I'm b-a-a-a-a-c-k. Daughter and I ran the idea of buying and renting to her vs. her just renting from some random landlord in her city by the "family council." Result -- the family is chipping in gift money to fund a cash purchase of a (very) modest row house. We have found an agent who has shown us a few things, feel we've found areas to target. This will be her home as young professional for the next 5-10 years, and she'll have a roommate. I will own the home and tenants will pay market rate so the family can benefit from expensing repairs, etc. These are rapidly gentrifying areas in Philadelphia -- any tips on beating out the flippers and rental unit investors on purchasing? Properties in our price range can be on the MLS only a week before disappearing. We want an inspection and an independent appraisal before writing our big check. I can see us continuously being outgunned by investors with bags o' cash who eyeball-inspect and buy on sight. We could pick up an existing property with a current tenant as her lease doesn't expire until summer 16, but when I look at the listings and see "long term tenant" and kids' toys in the photos . . . well, we don't want to be those people that kick out a family. I know if it's not us, it will be somebody else, but it's not going to be us, so we want to buy from a resident owner, family, or estate. That further limits our choices, of course. Any strategic thoughts appreciated. Thanks, y'all.
First I find the family cash offer very generous and a great option for you to find a good deal. You now no longer need "subject to financing" in your conditions which should help in closing a deal. Just be sure you have the entire family gift in your account before making the offer "not subject to financing". Once I even had trouble with my own money clearing in time for a closing date.
You must get an inspection. Walk away from a deal pressuring you with no inspection.
Real-estate is exciting and I hope you find a deal that works for you.
But I highlighted the area I find contradictory. I am going to ask some nasty questions now so you guys can work something out that is fair.
I have lots of questions. Some are rhetorical.
Will DD continue to pay market rent but to you?
How is this a good deal for her? (maybe she lives rent free)
Is she now obligated to stay 5-10y in this place?
Does the "family council" know how you want to structure this?
Will she put any sweat equity into this place? Painting etc. Yes DIY is fun and expected of owners but not of tenets.
If she feels ownership of the place she will probably be happy to DIY.
Do you want her to own/inherit the place one day?
If yes, you are probably better to get her on title now.
The place would then be her primary residence and this would help reduce future capital gains and estate taxes.
I can see things ending badly one day. You call it "her home", she pumps rent money & DIY into it for 10years, then she realizes on paper it isn't hers at all. What if some change in your life, marriage, divorce, death leaves her without this place?
If you do get her on title 40%, 50%, 100% whatever you want, be sure she has a co-habitation agreement with any "roommates", especially if they are boyfriends. Better yet, if you are a co-owner the BF "rent" check goes to you. If she is a co-owner you will need to split the rental income according to % ownership for taxes. But at least the BF sees the check going to you so he won't think he has a claim to the place later.
Speaking of BF etc. what is the exit strategy for her if she does get married and wants to move into her own house with DH?
How big is the family gift? I think there are tax implications to gifts like $14K max per year. I'm not sure, check.
Why do you not want a mortgage on the place? You may not want one at the time of closing but I would get one soon after. You can then deduct the interest as an expense. This is a big debate of pay off mortgage vs. invest that can be found on other posts. With the mortgage interest tax deduction it is almost always better to pay off a mortgage slower & investing the difference. But the "family council" may not like you taking their money and investing it. Maybe the "family council" should hold the mortgage. If lawyers draw this up the "family council" can make a bit of interests off of the mortgage and you can still deduct the interest as a business expense.
I am asking lots of questions because I was once part of a family deal. But no deal was ever made because, once the tough questions were asked, we had different views of what deal entailed.