Costs of real estate business within the family

  • Erstellt am 2022-11-11 08:08:47

best-of-max

2022-11-11 08:08:47
  • #1
A mother (retiree) wants to transfer a property, or a plot of land (approx. 300 sqm) with 2 buildings (a total of approx. 210 sqm living space) to her daughter and receive approx. €400,000 for it. One of the properties is rented out (as a retail store). The second property is currently unoccupied. The daughter wants to move in and live there with her partner. The total value of the property was estimated at approx. €400,000 by the local court and a real estate agent.

Mother and daughter want to complete the transaction preferably without involving a bank/loan. Instead, a monthly payment (approx. €1,400) from the daughter to the mother is to be made until the amount of approx. €400,000 is paid off.

The case takes place in Hesse.

My questions:
Which system is the most sensible for this type of transaction? A gift, rent-to-own, life annuity, etc.
It is important that everything is also contractually (i.e., notarized) regulated.

It will not be necessary for the daughter to financially burden the house, for example, for renovations.

Since the daughter and her partner (not married) share the purchase price, it must also be clarified that the property belongs to both partners. This does not have to happen in the first step, but should take place quite soon after the transfer of the house. What can be done here?

Two factors are especially important in this case:
1. Avoidable costs (e.g., taxes) should be kept as low as possible.
2. Legal certainty must exist for all parties (mother, daughter, partner).
The mother must be secured to receive her regular payments within the agreed period.
Daughter and partner must both be the owners of the property, as they are both equally involved in the financing.

Thank you in advance for your answers. Should you have any further questions regarding the matter, I am happy to provide them.
 

Tassimat

2022-11-11 08:56:14
  • #2
No real estate transfer tax should apply to children and partners of the children. So there are no avoidable costs, since no costs are incurred. That’s already good.

Therefore, I suggest selling everything completely regularly. Then everyone is immediately correctly registered in the land register, and there are no nasty surprises if someone later doesn't want to remember an agreement. Thus, maximum legal certainty.

The purchase price payment can very well be made monthly through a loan with the mother, so it can work without a bank.

What is still open for me is the question of what should happen in the event of the mother’s death? Are there other children and heirs? Do the claims of the loan then transfer to the daughter (and all other children), or should the loan expire?


She would have maximum security if she received her money directly in full from a bank and paid the bank back.

Without a bank, with a loan from you to the mother, the theoretical case can occur that the children can no longer or do not want to pay, and then the mother has to initiate legal steps. Depending on age and health condition, the mother might not be able to do this. So for the highest legal certainty on the mother's side, she should insist on a transaction with direct purchase price payment. Then she has her money and nothing can go wrong anymore.
 

Hyponex

2022-11-11 09:12:20
  • #3
Good morning,

so
1) Real estate transfer tax:
there is no real estate transfer tax for the daughter here, but there is for the partner, since he is not married to the daughter (if he were, it would be tax-free as well).
If the partner wants to become a co-owner, then there is no way around paying the taxes here.

The optimal scenario would be:
Daughter takes over 100% = no real estate transfer tax.
If they get married later, then 50% can be transferred to the man, tax-free.

2) hmm, I understand this a bit poorly.
In one breath it is mentioned that it runs without financing, in the other that daughter/partner share the financing equally?
Probably the 400,000 EUR that goes to the mother?

So I would strongly recommend going to a notary here and getting advice there.

Because for me, as an outsider, the question arises:
Why should the partner benefit from this?
Because in the end, the mother gives the daughter a loan equivalent to the value of the property, interest-free.
I can understand that the mother gives it to the daughter, but why to the "daughter's partner"?

That would also be an important point, considering that the interest rates currently are at 3.50%, one could even calculate with 3%, then the mother would be gifting an interest relief of easily 300,000-400,000 EUR until it is paid off (ok for the daughter... but for the partner???)

What happens if the daughter separates from the boyfriend? What happens then? How follows the compensation payment?

It is a house with a commercial unit, the residential unit is supposed to be used by the daughter with her boyfriend, how high are the rental incomes from the commercial unit?

I think two things need to be settled here, 1) how to manage the transfer from the mother to the daughter/partner, and 2) security in case of separation of the daughter/partner.

So, if I were the mother, I would have a "clause for reversal of transaction" included here, i.e., if the daughter separates from the boyfriend, I would have it reversed. Because one should not give away a lot of money.

The cleanest solution:
Daughter takes over 100%, also bears all costs completely herself (she has rental income from the commercial unit for that).
The boyfriend, who lives there, simply pays rent.

If they get married later, they can think about further matters.

PS. The boyfriend may of course pay less than the "usual local" rent, so he benefits more than if he were renting something himself...
 

Tassimat

2022-11-11 10:26:10
  • #4
Honestly, I find the option that both buy the properties together at 50% each much cleaner. Because after the purchase, the mother is completely out of the whole thing, no matter how the internal relationship between the two buyers changes. Do you want to deal with reversals etc. in x years as a retiree? Probably not. The daughter also benefits in this option, since she will inherit the €400,000. The 100% daughter variant can only be chosen if the daughter has enough income and capital to manage everything on her own. It is possible, but then there is no shared residential house and the man will always be a "guest." Addendum : Is it possible to split the properties? Something like: gift the commercial unit to the daughter, sell the house to both together?
 

Hyponex

2022-11-11 10:43:28
  • #5


Where will the daughter inherit 400,000€? If the property is worth 400k and they have to pay 400k, then her inheritance is 0! (An interest-free loan here is more like a gift; the interest is the actual gift!)

The 400k will be paid out by both, daughter/partner, over 23/24 years with a 1400€ installment to the mother, so with inflation etc., the mother makes losses (inflation-adjusted, she receives less over time than it is worth today!)

The daughter benefits 50% from this, and 50% goes to an "outsider" since he is not yet a husband!!!

Therefore the question is, do you want that, even if it is the partner, do you also want to gift him a part (where the gift should rather go to the daughter)? (That is why this should be precisely regulated = gift to the daughter, partner has to pay his own 50% of the property.)

If you want it "clean" once the mother is out, then you should rather choose this variant here:

The mother gets 400,000€ paid out immediately, she can invest that and thus increase it annually by 1-2%, so in the long run she benefits more than from 1400€ monthly payments which are worth much less in a few years. Thus no disadvantage for the mother!

Daughter/partner each buy 50% of the property, each contributes the same equity share (partner must also pay the taxes additionally!) and then it is financed under current conditions, each bearing 50% of the costs. So no disadvantages for both, as they benefit from the increase in value but have to pay a "market-based interest rate."

This way it is cleanest for all three parties, and if the partner separates from the daughter, they have to decide who buys out whom or whether to sell the property. But over time no disadvantage has occurred for any of them!

ALTERNATIVE: Property value 400k Daughter takes over 50%, pays the 200k interest-free to the mother with 700€ monthly. Partner finances 200k and pays the costs for the 200k, also pays the incidental costs out of his own pocket (notary/court 50% and his share of taxes) or he can fully invest his equity here, i.e., pay the same share of the price out of his own pocket if he wants 50% of the property. The 200k is paid to the mother, who can invest the money. Thus clean for all three parties.

Because the question is, if the mother gives an interest-free loan, why should she give it also to the daughter's partner? For that share, she loses interest; for the daughter I can understand (= gift!), but for a stranger? Rather not. (PS: Not that the tax office comes and says: we calculate market-based interest here, and the mother must tax it as capital income even if no interest was paid!)

As said, there is the risk that they separate after a few years, or even after 10-20 years, then many thousands have been given away, and either you regulate it properly with a contract, or you choose one of the two variants where the mother is not "disadvantaged."
 

Tassimat

2022-11-11 11:20:39
  • #6
Why shout like that with all the exclamation marks?


Nonsense.

If the property is sold, then the mother has €400,000 and this sum is inherited by someone in the event of death (if it hasn’t been spent, let’s leave that aside). If the mother only gives a loan of €400,000, the daughter also inherits these claims against the man.


Because the objective in the initial post was to minimize costs.

I find it reads as if it is still unclear how the future ownership structure is supposed to look. At first it is said for a long time that the mother transfers to the daughter, until suddenly the man paying is mentioned, who is then eventually graciously allowed to enter the land register.


Unfortunately many numbers are missing. Because with bad luck the daughter simply does not have the income to implement the project alone without the man. Hence all these complicated variants.
 

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