Buying a home from a parent?

[ScrimpAndSave]

So - my dad talked to my fiance and I about this possibility...

As many of you know, my fiance and I are getting married Sept. 2009. We are planning on living at home (paying low rent) until 2011 and buying a house then. We are assuming we will be able to afford around $275k-$300k (if we save the right way). My dad thinks he may be selling around the time that we move out...or maybe even before...although he is not in a rush.

He mentioned that there may be a way that we live in the house, pay him rent while he lives elsewhere...maintain the house and do any upgrades that we want...and freeze the value of the house when we take over (like in 2009 or 2010) and then when the house becomes an inheritance, we split the value of the home based on how much it was in 2009-2010...rather than the year that he actually passes away.

Morbid - I know...and he mentioned that too, but he wanted to discuss it.

I don't know how this would work since we are not truly BUYING the home in 2009-2010. I mean - if he left the house to us...and then we would owe my other siblings the rest of the value (there are 4 of us)...so, if the house was appraised for $300,000, then I would owe them each $75,000....right? I mean, instead of a mortgage...I guess I could take out a home equity loan instead?

Something to ponder. It's a beautiful 4 bedroom house...


...and the other thing is - it was built in 1965....and is well updated...in an awesome neighborhood...but we could afford a new house in a brand new development as well.

Hmm.

[noppenbd]

I don't think it's fair to your siblings to use the 2009-2010 value of the house. If you instead bought your own house, you would be entitled to 1/4 of the value of your dad's house upon your dad's passing (assuming those are his wishes). If the house goes up in value from say $300K to $400K then each sibling is getting $75K versus $100K. That is a big difference.

But if they are willing to do this for you then it seems like a good plan. Your dad doesn't have to sell in a bad market and can downsize considerably if he wishes, while you get the larger house.

I would definitely keep the house in your dad's name until he passes, because then you will get a step-up in basis to the current appraised value for tax purposes. If he gives it you before he dies you keep his basis (which is probably much lower). So you would potentially have a higher cap gains tax when you sell.

[MiikeB]

I don't think it's fair to your siblings to use the 2009-2010 value of the house. If you instead bought your own house, you would be entitled to 1/4 of the value of your dad's house upon your dad's passing (assuming those are his wishes). If the house goes up in value from say $300K to $400K then each sibling is getting $75K versus $100K. That is a big difference.

You are assuming though that instead of "selling" the house to scrimpandsave that he will keep it. If he sells the house in 2009 for the 300k value and just saved it or whatever then each sibling would only get the 300k.

What happens if you decide to sell the house now though? If it sold for 370k would you get to keep the 70k and he keeps the 300k?

It just seems like a lot of things could come up and make this situation very complicated. Why doesn't your dad just sell the house to you if you are interested in it and he wants to sell it?

[noppenbd]

You are assuming though that instead of "selling" the house to scrimpandsave that he will keep it. If he sells the house in 2009 for the 300k value and just saved it or whatever then each sibling would only get the 300k.

No, because that 300k could be invested and would be worth more at the time of dad's death (possibly much more, depending upon dad's life expectancy), assuming the investment makes more than inflation.

[LivingAlmostLarge]

I think it's a bad idea because you have siblings. I thought you were an only child, but since not, then no.

I agree it's a bad idea with noppen because if he doesn't die for 30 years and the house value doubles, your siblings might get upset that you bought it for $300k instead of $600k and got 50% of what they might have gotten if he had equitably left it.

And trust me if he mentions it to them and they bring up that point, what will he say? Um, yes they should get it at the lower price?

[Joan.of.the.Arch]

Personally, I would not want to be living in a four bedroom house with just two people. Four bedrooms plus living room? + dining room? + family room? + basement rec room? +???

I also would not want a house far from where I and or fiance would be working. Are you thinking that is a possibility?

Does it have an amount of yard you are willing to take care of? I recall at least one of the places you were looking at was a condo and I don't remember if it had yard at all.

If you grew up in this house, you are likely to feel sentimental about it. Your Dad, too, is likely to be sentimental and it may give him satisfaction to know that it remains in the family. But would it really suit your needs? And if your beloved gets his best job offer 150 miles away and you want to move to the other city, would your father feel crushed or betrayed if you put the house on the open market, letting it go to non-family?...Just some things to think about.

[DebbieL]

I think the whole thing is just a bad idea. If you are determined to do it though, I would just do it properly and buy the house (at fair market value) and be done with it. You are just asking for family rifts with the other plan.

PS - The last thing I would want to do is buy my parents' house. I think you need to get out on your own and have your own "space".

[moneybags]

If I was going to do it, I would buy it outright. There are too many what-if's if you do it the way you explained. What if your dad's financial picture changes? What if he ends up in a nursing home down the road & the state takes the house? It is just not secure enough for my liking.

[rennigade]

Its a sticky situation. Say you buy the house outright for 300k. Then in a couple years your dad dies. Now you get 1/4th of that money back, assuming your dad doesn't spend it all in that amount of time. This could cause problems with the siblings. They may argue it's not fair that you are getting a portion of the house money back. Just something to think about.

[ScrimpAndSave]

I thought that it sounded sticky too...and I just couldn't understand how it would work at all. I agree that if we want it, we should just buy it outright.

He was trying to say that he would move elsewhere (possibly ga where my sister lives) and we would pay his rent down there and maintain this house...

Too confusing.