Helping son buy home

[helpfuldad]

What is the name of your state?

Alabama

My wife and I want to help our son buy his first home. We will contribute a third of the purchase price as a cash down payment. This will not be a loan but an investment on our part. When he sells at some future date he will share the gains (or losses) with us. The basic objective is to allow him to have a nicer home to live in while hopefully earning a better return on our money.

We don't want him to be liable for gift taxes on the down payment. But we do want him to have all the other tax advantages of homeownership such as homestead exemption and interest deduction.

How do we structure this arrangement?

My current thinking is to simply purchase the home together, namely with all our names on all documents etc. I understand the liability and responsibility we will be assuming but are there any other gotchas at time of purchase, sale or during the duration of the ownership?

[HomeGuru]

Originally Posted by helpfuldad

What is the name of your state?

Alabama

My wife and I want to help our son buy his first home. We will contribute a third of the purchase price as a cash down payment. This will not be a loan but an investment on our part. When he sells at some future date he will share the gains (or losses) with us. The basic objective is to allow him to have a nicer home to live in while hopefully earning a better return on our money.

We don't want him to be liable for gift taxes on the down payment. But we do want him to have all the other tax advantages of homeownership such as homestead exemption and interest deduction.

How do we structure this arrangement?

My current thinking is to simply purchase the home together, namely with all our names on all documents etc. I understand the liability and responsibility we will be assuming but are there any other gotchas at time of purchase, sale or during the duration of the ownership?

**A: you are correct.

[seniorjudge]

I will answer part of your question. (BTW, you are smart in asking these questions BEFORE you do anything.)

First, hire a real estate lawyer.

Second, make sure everything is in writing. There should be no verbal agreements about anything.

Third, I do not like all of you being on title. There are just too many ways for this kind of deal to get messed up. I suggest you either put a second deed of trust (mortgage) on the land or have him own it in a trust.

Believe me, I have just skimmed the surface.

Stand by for other opinions.

[helpfuldad]

Thanks for the comments. Any expansion on what could "get messed up" would be helpful.

[LindaP777]

Originally Posted by helpfuldad

Thanks for the comments. Any expansion on what could "get messed up" would be helpful.

OK, a couple of worst case scenarios . . .

1) Your son dies suddenly in a 20 car pile up and his new wife (who is a gold digger AND doesn't like you) refuses to honor the "agreement". She is his heir and claims the entire house as hers. You're now SOL.

2) You & your son have a HUGE falling out (did I mention he married the town hooker who was pregnant with someone elses baby). He sells the house to move out of state and refuses to give you any of your cash back. You're now SOL.

So;
1) Hire an attorney and get everything done properly.
2) Make sure all the details are in writing.
a) Is the loan for an indefinite amount of time? Or 5 years? 10 years?
b) What if he never sells the house? He could keep it for a rental even after he moves out?
c) Will he pay you interest on the money or will you just stand to profit from the sale? (Sounds like you weren't planning on it.)
d) When he sells it, what amount (if any) of the profit is yours?

Lots to think about, it's doable, just do it right . . .