Jim Valentine on Real Estate
Relatives have a way of being attracted to your real estate. They love it when you buy your first house and are very supportive of your home ownership adventure. As you grow your real estate portfolio they’ll be watching. It is interesting to watch their behavior in this regard.
Some may want to invest in real estate and will ask you questions looking up to you as an authority. Others think you are wealthy and should help them by loaning/giving them money or giving them a good deal on one of your homes to buy or rent. As the saying goes, “blood is thicker than water” which is a mindset that can be the cause for making family financial blunders.
Nothing wrong with helping family, it is family after all. It is important that you keep business as business when you do. Be sure to have everything in writing. Make business-minded decisions. If you are granting them favoritism in an interest rate, payback rate, etc., be sure to include consequences for delinquencies or other lack of performance actions. Don’t let them abuse you without results.
Children often take advantage of their parents’ gratuitous nature and why not… they’ve been given things by their parents all their lives. Some just don’t understand that when they reached 18 years of age they were “in the majors,” fully capable of contracting and existing on their own. In theory that is. In this day and age personal finances and economic tendencies are a challenge for everyone. Parents usually have equity built up, or savings for their upcoming retirement.
There are ways to help family with their real estate. One is to give them advice based on your experience or guide them to knowledgeable people that you have worked with and know. You can also co-sign on a loan to give them the extra umph they may be missing to get it on their own. Be careful in this regard for if they default or are delinquent the negative credit marks will go against your credit rating too.
If you advance them money, be sure to confirm that it is a gift or a loan. If you expect it back, make sure they know and understand that you are expecting it back and when you expect it to be paid. How they pay it is important to you. Even if you don’t charge them interest, after six months the Internal Revenue Service says you should have and will charge you with imputed interest income.
Buying for parents is rewarding and less risky than buying for your children, but still should be handled in a business-like manner, especially if you have siblings or other people that may be looking at their inheritance. Are you gifting to the parents? Are you pulling more of the weight than other family members to keep them housed? Whatever the circumstances, you are likely not looking to indirectly give to other people than your parents when you do so tighten it up in the beginning. There are many more ways that you can set up secure real estate ownership situations with parents than with children or cousins.
Whatever dealings you get into with family, be sure to consider their marriage status, or potential marriage status. If they have a spouse, or later on get one, you have a new “partner” in your business arrangement. If they get a divorce, you could be in a mess. Line things out at the beginning to protect the family and business relationship now and into the future.
Your agent and attorney can help you with this. This consultation is very important on many levels. Don’t do family business without it. It's tempting to cut corners when dealing with family. Don’t! Things can occur that are out of their control, but you could be the one financially harmed.
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. dpwtigers@hotmail.com.