Q. I am helping my son and his wife purchase a condominium. Their resources are slim, so I am giving them the down payment for the home and I will apply for the mortgage for their home.
My lender tells me that since I won’t be occupying the property it becomes an investment property. This would be my first foray into real estate as an investment. Should I be consulting a real estate attorney about the tax implications and the way the entire arrangement should be structured?
A. In your situation, you would be wise to talk to your accountant or an attorney that practices both real estate and estate planning.
You should know that some lenders will allow you to buy a non-owner occupied home and give you the same loan terms as an owner occupied home. And, it’s to your advantage not to have the home classified as an investment property.
Most of the time, lenders give better rates and terms for owner-occupied homes. I urge you to check with your lender and other lenders in your area to determine the best rate and fees for your situation.
Let’s think about the ownership arrangement for this property. You clearly want to help your son and daughter-in-law, but what you’re proposing is to buy the property and then allow your son and daughter-in-law to live in it.
Have you considered a lease arrangement? Your son would pay you for the costs of ownership, including the mortgage payments, taxes and insurance. Eventually, when you son’s credit and savings improve, you can sell the home to him.
Other issues you should discuss with an attorney would be estate planning issues. Depending on your age and other family circumstances, you should determine what your priorities are with respect to owning the home.
For example, if your son decides to move, will you be stuck with a home without a tenant? Do you want to own the home jointly with your son and daughter in law? Do you want your home to pass on to your son in the event of your death? Do you think the home’s value will increase and you will want your son to benefit from the increase? What is the plan in case your son and daughter in law separate?
These are some of the questions you will need to think about and discuss with an estate planning attorney.
March 12, 2004