Buying parents home for a win/win?

Question

So I been thinking about this idea that would help my parents financial situation a little bit and also help me gain access to money that would help me start investing into real estate. I currently live with my parents, they have about 3 loans on the house and different APRs and another loan that is taken from their 401k totaling about 270k. The house is worth about 800k. I was thinking of buying the house for 300k paying off all their loans and also my car loan with the extra. They said they would still pay the same amount and I would pay the mortgage as well. Then I could use the equity on the house to invest and do fix and flips or obtain more property. Would this work? would there be any negative effects on my end or my parents end taxes wise or anything at all? I would love some feedback and to talk about the possibilities  of this idea.

Jessie Saribay Jr · Answer

@Steven Ko so their interest rates are way higher for the loans that they having, and theyll be paying near the same amount but ill be putting aways some for saving for them. I have thought this out and i guess what i stated is kinda vague. Once i get the equity i will still take my time saving and learning for when im actually ready. Of course i wont make any decisions until i know im ready, have a good deal, and have the reserves for any failures to come about. I have a 18 camry that I only pay 360 a month for that pretty much my only debt, I would be paying 1k if it was also in the mortgage. If something were to happen to them even from a long time from now I would still be taking over the mortgage payments and i doubt itll be paid off by then.

@Carl Carlson Im not just doing this to gain equity its to start something that they cant and id be managaing their finances. I actually thought about this plan a lot and Im not planning to jump right into a property once i have the funds for it.

Carl C. · Answer

Yeah, this doesn't seem like a win win situation. it sounds more like you're helping to get your parents out of debt, then they are helping you by paying rent to you once you ave bought their house at a ridiculous discount. There will likely be tax consequences for you on the severely discounted price. Also, how can you be sure that your parents won't end up with additional financial problems once you have taken over their largest asset. It might be a win for you (sort of) but I fail to see how they win in this scenario.

Steven Ko · Answer

@Jaysen Medhurst I agree. I don’t really get how you’re helping your parents. You’ll pay the mortgage but they still have payments?

Then there’s also reality. How much experience do you have? What if something went wrong, do you have cash reserves to assist you during your next step?

What kind of car do you have? Is it financially the best idea to continue to drive the car?

With more experience, I would say go for it but most likely being a novice, as am I, I would stay away from that plan for now.  Seems like you need to get your finances and skill set in order first.  No point in rushing into this and RISKING  what I assume are your parents retirement.

Jessie Saribay Jr · Answer

@Jaysen Medhurst So they dont have the best credit and finances right now due to past financial problems that hurt them. The house is actually my primary residence that we all reside in my parents and I and my 3 sisters. Im 23 by the way. I would get their debt taken care of including my car loan and Theyll pay near the same amount they are and Ill aslo pay more chunking down the loan with them. I would also take some of the money theyre putting in and make a savings for them. The cost of living in Hawaii is ridiculous and I wouldnst say they have they highest paying job, neither do I.  But It was just an idea

Jaysen Medhurst · Answer

@Jessie Saribay Jr, yes you can theoretically do this, but it's not quite as clean cut as you may think, and I don't see how this is a win-win.

If you buy a $800k house for $300k, the IRS is going to see that additional $500k as a "gift" to you and you'll have to pay taxes on it. Since this is a "non-arms length" sale, it will get extra scrutiny.

How is this helping your parents? They're basically giving away 1/2 million dollars and for what? Based on your post, they don't seem to have their financial house in order. This would get them out of debt, sure, but at a huge unnecessary cost. What makes you think they wouldn't be back in debt in short order, but not have their biggest asset?

A better route for your parents would probably be to sell the house, pay off all their debts, downsize to a smaller residence, and prudently invest the balance in preparation for retirement.