House Purchase - Complicated Situation

Hello,

I am currently in a somewhat complicated situation and am therefore asking for advice here. The situation is as follows:

My wife and I are currently renting, but would like to move back to our hometown during this or next year. There, as in many other parts of Germany, the real estate situation is very tense. In other words, extremely high purchase and rental prices for properties that are not really worth that much money.

Since we have been looking for a suitable property to buy for quite some time now but have not found anything suitable or only found properties that are completely overpriced, we have considered moving into the original family home, in which my father currently lives alone.

In order for us to move in there, it would be a prerequisite that my father finds a 1-2 room apartment for himself. We had the idea that we would act as buyers for the apartment and then rent it to my father. At the same time, we would move into the family home as tenants and pay rent to my father.

My father would grant us the right of first refusal for the house and we could later decide whether to take over the house or not. Of course, he could also sell us the house directly at a favorable price, but the problem here is that 1. there are still debts on the house 2. I have two brothers who of course also need to be considered. In other words, a gift in this sense is currently hardly possible without anyone feeling left out.

Therefore, the model with renting would have the advantage that in the next few years, in which our income situation is additionally uncertain (family planning/move/job change), we would not have such a high financial burden. Purchasing an apartment for around €200,000-300,000 is much easier for us to bear than buying a house for €500,000-700,000. Additionally, if I am correctly informed, taxes can be saved when renting to a family member (reducing advertising costs?), although it must be taken into account that at least 50% of the local customary rent must be charged.

Does that make sense? Have I overlooked something important? Or is there possibly a better solution that we have not yet thought of?

Thank you very much for your help.

Speaking of extremely high purchase and rental prices for real estate that are actually not worth that money.

That is only subjective ;-)

He could of course also sell us the house now directly at a cheap price,

And why not at the "right" price? Too expensive?

In order for us to move in there, it would be a prerequisite that my father finds a 1-2 room apartment for himself. Here we had the idea that we act as buyers for the apartment and then rent it to my father. At the same time, we move in as tenants into the parental house and pay rent to my father.

You can do that. You declare the rental income, but so does your father. You have to calculate whether it is worthwhile.

where it must be taken into account that at least 50% of the local customary rent is demanded.

In the case of a reduced rent, it must also be noted that a so-called compensation limit must be observed if the deduction of expenses is to be maintained in full amount: This limit is (as before) 66% of the local customary rent (§ 21 para. 2 sentence 2 Income Tax Act). Also, when agreeing on a rent of 50% or more but less than 66%, full recognition of expenses is possible from 01.01.2021 if a (positive) total surplus forecast exists.
So you also have to calculate whether it works with 50%.

Have I overlooked something serious?

Yes, you have to use equity for the purchase of the apartment, which you might later miss for buying a property. And if you can afford the rent for the house (or also just live there reduced? – what do the siblings say about that?), then you can also buy it at the regular price.

Hello

you can do it that way or he sells it cheaper to you

And why not at the "right" price? Too expensive?

Yes, that is exactly the crux of the matter.
The "right" house price is about 550-600,000 + renovation another 50-100,000€, which is currently hardly or only at the extreme limit feasible for us.
But since the income is uncertain in the coming months/years (possibly new job --> salary? parental leave? etc.), we are looking for an alternative option.

It’s possible. You declare the rental income, but so does your father. You have to calculate whether it’s worthwhile.

My idea is to reduce my taxable income by generating losses from rental income. In other words, I charge only 50 or 66% of the local customary rent, then offset interest for the bank, repairs, etc. against it and end up with a loss that brings me a tax advantage.
Is that correct or nonsense?

My father is already retired, so him having to declare the rental income is not so bad (?).

Yes, you have to use equity for the purchase of the apartment, which you might later lack for the purchase of a property. And if you can afford the rent for the house (or live there only at a reduced price? – what do the siblings say about that?), then you can also buy it at the regular price.

In this case, the father could buy the apartment from us and in return we take over the house. Until then, several years will pass, which we can use to build up additional equity.

That we currently cannot buy the house at the regular price – see above.

As siblings, I would feel pretty fooled.

Is that correct or nonsense?

Correct. But it only works if you a) have enough advertising expenses (interest, depreciation and non-allocable ancillary acquisition costs – you have to calculate that) and a high marginal tax rate. And if you want to produce a loss every year, you will probably have to apply the 2/3 rent in order not to fail with the tax office.

My father is already retired, so it’s not so bad that he has to pay taxes on the rental income (?).

He at least has to file a tax return every year and declare the income. Whether he then has to pay taxes depends on his other income. It can turn out well, but it can also get expensive. Without information, we don’t know.

In that case, the father could buy the apartment from us and we could take over the house in return. Until then, several years will pass that we can use to build up additional equity.

Well, whether everything will go smoothly with the values and the siblings...

That we currently cannot buy the house at the regular price – see above.

Then you also can’t rent it if the rents are just as high. Unless the rent is set too low, then the tax office and siblings will feel cheated. If the cold rent is around €1,500 (+X?), which easily fits such a house price in an adequate location, you could also take out about half a million as a loan, since the installment is identical.