of a co-op.

A co-op sells you shares giving you the right to sign a lease for a particular unit. That gives the co-op more control over the residents. Let me give you an example: in our state a condo owner must be a public nuisance to be removed, a co-op can cancel the lease of a shareholder who is not a cooperator and who violates the lease or Rules & Regulations. You cannot limit access to your unit only to emergencies.

Your rights are those defined in the lease. You do not own the unit.

Property taxes are distributed to shareholders paid by the corporation as their representative.

Co-ops tend to be a community socially although some residents don't socialize. Condo owners behave more like single family dwelling owners.

A revocable living trust can own the shares of the grantor. The Board will ask for financial information to demonstrate that the grantor has sufficient income to pay the 'rent', they may want to see sufficient assets in case of a modest special assessment. They usually interview the prospective tenant.

Just like buying a condo read Board minutes over an extended period, review their financials and reserve study. Read the lease and the by-laws.

One of our tenants, an elderly lady, has a 'male room mate' whose conduct has been problematic. She took up with him after her husband passed. Don't assume that couldn't happen to your mother. You may not be able to lean her shares, look at the corporate documents.
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Old 03-28-2015, 06:29 PM   #6
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Mpeirce, is there any chance you have the funds to fully purchase the unit?

How about you buy it as a rental property? (Is the unit in a location where it can be a rental?)

You rent to mom. Check with a CPA / tax attorney, but memory is you can rent to her below market rate, and still take the deductions.

Retired mom keeps her “cash” in case she needs it.

You get deductions.


Just tossing out a thought.
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Old 03-28-2015, 07:18 PM   #7
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Given Florida's unique (and pretty generous) homesteaders rules, I don't think that a 50/50 deal makes a lot of sense financially, either loan her the money, or buy the unit and rent it.

She probably won't have enough deduction to qualify for itemized deductions unless its set up as mortgage.

That said it seems like Coops are strange animal and I really don't understand them at all.
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Old 03-28-2015, 07:26 PM   #8
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The co-op lease likely prohibits sub-letting or using it as a rental. However, check the applicable Federal, State and local housing laws. Odds are they permit occupancy by a family member. Don't answer any questions about you and your Mother's financial agreement, you provide the financial info and go through the interview. You pay the rent for all the co-op knows. You claim the property tax deduction. Ask me no questions, tell no lies.

Of course consult with a local real estate attorney in advance.
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Old 03-29-2015, 10:00 AM   #9
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Do not forget liability issues.

1) Some very nasty legal / financial event hits you. They might be able to go after your equity in the condo and force a sale.

2) Some very nasty legal / financial event occurs in the condo. They might be able to come after you as a part owner.

Just loaning / giving her the money eliminates these possibilities.
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Old 03-29-2015, 01:25 PM   #10
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She's been on her own for 45+ [edit] years, so I doubt anyone moves in with her now, but you never know. Good idea to put something in the wording of the trust about anyone else living there.
I too thought it was unlikely but know better.

As she ages, she may become aware that it is difficult to live alone and she is a candidate for assisted living. If / when that happens and she doesn't want to move, she might encounter a family member that is not well off and needs help to get by. A sibling or cousin - we all seem to have candidates. You might not hear about it at all, just visit one day and find a new member of the household. The two together will have a perfect mutual dependency, and it will be very difficult to break.

If you can afford to do without your $$ share, that makes it easier. Umbrella liability for you would be highly recommended if you don't already carry some.
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Old 03-29-2015, 04:53 PM   #11
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Lots of good food for thought.

I appreciate it!
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