Creative ways to buy parents house

There are times when it makes more sense to keep a real estate property within the family. If you are planning to buy the house of your parents, consider yourself lucky to be reading this right now. There are several creative ways to buy parents house in Malaysia and these include the following.

Be Your Parents’ Landlord

In the event that your parents can no longer afford the home they are living in right now, becoming their landlord is one of the best ways to offer them the support they need.   

If your parents are going through some financial challenges, you can consider buying the house of your parents then renting it back to them.  

It is one option that will be able to bring you the exciting benefits of earning a rental income. This time, there is the assurance of knowing that that you have trustworthy and reliable long term tenants on site.

But, before you proceed with this, see to it that you make sure to get sound legal advice, particularly if you are planning rent the house to your parents at a rental price below the market.

You also have to declare your true intentions as you go along with the purchase process since there are lenders that don’t really entertain this form of arrangement. You also need to consider tax implications, mortgages, and investment property loans that usually have higher fees and interest rates compared to standard mortgages. All the additional costs must be factored in your purchase plans.

Gift of Equity of the House

There are parents who opt to gift of equity of the house to their kids while they are still alive. In this case, it is important to know and be familiar with the tax and financial implications in the country when gifting equity of the property.

When you speak of gift of equity, it is where parents gift part or all of their property’s equity to their children. Equity refers to the difference between what is owed on the property and the market value. The parents will have to sign over all or some of the value of the equity to their kids as down payment on the real estate property.

This kind of transaction involves several specific rules and there are mortgage lenders who are not really willing enough to accept the gift of equity as a deposit for the house. Once again, see to it that you research more about the lender properly and thoroughly ahead of time.

Life Estate

Life estate pertains to where a property has two joint legal owners. The property’s possession stays with the inhabitant until they pass away once when it will be transferred to the second owner. These joint owners are usually children and parents.

A life estate is one of the best ways to transfer the property’s ownership to the children from the parent while avoiding any probate at the time of the death of the parents. 

But, this may differ from one case to another and it is important to be familiar with the law in the country before coming up with a life estate agreement.  

Some risks are often associated with buying the home of your parents then renting this to them, for instance, if you pass away before your parents.

You will be able to eliminate this risk if you create a life estate agreement because it will keep your parents protected and ensure that they can stay in the property for the rest of their lives, no matter who will become the property’s next owner.

Purchase a Second Home

This next option is a bit different to the ones mentioned above. However, if you plan to buy a new house where your parents can live in, instead of buying the home of your parents, the best move you can take is to buy another home then let them live in that new property.

You might opt to go down this route since your parents are facing a financial challenge or you like your parents to live closer to your residence yet the prices of property prove to be beyond their budget.

This will create a good property investment for you when you buy a quality property at the existing price in the market because you know that a great tenant will be moving in and taking excellent care of your property.

As long as you have substantial assets and a good flow of income, it might be a wise move that can work well not only for you but also for your parents.

Standard Purchase of Mortgaged Home

You wish to buy the house of your parents so you can live together with them, for you to have a place to live in once they move out, or for them to reside in without you. 

The following steps lay out the traditional process for a straightforward and formal purchase where you will apply for a mortgage and agree on the standard market price for the house of your parents.

• Start by getting yourselves preapproved for the mortgage.
• Sit down with your parents to settle on a sale price that both parties mutually agree with.
• Get the help of all relevant professionals including financial adviser, real estate agent, and tax attorney.
• Make sure that you complete and sign the purchase contract or agreement.  
• Apply for the mortgage formally and deal with underwriting.
• Have the sale finalized.

As expected, if you will be buying the house of your parents at its full market value, any extra gift tax will not be incurred and the sale of the property will be treated in the same way just like any other. It will also be a win-win for you as you get to save costs on agents and fees. 

The Bottom Line

No matter which of these ways you choose to go with, you have to see to it that you follow and do due diligence. Even if you will buy from your close family, it will still be wise that you carry out things in a legal way. After all, a home purchase is still considered as a legal transaction.

You also have to make sure that everything is put into writing. It will protect you and your parents alike if ever problems occur in the long run.   

Doing the necessary research beforehand wisely and thoroughly is crucial as you consider all the choices above.

You also need to discuss things properly with your parents as well as your siblings if you have any or your extended family that might be affected by the purchase. Make sure to legally record everything that has been agreed on. 

[Image source: Old mother photo created by Lifestylememory]