Gift of Equity for Investment

[Julia Petrac]

Hi!

I am new to real estate investing but have worked in property management for 5 years. I am looking at purchasing my 1st rental property from my grandmother. I live and work in Columbus, OH and the property is in Cleveland, OH so I am unable to purchase this as an owner-occupied property. I am trying to use a gift-of-equity towards a portion of the down payment. I have called different lenders/brokers and seem to get different answers. Some have told me that as of January 1st, 2020, Fannie and Freddie no longer allow GOE to be used for an investment property.

Does anyone know of a mortgage option for using a gift of equity towards a down payment of an investment property?

Thank you!

Julia

[Greg Scott]

You and your grandma have a couple of great options with many shades of gray in between.

If you are buying your grandmother's house, and she is gifting you equity, there is a super easy way.  Have your grandmother become your mortgage holder.  There are huge benefits to her to basically selling you the property on installment payments.  (basically, she gets income while avoiding paying tax all at once.)  If she needs a big chunk of cash any time later, just do a rate & term refi into a conventional mortgage. 

Or, if you really want to maximize tax benefits, have your grandma will you the property upon her death and no capital gains ever gets paid.  If she wants you to cut your teeth managing property for her, she can sign a contract paying you to manage the property.  That gives you a revenue stream and she gets someone she trusts to manage her property.