Can I afford to buy my grandmothers house? (Part 2)

[JS80]

Originally posted by: BigToque

Originally posted by: aceO07
I say take the deal, assuming that there are no catches to your statement in the OP. Also assuming that your salary will be increasing in the next couple of years.

Here's my plan at the moment:

I'm taking 1 class a term in university right now for the next 2 years. By September 2011, I'll be applying to grad schools for September 2012. If I get in to a school, I'm moving. I need to move away from this city. I assume the house will grow in value just enough in 3 years that I could have effectively lived for free for 3 years and break even.

The house was built in 1962 (we knew the original owners), and every appliance has been replaced within the last 5 years. There are no major things that I have any reason to believe will break down in 3 years. (crossing fingers obviously)

That said, If I don't get into a grad school, (I'll know by October/November 2011 I imagine), I plan to take the job my boss has been asking me to take for the last six months which would see my salary jump >50% and I'd jump from having $300 free per month for savings to $1000 a month in savings.

What I really need to do is just manage to be "house poor" for just over 2 years.

Have him rent the house to you then you can "buy" it from him when you are making moar monay.

 

[BassBomb]

Originally posted by: BigToque

Originally posted by: aceO07
I say take the deal, assuming that there are no catches to your statement in the OP. Also assuming that your salary will be increasing in the next couple of years.

Here's my plan at the moment:

I'm taking 1 class a term in university right now for the next 2 years. By September 2011, I'll be applying to grad schools for September 2012. If I get in to a school, I'm moving. I need to move away from this city. I assume the house will grow in value just enough in 3 years that I could have effectively lived for free for 3 years and break even.

The house was built in 1962 (we knew the original owners), and every appliance has been replaced within the last 5 years. There are no major things that I have any reason to believe will break down in 3 years. (crossing fingers obviously)

That said, If I don't get into a grad school, (I'll know by October/November 2011 I imagine), I plan to take the job my boss has been asking me to take for the last six months which would see my salary jump >50% and I'd jump from having $300 free per month for savings to $1000 a month in savings.

What I really need to do is just manage to be "house poor" for just over 2 years.

How will you manage renters or problems if you leave the city?

 

[rasczak]

Originally posted by: JS80

Originally posted by: BigToque

Originally posted by: aceO07
I say take the deal, assuming that there are no catches to your statement in the OP. Also assuming that your salary will be increasing in the next couple of years.

Here's my plan at the moment:

I'm taking 1 class a term in university right now for the next 2 years. By September 2011, I'll be applying to grad schools for September 2012. If I get in to a school, I'm moving. I need to move away from this city. I assume the house will grow in value just enough in 3 years that I could have effectively lived for free for 3 years and break even.

The house was built in 1962 (we knew the original owners), and every appliance has been replaced within the last 5 years. There are no major things that I have any reason to believe will break down in 3 years. (crossing fingers obviously)

That said, If I don't get into a grad school, (I'll know by October/November 2011 I imagine), I plan to take the job my boss has been asking me to take for the last six months which would see my salary jump >50% and I'd jump from having $300 free per month for savings to $1000 a month in savings.

What I really need to do is just manage to be "house poor" for just over 2 years.

Have him rent the house to you then you can "buy" it from him when you are making moar monay.

this.

when you make more, then buy. or live below your means if you are in a hurry to buy.

 

[sutahz]

Would your father accept there will very likely be months you cant make full/any payments?

Do you really really really want the house?

 

[swbsam]

I like the idea of renting, then buying.

See if he'll take $600 rent plus you'll manage the other units, collect rent, deal with repairs (but not pay for them). This way you can gauge the condition of the place (it would SUCK if you have to replace a boiler/etc.).

 

[PingSpike]

If you're planning on moving in the next 3 years, I say don't bother. Just let you dad sell it and then come begging for a down payment when you find a place you actually plan to stay in. Plus, I think it would just be a hassle for your dad at that point.

If you're planning on staying around here, I stay you'd be kind of stupid not to take the deal. If you have the renters lined up, hoard all that extra cash so that when they flake out (WHEN they flake out) you'll hopefully have a fat emergency reserve built up. Plus, the first year you buy a house you need to purchase shittons of stuff.

That said, based on the little information we have about your past money handling skills, you'll have to be signifigantly more disciplined in your money management then you were in the past. $300 is fairly tight. I promise you there is shit that you will regularly pay for that you forgot to put in your budget!

I think people are a bit overblown here though. An $800/mo mortgage is 35% of net. I believe most mortgage calculators say 28-35% total debts gross. This isn't quite a waitress trying to buy a 600K house with those numbers. At the very least, this hair brained scheme is far better then your last.

 

[mshan]

"He's basically giving me a 240K "mortgage" interest free. I have to pay him $800 a month for 25 years (or the remainder of the loan when I decide to sell)."

You have to be careful about interest free loans from a family member (intra family loan). IRS may end up penalizing you because your father didn't charge their minimum specified interest rate.


Intra-Family Loans and Taxes

The Applicable Federal Rate The key to transferring wealth through intra-family loans is the applicable federal rate, or AFR. The AFR is the rate at which the loan will be evaluated for both income and gift tax purposes. If a note requires a child to pay a parent no interest or an interest rate that is less than the appropriate applicable federal rate, the transaction will be characterized, at least in part, as a gift from the parent to the child and the income tax effects described above will occur. The caveat is also true. If the stated interest rate is at least the AFR, there is no gift element in the transaction, unless the interest is not in fact paid. AFRs are determined by the IRS each month.3 The rates vary depending on the term: short-term for obligations due in less than three years, long-term for those due in more than nine years, and mid-term for everything in between.4 Applicable federal rates are by no means market rates. They are based on the rates for various treasury securities during the previous month. These rates are almost always less than commercial or retail rates and therein lies their great appeal with today's low treasury rates.

edit: you're in Canada, so U. S. tax laws don't apply. Should still find out what Canadian tax and gift / inheritance laws stipulate.

 

[BigToque]

Originally posted by: BassBomb
How will you manage renters or problems if you leave the city?

I wouldn't. I'd sell the house.

 

[swbsam]

Originally posted by: BigToque

Originally posted by: BassBomb
How will you manage renters or problems if you leave the city?

I wouldn't. I'd sell the house.

you're getting into a lot of hassle for only a few years. Who knows if housing will rebound substantially in the next 3 years, or fall even more?

We just bought a house but we had to be very clear - we're staying her for at least 5 years, and renting it out for 5 more. All of the work involved would suck to me for anything less than a 10 year commitment.. And 10 years from now I can be certain to walk away ahead, regardless of the economic climate. Unless there's a zombie apocalypse in the next few years.. Then my 10 year plan is fucked..

 

[soulcougher73]

Maybe im not following but if its your grandma's house isnt it already paid off by now? Why would he need to sell it at all. If its passed down to him cant he just pass it down to you and you live there only paying property taxes each year?

 

[BigToque]

*Update*

My dad sent me a spreadsheet of what he thought the sale would be like.

$142k @ 3.25% (plus the 21k he loaned me @ 3.25%)

Spreadsheet

Same Spreadsheet (in case the first is downloaded > 10 times)