selling house to family?

Question

i want to give my son an opportunity to buy the duplex that he is renting. not rent with option, outright buying. i am told that it is not in my best interest to sell to a family member, but i don't know why, and no explanation is given for this. he will be offered the house just below fair market value, as he is a relative. why shouldn't i sell it to him?

i asked him to go to the bank and see if he qualifies for a mortgage.the house has to go thru the bank, and i am going to pay for the home buyer's warranty. he knows everything has been updated, he was there when everything was done.it is a great opportunity, its a duplex with rental income.

i was just told today that i cannot sell my house to a relative for under the fmv because of the irs.the house i live in in florida is going on the market tomorrow, and will sell for over fmv, what is the problem with selling to my son for under fmv? will i get into trouble?

Answer 1

The challenge in selling a property to a friend or family member is in keeping it strictly business. The problems that arise from such sales generally result from unclear expectations between the parties. If you care for this family member, put every single detail in writing and get agreement before selling. This way, if the roof falls in or the earth moves the house off the foundation, or ....., each of you will know who is responsible for what and any disagreements will be referred to the sale agreement. This will help you avoid bad blood in the future.

Answer 2

You have 12k in bills which are not going away because guess what, after your 135k is gone you will have another 12k or more in debt. And cashing out is very attractive and very tempting but if you can stick it out with the bills then I would recommend keeping the property. I know you don't want to be a landlord even though I would suggest to get a management company to take care of your rental while out of state because having a real estate investment property is the only investment that would outpace the stock market or any other investment. Even though you might not see it at this very moment but I can tell you that twenty or thirty years from now you would say; I am glad I kept that property. We all say; I am young now and I'll just get another property or another investment for my future but truth is we never do and this is why 95% of the population is never going to get out of working a JOB until they are seventy years old. I know your hands are itching to get that 135k in your hands but this is where you have to sit down and write two lists on a piece of paper. On one side I want you to write the pros and the other side the cons. And if you are honest with yourself you will come up with answers that only 5% of well to do investors come up with. Don't let this 12k bills be the excuse or reason you cashout. It has to be more substantial than that. If you need cash because you are strapped for cash you can get an equity line of credit from the equity in your house but only if absolutely necessary not for frivulous things. Actually this money would be good for another investment like another house if you were going to take it out. This how wealthy investors and shrewd business people think, this is why they are so succesful. I believe your family is right and I believe that they are watching out for your best interest. I know everybody here says to go ahead and sell it. I don't agree and if you have somebody that is wanting to buy your property so fast and so interested there has to be other reasons why besides just liking the house. Maybe your selling the house below market and it such a good deal they can't pass it up. My suggestion is you need to sit down and really think about this and like I said earlier be honest with yourself. As far as not having any savings, don't you think that atleast 75% of the population would trade with you not having any savings and having 135k equity in a house that could be your future retirement for you and your children and not see yourself working til 70. And ( RENT ) shouldn't even be in your vocabulary. I hope you make a wise decision,, it's a big one. Wish you the best. Good Luck

Answer 3

Probably the reason that others are advising you not to sell to a relative is the potential for disputes to arise in the future. If some problem becomes apparent after the sale, the buyer may accuse the seller of concealing the problem. This could lead to hard feelings within the family which are hard to overcome. My advice to you if you do sell your son the house is to buy him a home warranty as part of the purchase package. That way if problems crop up in the future, many, but not all, things will be covered by the warranty.

Answer 4

Because he is your son.

First off the odds are great that he will not pay you the full amount ever, if he pays anything.

Secondly he will feel that you owe him something just because he is your son, he will feel you should have given him the house for free so why pay for it.

There's an old saying that is true....don't mix business with family and unless you can afford to give him the house for free don't even get involved.

Make him mortgage it through a bank so you get all your money.

Answer 5

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Answer 6

Sell it to him. He knows the property since he is already renting it so nothing should come as a suprise. If you are really worried that it could cause hard feelings later then tell him that you are worried about it so that you two can talk about it. Then if things go bad and he is a little jerk about it then it doesn't matter anyway.

Answer 7

I don't see the problem with it. My first house was bought from my parents. If he gets a loan for it and you get your loan paid out then I don't see what's wrong with it. I imagine people might be thinking that you'd get better money for it selling it to someone else, but there's nothing wrong with helping him out. It saves you agent fees & he gets a good deal - makes both of you happy.

Answer 8

It seems to me that your doing the right thing.

It's not something I know much about, but if you were to leave it for an inheritance wouldn't it have very high Estate Taxes?

I know I've bought some business vehicles and some equipment from my parents---I'm certain they received expert advice (reputable lawyers/accountants) before deciding what to do in that regard.

Answer 9

For that very reason "offered below fair market value". This transaction is called "non-arms lenght" transaction.

Most contracts and/or transactions, are "ARMS LENGHT", transaction, which means both parties are dealing from equal bargaining positions, neither party is subject to the other's control or dominant influence. Neither party has a disproportionate amount of power to strong "arm" the other party into an unfair deal, which usually means between people with no relations to each other.

Since you are related to him, its now an "non-arms length". Its not illegal by any means but might have consequences in terms of real estate tax...that is, resulting to additional taxes.

In addition, he may have diffuculty obtaining financing as for most lending institution do not allow non arms lenght transaction or lets say, do not offer non arms lenght loans....but there are some that will. He might just have to look harder, unless of course he is not going to obtain financing, and buy it cash?

Answer 10

It' s like selling a used car to a friend or family member only bigger. Any problems he has he will blame you and want you to pay for the repairs.