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Buying a house from a family member - looking for advice

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  • Mar 24th, 2017 11:55 am
Jr. Member
Oct 23, 2006
187 posts
12 upvotes
Toronto

Buying a house from a family member - looking for advice

My parents have been in a very tight financial situation for many years, and with the recent price jump of their house, my dad has told me that he wants to sell his place when his mortgage comes up for renewal in 3 years.

My wife and I currently own a house in Mississauga (our neighbours just sold for $700k so I'll assume ours is worth about the same as our houses are the same size and we have similar upgrades) with a $140K mortgage on it, and it is currently amortized for 21 years. So my payments are small.

A house in my dads area just sold for about $500K and he currently has a $170K mortgage and owes various credit cards $40k.

My parents live 5 minutes from us right now, and I would really like to keep my parents as close to us as possible, and in a perfect world, I would buy their house and then rent it to them. This way my folks are able to eliminate all of their debt, and have some cash available.

I would want to make the sale as legit as possible, while eliminating as many unnecessary expenses as possible.

What are the things that I need to take into consideration?

I know that the house has to be sold for FMV to avoid capital gains issues, what amount is considered too low? If attempted to buy at $450K would it raise all sorts of red flags?

I'm sure I'll have more questions but I have to start somewhere.

Thanks,
Mike
6 replies
Member
Dec 16, 2013
405 posts
70 upvotes
Vaughan
Your parents home is primary res, cap gains doesn't apply to them.
Deal Addict
Sep 2, 2004
3138 posts
2300 upvotes
Yes, primary residence rules sound they like would apply here. No taxable capital gains for your parents. So I think in some ways it's actually better for you to buy at a higher price that is at least fair market value. That cost becomes your new cost base going forward, because you will taxed capital gains on this asset when you sell it in the future.

Here is the first link that I found with a google search
http://www.proccounting.com/resources/t ... f-property
Deal Guru
User avatar
Feb 2, 2014
11233 posts
3351 upvotes
Toronto
mike28j wrote: My parents have been in a very tight financial situation for many years, and with the recent price jump of their house, my dad has told me that he wants to sell his place when his mortgage comes up for renewal in 3 years.

My wife and I currently own a house in Mississauga (our neighbours just sold for $700k so I'll assume ours is worth about the same as our houses are the same size and we have similar upgrades) with a $140K mortgage on it, and it is currently amortized for 21 years. So my payments are small.

A house in my dads area just sold for about $500K and he currently has a $170K mortgage and owes various credit cards $40k.

My parents live 5 minutes from us right now, and I would really like to keep my parents as close to us as possible, and in a perfect world, I would buy their house and then rent it to them. This way my folks are able to eliminate all of their debt, and have some cash available.

I would want to make the sale as legit as possible, while eliminating as many unnecessary expenses as possible.

What are the things that I need to take into consideration?

I know that the house has to be sold for FMV to avoid capital gains issues, what amount is considered too low? If attempted to buy at $450K would it raise all sorts of red flags?

I'm sure I'll have more questions but I have to start somewhere.

Thanks,
Mike
Buy it at FMV. Parents won't pay capital gains since it's their principal home. It will also make the mortgage easier to obtain.

Btw, since you're buying it for your parents (not an investment property), you will get the best rates still (it will be deemed a 2nd home. not investment property). Best rates are 1.75% 5-year variable and 2.39% 5-year fixed...it's much higher for investment properties.
Kevin Somnauth, CFA
Principal Broker/Owner - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Jr. Member
Oct 23, 2006
187 posts
12 upvotes
Toronto
Thanks CdnRealEstateGuy I didn't realize that was a thing.
Newbie
Jun 1, 2016
6 posts
2 upvotes
CdnRealEstateGuy wrote: Buy it at FMV. Parents won't pay capital gains since it's their principal home. It will also make the mortgage easier to obtain.

Btw, since you're buying it for your parents (not an investment property), you will get the best rates still (it will be deemed a 2nd home. not investment property). Best rates are 1.75% 5-year variable and 2.39% 5-year fixed...it's much higher for investment properties.
Could you tell me which bank offers 1.75% variable rate?
Member
Dec 16, 2013
405 posts
70 upvotes
Vaughan
No big banks offer that, probably some small credit union.

whenever wrote: Could you tell me which bank offers 1.75% variable rate?

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