House hack for grandma

[Charles Smith]

Hello,

First time posting on the BP forums. First off Thank you all for your insight and knowledge!

I've been doing research for the past few months. Im going to take the house hack route. I thought of an interesting proposition. My grandma lives in a dump and is retired. She wants to move but doesn't want the duties of owning a house and being a landlord. If she got an FHA occupancy loan, but I funded the down payment would this be a smart idea?

Find a low cost duplex around $200k, rent out one side and have my grandma and sister rent out the other side for cheap(sister and grandma live together). Say the mortgage is $1,100 dollars, I rent out one side for $900 and my grandmothers side for 500. Really rough estimates but I would Cash flow $300 barring any maintenance cost and vacancy’s.

Seems like a win win, because I would essentially own a property (grandma would pass it down to me), my grandma would get out of the dump she lives in and pay way less rent. On top of the I wouldn't have a FHA loan under my name and I could buy a duplex for myself and try and cash flow it.

My grandma has good credit. I have more then enough for a 5% down payment and unexpected expenses.

Like I said this is a really rough brainstorm, But I would appreciate any input. Thank you all !

[Joe Splitrock]

@Charles Smith this is a bad idea. First of all, who's investment is this? What I mean is who is claiming the income and expenses on their taxes? If grandma is the one taking out the mortgage, the IRS would say grandma. So that means the profit is not yours, it is grandmas money. Your down payment is then either a loan or a gift. If it is a gift, then it may be taxable. If it is a loan, it is subject to minimum interest charges or the government will call it a gift and tax her. You cannot claim the income on your taxes, because you do not own the property or the mortgage. You may be able to charge her for property management, so that could get you 8-10% of gross income, but only on the side that is not owner occupied. When grandma goes to claim expenses, she can only claim interest, depreciation and repair expenses for the half she is not living in. It is very possible grandma will have taxable income out of this.

As far as grandma passing it down, that is risky too. What if grandma had a stroke and went into a nursing home? She will be expected to pay for that expense, which can be as much as $7000 a month! My guess is she doesn't have that kind of money. In order for the government to pick up the expense, she needs to prove she has no income or assets to cover it. The duplex is an asset. You may just say, we will just sell it. That is fine, but medicaid has a 5 year look back period. So if she sells within 5 years of going into the nursing home, the federal government has rights to that money. 

I am not saying your plan will not work, but you need to visit with a CPA and estate attorney to structure this properly/legally.