My parents wants to buy a house but put it under my name? GG deal? - Page 2

OP, I will go with your assumptions that your parents need help and you would like to return the favor of helping them out from feeding you all those years. So let's take the investment perspective for them and assume your money is their money and vice versa. Instead of an outright buy, and taking a lease on this property it becomes a lot more complicated. There better be a damn good rate of return (IRR) for you to take this risk in just having temporary ownership in a certain period of years. With doing a lease, your assets lie within what return you get, and not the value of the property. I wouldn't see any benefit in doing this unless your IRR is 14% or higher in that 75 year period. Even then, you have to account for inflation, how much you can leverage, etc. These type of transactions are more common with commercial where the returns are potentially higher. It's really tough to analize that long term risk from the little information you've provided...1000 a month? Is that guaranteed? For how long? When can you escalate it? What about the money to sink in for improvements during that 75 years? What's the termination clause? And so on.

I did some minor calculations to get you the right return for the risk. You are going to need to escalate the rent about 3% annual for the next thirty years to have a viable stock here. This is taking into account about 20k cost over the inital 100k. But if this runs out at year 15, it will still be a healthy investment.

The big downside though with my calculations is that you probably can't ever leverage any debt against your cash flow, I don't know if there is a market for leased residential cash flow, right? Because the tenant agreements are usually short term. But if you think you can fill the space and escalate the rent properly, then go for it. It will be more work on one investment than you think though.

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04-28-2011 , 05:25 AM

#27

zmyworldz

journeyman

Join Date: Sep 2009 Posts: 328

So after clearing things up, the house is a 75 year lease house and it is 100k. It will be rented 1300-1700 a month and everything is already set up. I convinced my mom and dad to get a loan and I pay half for half the rent every month. Everything turned out better than expected

. Getting around a ~17% ROI

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04-28-2011 , 05:28 AM

#28

Redtuber

adept

Join Date: Nov 2010 Posts: 955

Quote:

Originally Posted by zmyworldz

. Getting around a ~17% ROI

Haha. You are so full of ****. But if 17ROI, then killer, good job.

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04-28-2011 , 05:43 AM

#29

zmyworldz

journeyman

Join Date: Sep 2009 Posts: 328

Quote:

Originally Posted by Redtuber

Haha. You are so full of ****. But if 17ROI, then killer, good job.

Thanks Redtuber, I kid you not. It falls in 14%<x<17%.
Keep in mind this is a huge 3 room house.

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04-28-2011 , 08:02 AM

#30

dc_publius

Pooh-Bah

Join Date: Nov 2005 Posts: 4,308

Are 75yr leases the way Hawaii RE usually works?

100,000 for a house in Hawaii?????

That can be rented for 1300-1700????????

WTFx3.

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04-28-2011 , 08:17 AM

#31

dc_publius

Pooh-Bah

Join Date: Nov 2005 Posts: 4,308

Are 75yr leases the way Hawaii RE usually works?

100,000 for a house in Hawaii?????

That can be rented for 1300-1700????????

WTFx3.

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04-29-2011 , 09:56 AM

#32

jws43yale

veteran

Join Date: Feb 2006 Posts: 3,193

The whole putting it in your name despite the fact your parents have the cash just reeks of tax evasion. They don't want a mortgage as it hurts their return but they knew that without a mortgage on the property it would have significant tax impact.

Just reeks of some sketchy illegal stuff. That being said good luck with the investment.