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Buying a house for a rental, while daughter lives there

1,328 Views | 5 Replies | Last: 5 yr ago by SteveBott
water turkey
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I know we have to charge her market value, but what are the steps we need to follow?

Establish LLC before buying the house, etc?

Do I go see a CPA to get everything set up?
gig em 02
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Why do you think you have to charge her market value?

What do you want a CPA to do?
SteveBott
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AG
OP by the home as her primary residence and you the co-signer. That requires no crazy stuff you are talking about.

She will be on mortgage but gaining credit. Have a separate agreement with her spelling out terms, especially exit strategy
expresswrittenconsent
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What's the overnight guest policy?
Bitter Old Man
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AG
water turkey said:

I know we have to charge her market value, but what are the steps we need to follow?

Establish LLC before buying the house, etc?

Do I go see a CPA to get everything set up?
You could also buy it as a second home for you, unless your income doesnt support it.

As far as the LLC - If you are going to keep it as a rental once she moves out, then an LLC isnt a bad idea, but if its only while she's in it and you are the 100% owner, then there might not be a point. A CPA can opine on Tax strategies, but an attorney can talk to you about the legal ramifications and actually set up the entity. It will probably cost you around $1,000 to get it set up.

LLC's can mess up financing, but I'll let the mortgage experts opine on that.

Not sure where the "market value" comment is coming from. Is that a requirement from somewhere you saw? The mortgage underwriters aren't going to count that as income to qualify the purchase.

Only word of warning is to realize that your 19-year old daughter isn't going to make a very good property manager, i.e. dealing with problem tenants, collecting late rent, maintenance, etc. So you need to plan for that.
water turkey
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I've read that IRS requires you to charge market value, with up to a 10% discount, for family members to be able to keep the property qualifying as a business (rental) as opposed to a second home.

If it is a rental, can't we deduct much more than just a second home?
SteveBott
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AG
Much better mortgage terms on her as primary residence or second home then investment property.

Much. Call me if you want to sort this out on the mortgage side. My contact phone is in my profile
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