Hello,
I am currently in a somewhat complicated situation and am seeking advice here.
The situation is as follows:
My wife and I are currently renting, but we want to move back to our hometown sometime this year or next.
There, as in many other parts of Germany, the real estate market is very tight. In other words, extremely high purchase and rental prices for properties that aren’t really worth that much.
Since we have been looking for a suitable property to buy for quite some time without finding anything appropriate or only finding grossly overpriced options, we have considered moving into the original family home where my father currently lives alone.
In order for us to move in there, it would be necessary for my father to find a 1-2 bedroom (or 1-2 room) apartment for himself. Our idea was that we would act as buyers for that apartment and then rent it to my father.
At the same time, we would move into the family home as tenants and pay rent to my father.
My father would grant us the first option to buy the house, and we could later decide whether to take over the house or not.
Of course, he could also sell the house to us directly at a reasonable price now, but the problem here is:
1. There are still outstanding debts on the house.
2. I have two brothers who also need to be considered. In other words, a gift in this sense is currently difficult without anyone feeling overlooked.
Therefore, the rental model has the advantage that over the next few years, during which our income situation is uncertain (family planning/moving/job changes), we would not face such a high financial burden. Buying an apartment for around 200,000-300,000 euros (approximately 220,000-330,000 USD) is much more manageable for us than purchasing a house for 500,000-700,000 euros (approximately 550,000-770,000 USD).
Additionally, if I understand correctly, when renting to a family member, it is possible to save on taxes (reduce deductible expenses?), although it must be noted that at least 50% of the local market rent must be charged.
Does this make sense?
Have I overlooked something significant?
Or is there perhaps a better solution we haven’t thought of yet?
Thank you very much for your help.
I am currently in a somewhat complicated situation and am seeking advice here.
The situation is as follows:
My wife and I are currently renting, but we want to move back to our hometown sometime this year or next.
There, as in many other parts of Germany, the real estate market is very tight. In other words, extremely high purchase and rental prices for properties that aren’t really worth that much.
Since we have been looking for a suitable property to buy for quite some time without finding anything appropriate or only finding grossly overpriced options, we have considered moving into the original family home where my father currently lives alone.
In order for us to move in there, it would be necessary for my father to find a 1-2 bedroom (or 1-2 room) apartment for himself. Our idea was that we would act as buyers for that apartment and then rent it to my father.
At the same time, we would move into the family home as tenants and pay rent to my father.
My father would grant us the first option to buy the house, and we could later decide whether to take over the house or not.
Of course, he could also sell the house to us directly at a reasonable price now, but the problem here is:
1. There are still outstanding debts on the house.
2. I have two brothers who also need to be considered. In other words, a gift in this sense is currently difficult without anyone feeling overlooked.
Therefore, the rental model has the advantage that over the next few years, during which our income situation is uncertain (family planning/moving/job changes), we would not face such a high financial burden. Buying an apartment for around 200,000-300,000 euros (approximately 220,000-330,000 USD) is much more manageable for us than purchasing a house for 500,000-700,000 euros (approximately 550,000-770,000 USD).
Additionally, if I understand correctly, when renting to a family member, it is possible to save on taxes (reduce deductible expenses?), although it must be noted that at least 50% of the local market rent must be charged.
Does this make sense?
Have I overlooked something significant?
Or is there perhaps a better solution we haven’t thought of yet?
Thank you very much for your help.
You could also get an appraiser to assess the property's value.
Assuming the house is worth 600,000, you buy it from your father for 400,000, and in that way, you have basically already received your inheritance share.
This reduces the purchase price for you, and the siblings are not disadvantaged.
The question then is whether your siblings receive their payout immediately, and if not, how that is legally arranged.
You wouldn’t want your father to live extravagantly and leave nothing for the siblings after his passing. 😉
You would need to look at your father’s total assets in that case.
But somehow, something like this should be possible.
Assuming the house is worth 600,000, you buy it from your father for 400,000, and in that way, you have basically already received your inheritance share.
This reduces the purchase price for you, and the siblings are not disadvantaged.
The question then is whether your siblings receive their payout immediately, and if not, how that is legally arranged.
You wouldn’t want your father to live extravagantly and leave nothing for the siblings after his passing. 😉
You would need to look at your father’s total assets in that case.
But somehow, something like this should be possible.
icandoit schrieb:
As siblings, I would feel pretty fooled.Why?
We have the house appraised by an expert, and we base everything on that valuation.
In my proposed model, after a certain period, we don’t simply exchange the apartment for the house; instead, we continue paying off the remaining value of the house. It’s basically as if a third party were buying the house.
Whether to discount the purchase price somewhat and at the same time guarantee/pay out the siblings would have to be considered and would be an option.
nordanney schrieb:
But then you also can’t rent it if the rents are that high. Unless the rent is set too low, then the tax office and siblings would feel cheated.
If the net rent is around €1,500 (+X?), which fits well for a house price in an adequate location, you could also take out a loan of about half a million, since the repayment amounts would be the same. We have roughly estimated rent at €1,000 plus additional costs.
Why would the tax office feel cheated?
Renting to relatives at lower prices is not unusual.
And a loan of €500,000, as mentioned, wouldn’t be enough to buy the entire house including renovations outright. We are more likely looking at around €600,000, which again leads to a very high repayment amount.
Then I have the problem again.
N
nordanney17 Mar 2021 15:26Patblue schrieb:
Why should the tax office feel fooled?
Renting to relatives at reduced rates is not unusual. Because if you only declare 50%, you have to explicitly prove that you will make a profit over the term. That is almost impossible or at least extremely difficult.
Patblue schrieb:
We roughly calculated rent of €1,000 plus additional costs. In reasonable locations, that only covers an apartment. So €1,000 is clearly a discounted rent. Your father is effectively gifting you, for example, €60,000 over 10 years. What compensation do the siblings receive?
Patblue schrieb:
And a loan of €500,000, as mentioned, would not be enough to buy the entire house including renovations outright. We’re looking more towards €600,000, which translates into a very high installment. Then I’m stuck again. I conclude that a) you have no equity capital and b) no liquidity. And yet you want to buy an apartment as an investment? For €300,000 in total costs, the bank will likely require €60,000 to €100,000 in equity from you. Are you aware of that?
Patblue schrieb:
Of course, you could consider negotiating a reduction in the purchase price while simultaneously assuring or paying out the siblings. That would be an option to think about. You should definitely clarify this beforehand and discuss it with your siblings. You don’t want disputes to arise years later because of it. Even if your siblings agree, their partners might disagree (even though they have no legal say), which could cause family tensions.
Normally, your siblings would inherit a part of the house. If you make a deal with your father, that could later be nullified. They would then receive nothing because the house would already belong to you when your father passes away. They might still get a share of the apartment, but that will likely be much smaller.
Of course, it’s also possible that your siblings already own their own homes and are financially well off, so it wouldn’t matter to them if you receive the house.
The most interesting and obvious scenario is the one you mentioned yourself:
You are looking for an alternative, but only you benefit; everyone else is just puppets.
Apart from the fact that you want to move into an "unrenovated house"? (or do you plan to invest money into it),
what happens if you want or have to move again because of a job? What will Dad do with the now-empty family home without rental income? And where will you then get your additional capital? Would he have to move again because of you?
What would you say if a sibling wanted to do something similar? Make a deal with Dad: Dad moves into a one-room apartment, and the sibling moves in with their family into the family home. Deals are made between the parties. They live in the house for over ten years, which lowers its value. Dad dies and leaves a house that he was still able to pay off with the sibling’s rental income. There is then an inheritance community with three siblings, one of whom still lives in the house. The house is effectively unsellable due to the rental situation, and you have been missing out on your inheritance since the start of those ten years.
Another scenario: what if you are renting your parents’ house and are kicked out by your wife? Separation?! She stays there with the children, and you pay the rent... your dad loses sleep over it... after all, the apartment he lives in is on the market for sale, but he can’t return to the family home because it is occupied by mother and children.
It’s not like everything can be bought, sold, and moved within a week for free. Especially not when there are other equal stakeholders involved. This always requires notarized documentation. Maybe wills need to be amended. These are all costs amounting to four-figure sums for each case.
Patblue schrieb:
The "real" house price is around 550,000–600,000 € plus renovation costs of another 50,000–100,000 €, which is hardly feasible for us at the moment or only at the very limit. But since our income is uncertain in the coming months/years (maybe a new job → salary? parental leave? etc.), we are looking for an alternative solution.
You are looking for an alternative, but only you benefit; everyone else is just puppets.
Apart from the fact that you want to move into an "unrenovated house"? (or do you plan to invest money into it),
what happens if you want or have to move again because of a job? What will Dad do with the now-empty family home without rental income? And where will you then get your additional capital? Would he have to move again because of you?
What would you say if a sibling wanted to do something similar? Make a deal with Dad: Dad moves into a one-room apartment, and the sibling moves in with their family into the family home. Deals are made between the parties. They live in the house for over ten years, which lowers its value. Dad dies and leaves a house that he was still able to pay off with the sibling’s rental income. There is then an inheritance community with three siblings, one of whom still lives in the house. The house is effectively unsellable due to the rental situation, and you have been missing out on your inheritance since the start of those ten years.
Another scenario: what if you are renting your parents’ house and are kicked out by your wife? Separation?! She stays there with the children, and you pay the rent... your dad loses sleep over it... after all, the apartment he lives in is on the market for sale, but he can’t return to the family home because it is occupied by mother and children.
Patblue schrieb:
In that case, Dad could buy the apartment from us, and in return, we take over the house.
It’s not like everything can be bought, sold, and moved within a week for free. Especially not when there are other equal stakeholders involved. This always requires notarized documentation. Maybe wills need to be amended. These are all costs amounting to four-figure sums for each case.
nordanney schrieb:
What you simply don’t think about is that legally it’s not so easy to make deals behind the backs of other family members when large sums of money are involved. If all three of you thought like that, you would end up selling Dad out 😳
What you also don’t consider: you definitely have to keep paying off that one apartment loan!