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Tax and other questions regarding buying a condo
Old 08-12-2017, 01:13 PM   #1
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Tax and other questions regarding buying a condo

Hello everyone, hopefully someone much more knowledgable than us can answer a few questions. Trying to read up on this issue, but it's rather confusing. Here is the background:

Youngest daughter is renting an apt and has been tryng to save to buy a condo. She works FT, is very responsible, pays all of her bills, but just doesn't earn that much. She's having a hard time qualifying for a mortgage and feels she's throwing her money away renting. We thought we'd buy a condo and have her pay us the mortgage, giving her a generous interest rate (2%) for 15 years. She says she plans on paying it off sooner, but that is incidental at this point. The fees (HOA, electric, insurance) she will be responsible for and can afford it. We've always thought about owning a rental property and this would be perfect as we know the people living there. Until it's paid off it stays in our name. Also, a friend of hers will rent out the 2nd bedroom from us. If this friend leaves we'll have to get another renter. We all understand that.

Here's the questions: what are we missing in all of this? We've never had a problem with her and don't necessarily feel we need all of this in writing, but if it needs to be our attorney said she'll draw up papers. If my daughter for some reason decides to move we'll either rent it out or sell it. We've discussed what happens if the property increases in value at the time she sells one day. We've said if she owns it outright at that point than it's hers. She generously said she feels we should split it because of offering her such a low rate on the mortgage.

Not sure what we're missing, but I am sure it's something!

BTW, we do have other children and they are absolutely fine with us helping her out. We also told them all that our will would be changed so that if anything happened to us she'd own the condo and the older children would get equivalent cash so all is fair.

Ok, let me have it....
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Old 08-12-2017, 01:25 PM   #2
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Be careful that if you "loan" money to a family member, that you charge at least the IRS applicable federal rate.
https://www.nationalfamilymortgage.com/afr-rates/
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Old 08-12-2017, 01:49 PM   #3
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Originally Posted by Carol1862 View Post
Hello everyone, hopefully someone much more knowledgable than us can answer a few questions. Trying to read up on this issue, but it's rather confusing. Here is the background:



Youngest daughter is renting an apt and has been tryng to save to buy a condo. She works FT, is very responsible, pays all of her bills, but just doesn't earn that much. She's having a hard time qualifying for a mortgage and feels she's throwing her money away renting. We thought we'd buy a condo and have her pay us the mortgage, giving her a generous interest rate (2%) for 15 years. She says she plans on paying it off sooner, but that is incidental at this point. The fees (HOA, electric, insurance) she will be responsible for and can afford it. We've always thought about owning a rental property and this would be perfect as we know the people living there. Until it's paid off it stays in our name. Also, a friend of hers will rent out the 2nd bedroom from us. If this friend leaves we'll have to get another renter. We all understand that.



Here's the questions: what are we missing in all of this? We've never had a problem with her and don't necessarily feel we need all of this in writing, but if it needs to be our attorney said she'll draw up papers. If my daughter for some reason decides to move we'll either rent it out or sell it. We've discussed what happens if the property increases in value at the time she sells one day. We've said if she owns it outright at that point than it's hers. She generously said she feels we should split it because of offering her such a low rate on the mortgage.



Not sure what we're missing, but I am sure it's something!



BTW, we do have other children and they are absolutely fine with us helping her out. We also told them all that our will would be changed so that if anything happened to us she'd own the condo and the older children would get equivalent cash so all is fair.



Ok, let me have it....


Make sure the Master Deed / Rules and Regulations permit renting out the second bedroom. My condo association does not allow this. Also, if itís in your name, your daughter will not have voice or vote in association affairs, and there may be other restrictions as well. (In my development only owners may have pets, for example.)
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Old 08-12-2017, 02:02 PM   #4
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Sounds way too complicated to me. Admit it, what you are really doing is buying it and renting it to her, and another person.

She should get a mortgage when she can afford a mortgage. I think you are giving her a bad lesson, that she can have stuff she can't afford (unless you just want to give her a gift, but then just do it).

BTW, in terms of keeping things simple, if you give her a gift, give the other kids an equivalent mount in the same time frame. A gift of $X now is not the same as that amount sometime later. Not only inflation, but maybe the other kids would have opportunities with that money beyond the $ value.

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Old 08-12-2017, 02:20 PM   #5
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Sounds way too complicated to me. Admit it, what you are really doing is buying it and renting it to her, and another person.

She should get a mortgage when she can afford a mortgage. I think you are giving her a bad lesson, that she can have stuff she can't afford (unless you just want to give her a gift, but then just do it).

BTW, in terms of keeping things simple, if you give her a gift, give the other kids an equivalent mount in the same time frame. A gift of $X now is not the same as that amount sometime later. Not only inflation, but maybe the other kids would have opportunities with that money beyond the $ value.

-ERD50
Yes, we are buying it and renting it to her, but we are putting her rent money back into our account. When it hits the amount she'll owe to own it (which includes the interest), we will transfer ownership. I will have to "sell" it to her. I know there's got to be all sorts of tax laws on this, I'm just not educated on them. That's why I asked you pros!

I do understand where it might look like she's getting something she didn't work for and/or being handed something she hasn't earned. It's not the case. She's over 28, works hard, but not everyone has the capacity to be a high earner. We understand her limitations. We're trying to help her out.
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Old 08-12-2017, 02:21 PM   #6
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Make sure the Master Deed / Rules and Regulations permit renting out the second bedroom. My condo association does not allow this. Also, if itís in your name, your daughter will not have voice or vote in association affairs, and there may be other restrictions as well. (In my development only owners may have pets, for example.)

Thank you for pointing this out. Yes, this community can have renters.
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Old 08-12-2017, 02:38 PM   #7
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Why don't you just act as the bank and lend her the money so she can buy the property herself (in her name). That way, she can really experience the pros and cons of homeownership. If you trust her enough, you can finance most or all, so she has a low (or no) downpayment - although I would definitely insist on her having some skin in the deal. I see no advantage of you getting involved in this any more than that - let he be her own landlord if she chooses to do that.
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Old 08-12-2017, 02:41 PM   #8
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So, you're charging rent, since it's in your name. Which you have to declare as income. And if it's not market rate rent, you can't write off any expenses. I think you can probably get away with 10% under the going rate for other units.


I don't think charging full market rent and then gifting her back money is looked upon very well either, but I suppose that depends on whether you get audited.


Would it work to have her buy it, but you provide the mortgage, which as RE2 says, would have to be a legit rate? Rates are still low. Could she afford that, with a roommate?
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Old 08-12-2017, 02:51 PM   #9
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My opinion on the structure...

You own the property... you sell it to her with a contract for deed... IOW, you both sign a contract for the terms the you agree... she makes the payments etc. and when done you just transfer title per the contract...


If you want her to get the increased value of the property (or loss if it so happens) then you have that in the contract... IOW, she might not even live there 15 years...

You also have what happens if she fails to pay.. the contract is cancelled and you kick her out (not likely, but hey)....
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Old 08-12-2017, 03:00 PM   #10
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Sounds way too complicated to me.
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Old 08-12-2017, 03:05 PM   #11
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You know shes only 28..what's the rush. I find your plan confusing and complicated. Is the lack of a sizable down payment keeping her from getting the condo...You could gift her a down payment and let her own the condo. In

fact your DD might have chosen a career that doesn't pay enough to provide home ownership.
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Old 08-12-2017, 03:08 PM   #12
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Why don't you just act as the bank and lend her the money so she can buy the property herself (in her name).
There are many advantages to this approach vs. the original proposal, especially if there is going to be a second renter involved. Any attorney can draw up the appropriate contract.

Note that your loan to your daughter doesn't have to be a mortgage (i.e., use the condo as collateral). If you completely trust your daughter you can use an unsecured loan. You can forgive interest payments on the loan up to $14k per year without having to file a gift tax return if you're in a giving mood.
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Old 08-12-2017, 03:13 PM   #13
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How about she purchases the property directly, you act as the banker and provide the funds with the condo as collateral, officially registered mortgage.. She pays you principle and interest (at the required IRS rate). She gets to deduct interest on the mortgage on her tax return, you must declare the income from the mortgage.
At end of year you can "gift" her whatever you wish, subject to the gift tax limitations.

But what is the likely hood that she will stay at this job and in the area for 15 years? That is why I rented and didn't purchase a home until I was 33 years old and felt stable in job location.
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Old 08-12-2017, 07:04 PM   #14
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Thank you all for giving me so much to think about. Clearly we are novices as I admitted and that's why I approached this forum for advice.

First thing first, I will contact both my attorney and accountant. I was unaware of some of the legal ramifications that have been brought up.

We also agree she needs more money saved toward the down payment and for needed improvements and repairs in the future.

A lot to think about. Thank you
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Old 08-12-2017, 08:11 PM   #15
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Well a number of things concern me about this. a) DD does not have enough money for a down payment; b) the need for a room mate to cover the mortgage with a reduced rate; c) can you easily afford to cover the mortgage without the room mate? d) can you easily afford to cover the mortgage if DD loses her and loses the room mate? e) if your daughter looses her job and stops paying you rent, will you become resentful after a while; f) if your daughter looses her job/ stops paying rent will that cause a strain with you other children if they feel she is taking advantage?

I see not only financial risks, but the risk of future family discord here.

Your daughter is renting. She can move back home and you charge her "rent" which you in turn match and put into an account for her downpayment. Or she gets a cheaper apartment with a room mate and saves the difference for a down payment, you can start a separate account for her and match the amount that she saves. When the two accounts equal a down payment which lowers her monthly payments to an amount that she can pay by herself, THEN she can buy the condo. Or she gets a better paying job or a second job and puts the extra money towards savings, again you can do the match.

I am not trying to sound harsh, but to save you and the family heart ache. I would not rush into this, but take some time to think about this very seriously first.
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Old 08-12-2017, 08:18 PM   #16
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With some of the negative comments here... maybe OP can give a bit more info....

How expensive is the condo? What range is DD salary? What other debts does she have? Any chance of getting married? What are the condo fees?


There is a big difference in buying a condo for $100K vs $800K.... and when I was in NYC it was easy to get condo fees of $2000 per month....


This would make it clear if DD can truly afford the condo and just cannot get a mortgage OR that she really cannot afford the condo and you are just thinking a little help will be all that is needed... which might not be true....
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Old 08-12-2017, 08:34 PM   #17
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Thank you all for giving me so much to think about. Clearly we are novices as I admitted and that's why I approached this forum for advice.

First thing first, I will contact both my attorney and accountant. I was unaware of some of the legal ramifications that have been brought up.

We also agree she needs more money saved toward the down payment and for needed improvements and repairs in the future.

A lot to think about. Thank you
You don't seem clear about what you want..In your first post you say that your daughter says she will pay off the condo in less then 15 years..how will she do this when money is so tight? Be advised kids find it very difficult to tell parents how they feel about siblings getting special financial help. This could all lead to bad feelings down the road.

I'm also confused about you saying you always wanted to own a rental property, you're really a straw buyer for your DD and are only getting a 2% return on your money. If and when your DD owns that condo and she sells it the profit are hers and hers alone. Are you charging market rent or a special "family" rate?
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Old 08-12-2017, 08:38 PM   #18
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Do treat your daughter initially like a renter--wih written agreements, etc.
I bought a house for my daughter and 2 grandkids almost 3 years ago from an estate for relatively little money. She turned it into a hangout for criminals and we got a letter today from the district attorney today classifying my house as a public nuisance. Either she goes or the county will take the house. We got permanent custody for a 6 yr. old girl yesterday.
I had to go thru formal eviction proceedings to get my daughter to leave. I also had to file a writ of possession to get my car in my possession. My wife carried her downtown tonight, bought her a sub sandwich and saw her walk away with a backpack and 2 garbage bags. It's very disturbing to us that her behavior has deteriorated due to illegal drugs.
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Old 08-12-2017, 08:54 PM   #19
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Do treat your daughter initially like a renter--wih written agreements, etc.
I bought a house for my daughter and 2 grandkids almost 3 years ago from an estate for relatively little money. She turned it into a hangout for criminals and we got a letter today from the district attorney today classifying my house as a public nuisance. Either she goes or the county will take the house. We got permanent custody for a 6 yr. old girl yesterday.
I had to go thru formal eviction proceedings to get my daughter to leave. I also had to file a writ of possession to get my car in my possession. My wife carried her downtown tonight, bought her a sub sandwich and saw her walk away with a backpack and 2 garbage bags. It's very disturbing to us that her behavior has deteriorated due to illegal drugs.
I'm so sorry.
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Old 08-12-2017, 09:32 PM   #20
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Why not just buy it and put yourself as co-owners with her? If something happens to you or her, it goes in the others name.
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