I want my mom to gift her house to me, so I could leverage it?

Question

My mom and I have a fantastic relationship, currently I live at home and keep the house up. I’m 26 unemployed because of Covid and have $30k in the bank. Excellent credit history and minimal debt. I want to learn real estate and started studying to be an agent (Gain experience, connections, and income) win! Anyways I had an idea.. My mom to gift the house to me, this would benefit her because the house still has a mortgage so I would take on the debt. She would just pay me rent, the same amount she was paying. She’s close to retiring. And it would benefit me because I could borrow against the house in the future to secure a better interest rate on a loan, correct? FYI house is worth around $450k but $150k is still owed, this is the second refi she did I think. So smart or not? Thanks for the reply’s!

Henry Clark · Answer

a.  What is the "basis" she has in the house?

b.  How much of a gain (cash) does she have if valued at $450k less the loan?

c.  Google who pays the tax if gifted to you and how much?  Want you to do the work answering this.

d. Google what is the basis if you get the property after your mother passes away? Says she is close to retiring, so I would think she would live for another 30 years. Want you to do the work answering this.

e. If she is near retirement, find out why she took out a second refi (lower interest rate, or took money out?). Also she should not go into retirement with $150k debt, or cosigning for you on $150k debt, if you bought the house. Something is wrong. Help your mother figure out her problem. She probably needs to sell the house and downsize.

f.  Help your mother do a 1031 into a more suitable house. Good RE experience.

g.  Back to you.  With $30k and no job.  I wouldn't put the effort into getting a finance loan, until your employed again.  With the $30k, I would work on Trailers or Mobile Home investing.  Lower dollar figure and you will probably not need to take out a loan.

h.  If your mother downsizes, then you should house hack into a Multi Family.

i.  RE learning.  Just doing one Trailer rental will be an education, that you will be able to use on your future investments.

Kyle J. · Answer

@Ian Thompson Well, I guess I don’t really see the benefit to your mom. You want her to “gift” you a $450k asset that she only owes $150k on so she can then pay you rent?

Sounds like a good deal for you, but I’m struggling to see the benefit for your mom. It’s not like she can “gift” you the mortgage, so she’s still going to be liable for that. Doesn’t seem like a good way for her to enter into retirement. Perhaps there’s something I’m missing though.

Colleen F. · Answer

@Ian Thompson Unless you are an only child it isn't worth discussing.   And frankly while it is a great deal for you its not so great for your mom.  While she may want to live in the house forever the reality is that when she gets older she may need the equity to get adequate long term care. I think the best move is for her to contact someone for advise on how to handle her estate, there are things like gift tax to consider. You have 30k when you get back to work buy a place. If she wants to sell you her house that is her choice but giving it to you and then paying rent, how is she free of debt?

Alex Verdugo · Answer

What about doing a subject to loan?  You take over the mortgage, she doesn't pay rent, she can retire and still live in her house. You can pay the mortgage for your retired mother, get a heloc and look for another property to purchase with your $30k.

Or better yet, why not make your mother your partner? She has the collateral you would need for a loan, her house, and you can do all the work of finding the property to buy, manage, etc.  It might just be me but I don't think you mother would like to "gift" away $300k in equity just so she can continue to pay rent for a house she would still live in.  I know I wouldn't.

Ian Thompson · Answer

@Steve Vaughan

Nothing more needs to be said! Appreciate the advice. Definitely won’t go through with my idea.

Steve Morris · Answer

Well, if you have a great relationship, just do a Bargain & Sale Deed to get title (in OR) for no consideration.

However, you need to think a couple of things:

1) Qualifying to assume the loan if she's not making payments and you're the new title holder AND

2) Tax impact of a "gift" that size from your mother - Call a CPA.

Not getting why you just get something like a Transfer on Death (or equiv) and make the loan payments and be nice to her (to maintain the relationship).

Steve Vaughan · Answer

A gift above $15k per year without proper paperwork filed against her lifetime estate will result in her receiving a 55% tax bill.

I see.  $300,000-$15,000 = $285,000 x 55%.  Good idea?

I appreciate the $300,000 gift, mom.  BTW, the IRS is gonna be looking for a $150,000 ish check from you next April as a thank you gift. LOL

Christopher B. · Answer

Use your $30k and leave the $300k she has worked for out of the equation. She will need the asset later in life and it's not worth risking her home while you learn the ropes. This business has been my full-time career for 7yrs+ and even with that experience I would NEVER leverage the home of my parents or an elderly family member.

$30k is enough to get you in the game. Find someone to partner with, bring money and your time in exchange for some profit and the chance to learn. Get some deals under your belt by focusing on your education and not maximizing returns. Then you can get your own financing (private money, HML, banks, CC's). There is a lot of money looking for returns so if you have the skills you won't be held back by capital restrictions.

Theresa Harris · Answer

First question is do you have siblings or does she have a partner that might have problems with her gifting you the house?  From her perspective, what is she going to get out of it?  She's still paying you rent or she pays her own mortgage.  She has $300K in equity in the house right now, what would happen to that?  If she did downsize, she could take some of that money or buy a place with no mortgage.

Ian Thompson · Answer

@Kyle J.

Honesty it’s that simple, she wants to die in this house, doesn’t care about having it as an asset long as she can reside in the house, she wants the debt off her shoulders. I know it’s odd. I guess my question is... which would be better, her co-signing on a loan with me? Or the first plan I said? She’s good with both.

I want my mom to gift her house to me, so I could leverage it?

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