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futureinvestor619

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I have been living in one of my grandparent's rental properties for almost two years now and want to take it over as my own. Just wondering the best way I could go about this without having to go through the trouble of applying for my own loan.  Luckily, they said they won't sell it to me for anymore that's currently owed on the mortgage.  After obtaining the house my plan is to do gradually remodel it then sell or rent, then buy another property.  Any suggestions of getting the deed and for future plans in the property? 

taddyangle

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Go see a CPA.  This is too complex of a question to get from a free message board. 

 

 


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christy

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How about purchasing the home sub 2? This means that the deed gets transferred to you and recorded as you being the new owner but the original loan stays in their name. You would make the payments but ultimately they remain responsible for the loan should you stop paying. Investors purchase this way all the time. Why would someone sign over the deed but keep the loan in their name? Usually because they are desperate and have nothing to lose, but in your case love would do it. They only thing about this type of purchase is that the bank has the right to call the loan due if they learn of the deed transfer. Most investors don't care because they sell them quickly or if pushed just refinance. Just make sure that when you go through escrow that escrow does not alert the loan company of title transfer. There are lots of books and past posts about this method. Good luck!

RonaldStarr

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Future Investor 619--CA------------

 

That sounds very generous of your grandparents, if the loan is less than the market value of the property.

 

Christy suggest doing a "subject to deal."  That would be a good idea if the current loan has good terms.  If the current loan is not a very good one, you might just want to go ahead and apply for a new loan in your name.  It is not as though you are nailed on a cross because you have a loan.

 

There is an exception to a lender being able to call a loan due upon the transfer of ownership of a property.  If the property is transferred to a child of the current owner, the loan cannot be called due, I believe.  Thus, suppose your grandparents deeded the property over to your parent(s) and the parent(s) in turn deeded it over to you.  I'd recommend consulting an attorney about such an operation, were you do plan to do it.

 

There is another positive about doing it this way if the property is in CA.  The transfer of a property from parent to child, or vice versa, does not trigger a reassessment of the property value for the local ad valorem property taxes.  So, if it passes down through your parents, you would take over the current property tax assessed value, which is probably a lot lower than the market value of the property.  This would save you a tremendous amount of property taxes.  And it is all legal and moral besides. 

 

There are issues of taxes due upon transfer of a property also.  Using the two-step approach I mention above, the parents would have no tax liability because they would have no gain.  However, in any transfer from your grandparents to you there could well be a very hefty tax for them to pay to Uncle Sam and Cousin Schwarteneggar, assuming we are talking about CA residents.

 

Now, people can gift up to $11K or $12K a year to somebody and there is no income tax due.  So, it would be possible for your grandparents to deed to you a partial interest in the property worth a little less than that limit this year, then do the same each year hereafter.  If the property goes up in value however, it might take a long time to deed it all to you.  A better way would be for them to deed you the property and take back a mortgage or deed of trust from you, with the sales price being just less than $11K or $12K below the combined amount of the first loan and the loan that they carry back for you.  Then, each year they could gift you just under $11 or 12K by forgining that portion of the loan amount.  Also, they could probably reduce the owed amount by more than $11 or 12K because the actual cash value of the loan is probably below the face amount, being a junior loan that might have a weak interest rate.  This gets a little complicated, but a good loan broker of hard money loans should be able to calculate out numbers for them.

 

And, if you can, it would probably be better to continue to own the property, probably living in it, rather than selling it.  If you increase the value of the property, you should be able to borrow money using the property for collateral.  Borrowed money is not taxed.

 

There may be some other considerations involved here.  You and they probably should sit down with an estate planning attorney before doing anything.  Perhaps talking to a CPA knowledgeable about real estate transactions would also be a good idea. 

 

When people just do things without good advice, they can often screw themselves, especially in relation to income taxes and local property taxes.

 

Good Figuring It All Out*********Ron Starr***********

Jeff

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Quote:
Originally Posted by RonaldStarr

There may be some other considerations involved here... 

 

When people just do things without good advice, they can often screw themselves, especially in relation to income taxes and local property taxes.

 

One thing that might possibly impact this decision is that if they favorably "sell" this property to you, someone will likely have to pay the capital gains taxes...and if your grandparents have held this property for some time (I suspect they have) they will have to pay what some people call "deprecation re-capture" at 25% on a significant sum.  25% might be higher than their income tax bracket!

 

If this property were instead inherited, there would be a "free" stepped up basis, entirely eliminating the capital gains tax AND the deprecation re-capture tax! (I think)

 

There could be other tax concerns, including  the fact that a below market sale might be considered a "gift" and taxed as such.  On the other hand, if I understand correctly, there is a way around the 11k per year limit, as long at you do not pass the 1 million lifetime limit...

 

Good luck!


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