Buying property from family.
Louisville, KY · Member since 2014 · 60 posts · 3 votes
I have a close family member who has a home in Florida. My wife, kids and I use it as a vacation house a couple times a year. He may end up selling it in the next few years. I would like to hang onto the property and rent it out when we are not able to vacation there. So that could be mean renting it 8 to 10 months out of the year. Is there a good way or a creative way to make the transaction from my relative owning it to me? We wouldn’t have the money to buy it, but I was thinking about renting it out and giving him a percentage of the profit while we pay it off. I just want to keep his name safe in case anything bad happens. Essentially let him wipe his hands of it. He's very old school and doesn't want to rent it himself. :)
@David Zachery, assuming you live in Kentucky, a few things you have to consider as your question is pretty much made out of thin air, especially if you have no commitment from your family friend:
1. Is he willing to "sell" you the property in return of small payments from your profits?
2. What if there are no profits and somehow you are not making money from the rent? how are you paying your relative? who is paying for the on-going costs and taxes that come with it?
3. How do you plan to manage this property form Kentucky? You mention you want to rent it for 8-10 months out of the year and because it is a vacation house.From the sounds of it, this will be more of a short term rental? If that is the case, who is going to get the place ready for the next guest, similar to a hotel or Airbnb model?
4. How do you account for damages and maintenance for the property? When something significant breaks, are you going to your relative and ask for money to fix it?
This seems like a long shot to me. Either pay your family member or don't go into the "profit sharing" option at all. how about you purchase it and get a loan on the property, this way your relative gets paid and you can pay the bank on the loan. That seems like a clean cut solution to me. managing it is another thing you would have to deal with and that also seems like a long shot, especially with the short term rental options.
@Nik Corbaxhi - I’m specifically asking for a creative way to make the transaction happen. Maybe a 5yr transition period? I’m aware of the challenges of out of town ownership and we’d get a property mgr. Yes this person would sell to me. I would prefer 1-3 month rentals, not too short term.
@David Zachery If they own the property free and clear, the best way to do the transaction would be for them to provide seller financing. This is where the owner "becomes the bank" and writes you a mortgage. You would have a real estate lawyer write up a mortgage document to reflect the rate and term of the loan and the title would be transferred to your name. If you don't hold up your end then they would be able to take the property back.
If they still have a mortgage and you don't have the $$ to purchase or get a traditional loan then I would HIGHLY recommend that you sign a 1 yr lease with the family member which would guarantee them an amount every month regardless of the income generated and the balance is your profit. They would still have to hold the property insurance and pay the taxes (and possibly other costs depending on the location) since the property will still be in their name so those costs should be included in the lease amount. Doing business with family is something to be careful with and your highest priority should be to provide DEFINED EXPECTATIONS. The most important expectation is the $$ they receive. I know you may feel you are giving them more financial upside by offering to split the profit but that is because you are a business minded person. Most people don't think this way and only find comfort in a monthly number, even if it is lower.
If all goes well you should have a down payment saved up to purchase shortly. Good luck with the opportunity and I hope it works out!