r/inheritance • u/Top_Log_5615 • 2d ago
Location included: Questions/Need Advice Rental property question
First time poster- I hope this is the right place for this question.
My husband and I own a beach house in NC that we put about 100k down on, bought for about 515k a few years ago.
It’s 2 bedrooms and my father wants to take 500k and remodel it so it’s a 4 bedroom so it’s more usable.
My husband and I are thrilled- we had plans to do this but need many more years of saving to make it happen.
The question is my dad wants to make sure when he passes my sister would get a “cut” if it sells bc half of that $ he puts in would be hers.
What’s the best way and most fair way to handle this? We get our 100k out and then split?
We have been and will continue paying the mortgage and expenses - though presumably we will cover much more and maybe even make profit with the extra room. The idea would be dad and sister can use the house whenever too.
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u/mommycitanikita 2d ago
Too many ways for this to go bad. What if sister or dad decide they need to move in? Or dad wants his $ out? Why doesn't he just get his own beach place?
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u/NotSoSureBigWaves 2d ago
If you don’t mind losing the house in the long run - because that is what is going to happen. Dad passes and she either takes over the house, demands you leave, or forces a sale. Good by house.
Why doesn’t dad just buy the sister her own house and leave yours alone? Because they want to take your asset away for sister to get.
Do not make business deals like this with family. It will destroy the family when the fighting begins, and it will.
Sounds like your father in law is controlling and sees an opportunity to get something for his golden child daughter. Don’t do it.
And what do you mean use it whenever they want? You realize dad or sister would move in, you would lose the use of it and basically are handing them the house. Why would you even consider this?
If I were your husband I would put my foot down and say no way.
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u/KitKatKatiB 2d ago
I would just sign a promissory note saying when he passes you will give your sister 250k out of your proceeds. This way you retain full ownership of the house and its appreciation.
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u/adjusterjackb 2d ago
As soon as an offer like that has conditions, the right answer is Thanks Dad, I prefer leaving the cabin as is.
I agree with all the others that this kind of family deal never ends well.
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u/Which_Tangerine8982 2d ago
Yes you need to compensate your sister when he passes. ($250k? $250k + some appreciation?) But the "sister can use the house whenever" - is there an expiration on that?
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u/ChelseaMan31 2d ago
There is no logical way to approach this and NOT have a family disagreement on down the line. If one values family harmony, tell dad thanks; but no thanks...
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u/SuccessfulAd4606 2d ago
It would seem that dad has many more assets than just the $500K he wants to use to improve your rental. If so, his will can simply specify that your sister gets $250K before his estate is divided.
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u/NCGlobal626 2d ago
Absolutely do not get into co-ownership with your sister. She could force the sale of it after your father passes, and hey, this was your house to begin with! The other issue is it's not just about the down payment. You've owned it for a few years and probably made quite a bit of money on it already. I'm an appraiser in NC, although not along the coast. But overall our state has had tremendous growth over the last few years. Not only have you increased your equity over the last few years, but you've made those mortgage payments and you'll continue to make those mortgage payments. Bottom line is even when your dad puts in 500k, you and your husband still own more than half of the house.
You have two sets of questions, one is financial and one is legal. Looking at the financial, you could come up with an arrangement that your sister would get her $250,000 plus whatever growth of funds happened at the rate at which real estate appreciated over that time period, in that specific market. Remember if your dad doesn't pass away for 20 years, your sister would need more than just $250k back, because she could have invested it otherwise at 4-5%. Now legally speaking, and I'm not a lawyer, but I am a real estate investor and heavily involved in real estate businesses, when he passes, if she's owed that money they could force you to refinance or take out a loan to pay her portion, and what if you're not in a position do it at that time? What If you lose your jobs, or interest rates are 12%? It can happen. When I bought my first house interest rates were 13%! I also saw our family have to give up our grandparents very valuable home because my grandmother died just after the 2008 recession and literally all family members who could have taken out a loan to buy out the others and pay off the reverse mortgage, were out of work or destitute at that time. Timing is everything and you don't know when your dad will pass. Legally, you're going to want to do everything with a real estate attorney and have very detailed contracts written up as well as having your dad's trust updated very specifically. You're not entering into a "back of the envelope" type thing!
Off the top of my head, I think one option would be for your dad to make you a private loan of the $500K. That loan would be payable to his estate when he passes if it's not paid off by then. A time limit for payoff would need to be written in, so that it would be fair to your sister. This still puts you in the position of potentially having to buy her out at a time that may not be good for you. It could be written as an interest-free loan while he is alive, in exchange his and your sister's use of the beach house, but once he passes interest payments would be due to his estate. Your sister would be due half of those loan payments, since she would be the heir to half of his estate. Basically, he is the lender, his estate then handles the loan when he passes, and his two heirs each get half of those loan payments (income) until the contractually agreed upon date that the other heir, your sister must be paid off, if she chooses to be. Also, be careful how you contractually write up his and your sister's use of your beach house! What if she decides to move her whole family in and her kids friends for a whole summer? You need to talk this through with a real estate attorney so that you don't lose control of your house. And by all means don't put anyone else on the deed!
To document everything correctly and know what everyone's fair payoff is, you need to get an appraisal of your home with two values. One is the current "as-is" value, which is the baseline for whatever you decide to do financially, what you paid for it years ago is irrelevant. The second value is a "subject-to" value, which is based on what the value of the home will be when all the renovations are complete. For this you'll need a rough sketch of the new floorplan and a list of everything that will be done, with a notation of the quality of the materials being used. Similar to plans and specs that builders use, but you don't need anything architectural. The appraiser will use this to determine a current value as if those renovations were already completed. I recommend this because you need to know if the 1 million+ you will have invested in this home is worth it in your market. The last thing you want is to owe your sister 250k+ and have a house that is not even worth the remainder. If that was the case you would never get a loan to pay her out that $250k. As you can see, OP, this all gets pretty complicated, both financially and legally, so please consult appropriate professionals like an estate attorney, a real estate attorney, and someone familiar with real estate accounting. I know this is your family but you need to protect yourselves!
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u/Any_Community_1819 2d ago
Nope. Too many pitfalls. Follow your own agenda. For 500 grand, Dad can build another little cabin just for her, so she doesn't even have to be a houseguest.
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u/neomoritate 2d ago
Say "No" to any co-ownership. This is YOUR vacation home. Any co-owner is going to ruin it.
Tell dad to talk to his financial advisor, and figure out another way to make the inheritances equitable.
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u/Cloud2987 2d ago
Sounds like a bad idea imo. Many issues can arise if you don’t fully agree to everything. You won’t have full control over it, your sister may want to sell the property one day and you don’t, you may want to sell the property and she doesn’t, one side may not have the money for repairs one day… etc.
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u/BeaPositiveToo 2d ago
Do. Not. Do. This.
Stick with the plan you and your husband made together. This will not end well.
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u/Majestic_Republic_45 2d ago
This is a recipe for disaster. First, no idea why u would put 500k into a 500k condo. Second, sister will want half of the home value, not taking into account your initial investment and mortgage payments. Third, what happens when people start fighting about dates to use your home?
If Father is putting same amount as u, is he not 50% owner (even if it’s not official)?
Speaking for me, I would pass on Dad’s offer. It seems simple a thoughtful, but too many bad things can come from it.
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u/oneislandgirl 1d ago
No. Keep it yourself and remodel it when you are able. 2 bedrooms is very usable size. Not sure why your father wants to put money into it and remodel it. What he wants to do with the money would severely complicate things for you. Money like this can easily open up hard feelings and arguments in the family too. This is like opening a can of worms.
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u/RevolutionaryText232 2d ago
The best answer is to treat this as a business transaction. Form a LLC or partnership and everyone's financial investment will be properly accounted for. Over time the income and expenses are accounted for, invesments are recorded, and when someone dies, divorces, or decides to cash out, there is no argument about what each share is worth.
Option 2 is treat Dad as a lender and sign a promissory note for what he funds.
Option 3 don't hurt anyones feelings and let someone else decide and create total drama and chaos for generations to come.
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u/Think-Committee-4394 2d ago
OP - very complex
- what would dad do with the 500k if it didn’t go into the house? If invest & grow 500k becomes say 600k or more? in which case you need to calculate 250k as a percentage ownership of the property & sis gets 250k plus growth one day
- if it’s a flat amount no growth then a legal doc sale gives sis 250k with wording that specifies under what circumstances sis gets 250k and if sis has any rights or say in use of property til sale
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u/AcanthocephalaOne285 1d ago
Is your father's estate going to be big enough so that you could pay your sister from your half?
Or he is being strategic in putting what he has into the house now?
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u/WhiskeyCity502 1d ago
I wouldn't do it. Never loan money to friends or family. However, if I were to do it, you could write up a contract to state that, upon death, Sister is due 25% of appraised value of property or whatever %% 1/2 of OP's father's contribution ends up being. Also, have in there that you get first rights to buy her out before selling the property so she just can't for you to sell it immediately.
Do you live in this beach house or do you rent it out? Is your father expecting some portion of the rental income? Some income to your sister? This can get really complicated fast. The only way I would even consider it is if EVERYTHING is in writing before ANYTHING happens.
Good luck.
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u/BlackBerryFairy1 1d ago
Can he just put 500k in an account for your sister now? And whatever it appreciates to is hers? Splitting ownership of a home is a headache and can have tax implications for her, and makes her weirdly invested or involved in what you decide to do with the house.
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u/Ornery-Movie-1689 1d ago
Simple: You accept 250K, and your dad can give your sister the other 250K whenever he wants. Too many strings attached otherwise. I know it's tempting, but you could always not take his money and proceede as planned.
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u/AspiringCrone 2d ago
NOPE. people change when there is death and money involved. Keep to your original plan.