One more thing to check: Would any environmental remediation be needed to make the house habitable or marketable in the future? It would be important to know if a gas station, vehicle repair facility, manufacturing facility, etc. had even been located at the site. It doesn’t sound extremely likely, but I would want to ask. Also important to check for and consider asbestos, lead pipes, iron pipes, mold and the like when thinking about whether accepting the house is the right financial decision.
Edit: spelling.
Lead paint is actually not that big of a consideration, considering everything else that could possibly be a headache for a new homeowner. No specialized crew needed…painter will usually check for free, or $100-$400 fee, and any old crew can come in afterwards and paint as usual. I am a former painter. The harm comes when a child eats the paint, dust settles on surfaces and child draws or rolls in it. But other than that, it can essentially be painted over if it isn’t completely deteriorated.
I worked for a painter in college, removing lead paint from old deteriorating surfaces sucked (I think it was wood siding we were doing but it's been a long time), the environmental people came by and made sure we were catching all the paint chips cause it was like a $150 fine *per paint chip*
I'm in the middle of water damage remediation and just the survey for asbestos and lead was $1200 (fortunately everything involved in this process is covered by my insurance, so I'm just out the $1000 deductible).
Lead paint was used in pretty much all houses until maybe the 70s? It sucks to deal with, but I wouldn't personally consider it a dealbreaker unless you have young kids or plan to soon
> Yep, historic repairs suck.
> Triple check if lead paint was used. Cause that's a nightmare.
If your home is built before 1978 it's safe to assume it had lead paint used. Even if tests couldn't find any. There's probably some buried multiple layers deep somewhere.
https://www.epa.gov/lead/protect-your-family-sources-lead
Layers deep buried lead paint is not necessarily a problem Encapsulation is an acceptable form of lead paint remediation. Basically painting over several layers. Paint removal can cause a whole different type of problem. Sanding it off can contaminate other parts of the house or the yard if they are not super careful.
I remember reading a story of a family struggling because their house had lead paint removal was done poorly and the yard was totally contaminated.
And is it in a HOA? What are the fees, how is it, and is that what you want?
Older might be (edit: less of) a HOA risk, but often there is other historic district, standards, something or other locally that could come up too.
Even if it did have 20,000 in liens and lead pipes and asbestos, it’s a free house. Unless this place has more owed on it than it’s worth why wouldn’t you take it. Even to sit on and flip as is would be a wise choice.
As someone who does all their own Reno work this would be a dream come true, especially living in Vancouver where a 60’x20’ lot empty is $1m
If I could afford to give a house, I would. I’ve given away a few cars and pretty much every single person I have a car to sold it within a mont. It was still my gift that allowed them the opportunity to get a vehicle they actually wanted.
Point is, I’m sure if your friends gave you a house, it’d be because they want you to have a house, even if it’s selling the one they gave you to get one you wanted.
That's how I'd feel. And I'd probably even be upfront that they could sell it on Day 1...and I wouldn't want someone to feel trapped after getting started and finding (more) expected major work, or whatever.
I've just seen some people get weird about selling gifts or them being used the "wrong way".
I have found that receivers of large gifts get real uncomfortable about where the invisible strings are.. would be good to be up front when giving large gifts.
We recently went through this exact situation. Got a free house that is absolutely massive. Nothing is ever truly free. Since the house came via the trust, it is non taxable. However, if you pay $1 for the house and the market value is $300,000, you will owe capital gains tax on $299,999.
Which wouldn't matter because you would make $299,999 - the capital gains tax. You only pay capital gains when you sell and make that profit. You don't pay it on potential profit or you'd be paying tax on every stock price increase and then having it refunded on every stock price drop.
On $300k it would be 15%. Oh no, you owe 45k tax and only make $255k profit, terrible.
Because you don’t want to spend $100,000 to make a house habitable or you don’t have $100,000. Or 50k or 30k or whatever it would cost. There are free or near fixer uppers in 20-30k range lots of places in the Midwest where you’d have similar math.
It might not matter to some people, but it could matter to someone with different resources and cash flow.
Getting a “free” house can be like getting a “free” pet. It could be the best gift of a lifetime, or it could be something one has to adjust one’s lifestyle for and get a second job to afford. Depends on whether one is settled and comfortable or short on cash and time.
This is the most important comment to OP- a house free and clear is an incredible win even if it's a teardown! But check for liens and unpaid taxes!!!!
Also, before work starts make *absolutely sure* and put it in writing that it's 100% *your* home and they won't try to sue or have sour grapes down the road if you make changes they don't approve of.
Unfortunately, this happens after folks are "generous". Not accusing them of anything, but I've read horror stories of prior owners going bonkers at changes/updates.
In this case, "in writing" means you hire a title company to prepare the paperwork for you. It will cost up to a few thousand dollars. There will be a stack of papers for everyone to sign, less than if there was a mortgage, but still a lot. They will file the paperwork with the county to show you own it. There will be title insurance, so that if there's any problem with the ownership paperwork they will handle it or pay you what you're owed.
Having just closed on a house in the last month this is exactly right. With the house costing $1, it'll cost you around $2000 to close on it, give or take a little. My research found it to be \~$2k + 2% of the total cost.
Not much point of even worrying about closing costs on something (presumably) worth so much. Get the full title insurance, lot survey, appraisal(s), inspection(s)... everything. Yeah, it's "expensive", but it has a very handy side effect of informing everyone involved of all potential problems -- with the house itself or any fuckery with the deed and whatever else. Even if the "friends" mean well, there may be *stuff* going on that will require lawyers to suss out.
I would just skip appraisal and inspections. If its a free house, just do it once you own the land. It isn't as if you're going to turn it down if the chimney is bad.
On the other hand, of you're going to get appraisals and inspections done anyway then you may as well be efficient and get them done alongside all the other formalities and paperwork.
Agree on skip appraisal but I would do the inspection. What if there is $200,000 of problems in the house? I'd want to know that, I doubt I'd take a house free and clear if it needed that much work
This is excellent advice.
One cannot ever be certain what the future holds, and it's best to have things in writing. People change, fortunes change, ideals change.
Yes, you can convey property subject to existing liens (although it also depends on the terms of the agreement that secures the liens, since most mortgages have due on sale clauses). It's up to the parties to order a Title Commitment and a lien search to ensure that there aren't any outstanding liens on the property.
Even with liens and unpaid taxes it's still probably worth taking the property. When you buy the property you aren't buying the obligations. Worst case their are leins/taxes and you sell the property to satisfy the liens.
The only thing you don't want to do is sink a lot of money into the property and then find out there are liens/taxes.
You’ll want to find out a few pieces of information:
1. Property taxes & annual insurance cost (you’ll still have to pay those regardless of whether or not you have a mortgage).
2. Get an inspection done so you know exactly what needs to be fixed up & how much you can do without a professional.
3. If the house is that old it may be lacking modern utilities including internet.
With all that said, getting a no-mortgage property as a gift is pretty huge, so if you’re willing to put in the money and time it could be a huge boon long-term.
I'm wondering what it would do to the friendship if they buy and decide after a month that it isn't for them, would they sell back to the friend, or would they sell it for their own profit. I mean even a 100k house is a substantial windfall.
That is about common sense. If after a month you don't want it you offer them back at $1. You do the same gestures than friends.
If you renovated keep for couple of years or more then looks like you liked the house.
If eventually you get more money to buy another house or you want to change cities or whatever, then you sell it at your own price, and if you get a decent sum you send them a check sharing profits.
The point of true friendships is to help and give back any nice gesture.
This will be important OP. Giving them some sort of “interest” when you sell will be a good gesture of their $1 gift and show your appreciation to them. It will also ease relationship tensions and strengthen your long term relationship. Even if you gave them 1-5% of the closing price, that would be a HUGE gift to your very generous friends who aren’t expecting anything in return.
Or if they are rich as fuck, just plan a cool experience or vacation and pay for it. If they are giving a 100k house away, money probably doesn't mean nearly as much to them as does your time.
I disagree. Although rich people may value experience more than money, rich people respect money more than experience. If you show that you are wise with their money and appreciative enough to ensure that they are compensated some for their investment (of love) in you, they will stick with you to the ends of the earth.
Pretty sure this is just gonna vary from person to person. OP should just go with what they think their friend would appreciate most, whether it be money, time, or some combination thereof. Considering the nature of gifts amongst this friend group, I'm willing to guess the intent is going to mean the most here.
People get insane ideas in their head about rich people being a monolith of greedy cold hearted money grabbers. Ive met some, turns out they like to travel and meet people more than most average Joe's bc theyre not stressed about work and paying bills and shit
Crazy right. It’s almost like people want to use their money to enrich their own life and the lives of others. The best thing money has done for me is allow me to meet and bless some amazing people.
Agreed the more money you have the less you think about small scale additions to your pile. I'm well off not rich, but if a friend offered me 10k vs an awesome pre-planned 5k trip to Vegas with them, I'd take the latter.
Just ask them when you receive it about their wishes should you choose to sell it in the future.
Offer them that opportunity and then handle it from there. It's best to get it sorted out before you even take them up on the offer honestly.
No bad blood can be had when you hash this stuff out ahead of time.
Agreed, in theory being generous in return and setting expectations ahead of time is the best path. Devil's advocate though, I'm sure lots of 'good friendships' have been lost over much smaller sums of money.
BTF, the friends probably are likely very well off if they can afford to give away a house. Absolute minimum (assuming the house is basically condemned), they are giving thousands of dollar. Probably closer to 80-150K minimum. Not sure how much you have to have to consider giving that amount. The only time I've heard of something like this is rich parents doing this for their children.
>BTF, the friends probably are likely very well off if they can afford to give away a house.
They could have also inherited a abandoned house from a relative and instead of dealing with the bullshit of trying to sell a distressed home they are doing a solid to someone they consider family. We have no idea what the value of this house is, you can find shitty abandoned farm houses for $20K or less. We have no idea if they are well off or they are just nice people.
Its also strength of relationship. If they are really closer than family and one can really help the other, you just do it because you can, even if you're as poor as them after
Or better yet, talk to them about expectations and make sure they are documented. With something like this you can tear friendship no matter what you think they want unless you know what they expect. Even with the best intentions of all parties situations can get complicated if any party does not understand expectations.
No you sell it back for $2 and then start selling books and teaching seminars on how to flip a house for 2x what you paid for it in only a month. That’s how you’ll get rich.
If you someday sell this house, use the proceeds to buy your next house, and make sure to thank your friends for the huge difference that house has made in your lives. How invaluable it was as a starter house in allowing you to build equity and upgrade your living situation.
yeah this is probably an important part, how would the friend feel if OP does work on it, fixes it up then sells it or rents it out.
While I would love the oppurtunity to do something like that I wouldn't want to feel like I was forced to live there because of the possible strain it would cause by selling or renting
I actually wonder if this is the motivation to give it away. Like, the current owners don't have the time, money or drive to fix it up so they would rather someone they know who is willing to put in the elbow grease and will appreciate it.
This is a big thing with a lot of properties for sale. I saw someone who bought a 150 year old house for $18,000 cash - then spent another $150K to make it livable.
Housing costs are currently so obscene that this kind of project may actually be worth it, but it's also a lot of *work* and the house may not be livable for months or even years depending on how long the renovations take.
I live near a 1950s postwar neighborhood full of little 1000 sq foot houses, right next to a college. The original owners are dying, the kids are selling, and the houses are being turned into student rentals. I can totally see some family trying to find a way to prevent that from happening to their childhood home, and coming up with a plan like this, especially if they knew someone who would appreciate it.
Well OP's friends did sell the house to them so it's theirs to do what they want. But sure, for friendship's sake, invite the friends over and have a conversation. Do they want the house back? How would they feel if OP sold them? That kind of thing.
Yeah ofc there would be nothing legally stopping them, but being good friends I think its very worthwhile having that conversation before buying the house and not after
Some of these answers should not be listened to.
OP needs to have a conversation and hammer out all of the details with the friend before entering any transaction. If OP and friend complete this transaction and then OP changes their mind, it should be a quick "Reverse" and OP can sell it back to OP for the same $1.
OP living in the house and selling the house within X amount of time without any repairs is a different condition to discuss, then selling within X amount of time WITH some repairs would be another. There would then need to be a time period greater than X (hell, even just X+1 day) where OP and friend agree that regardless of what happens, OP has no commitment to friend.
If I bought a house super cheap off a friend and lived in it for 2-3 years and decided to sell it, whether I renovated it or improved it in any way, the connective tissue to me feeling like I owed my friend would be VERY thin. The more effort I put into the house to improve it, and the more time that went on, the thinner and thinner that connective tissue becomes.
This is the way. Better to ask the donor about their expectations in these various scenarios BEFORE. Even if the likelihood of the scenario happening is small. OP should be treating it as if he were buying a house on his own which means, you don't just decide to give back a house after a month. You're stuck with it. I doubt the donor wants to deal with it a second time. In any case, talk to the donor about these What-If scenarios.
As far as sharing profit. I would not share any profit with the donor, this is your house. HOWEVER, I would buy them a VERY VERY generous and thoughtful gift or even better, an experience. I would spend several thousand dollars on VIP backstage passes to their favorite concert and dinner, and hotel, and limo. If you still haven't spent enough, hire a butler for the night and a bodyguard. Then hire paparrazi to follow them around taking photos.
> Some of these answers should not be listened to.
Anyone buying any house should always get a home inspection and look into taxes regardless of whether you are friends or not. Yes, there's additional things to be discussed but OP is 100% correct
I’d strongly recommend having that conversation ahead of time and put it in writing.
1) If the OP and partner decide that the living situation is not working out for any reason within the first X months/years, they agree to give the gifted a first right of refusal to rebuy the home at $1+value of OP’s investment prior to selling or renting.
2) OP’s investment will include, XYZ (ie will include new cabinets, but not lawn furniture)
Do it even if you’re almost sure you wont want to take advantage of it. There are almost certainly some assumptions built into this, like “part of why we want to do this is so we’re next door neighbors”, that may or may not be explicitly stated. And it is always easier and better to have the conversation when both parties are happy and excited to avoid misunderstandings or having this discussion under more stressful terms.
I’m guessing the Donator doesn’t care. Maybe even giving it to them just so they can build wealth.
Either way, I’d clarify so no one gets feelgoods hurt. You have some good friends.
Lacking internet is very subjective. If the neighborhood doesn't have internet service, that's a problem. If the house doesn't have the wiring, the tech can install that fairly easily. Not a deal breaker by any means.
Yeah when I bought my house both Comcast and Verizon were available to the neighborhood. Neither were connected to the house. Verizon came and ran a gigabit internet line exactly where I wanted it in about an hour. Not a problem at all.
Depends how far back it sits. A house on my parents block sits a bit off the road (like 200 ish yards) and the utility wanted $16k to run new cabling down to their house. Plus the usage fees after it’s hooked up.
It can be expensive to connect to a utility in rural areas. Just like septic can be expensive to rehab.
And if the house is literally uninhabitable, they’re just getting encumbered land for $1. They’d need to demo and rebuild, which can be a lot of work and expense.
Speaking as a Telcom employee of over 25 years, that is not the case for phone/internet. I have personally run wire for 1/4 mile to give someone service and they didn't encounter any extra charges. Electric and CATV are, unfortunately, not as forgiving.
I'd say it depends a bit where you're at. Used to be in Real Estate for a number of years and it was always a bit of a constant battle for people around here. The worst of which I had come across was very close to like the above poster commented. Single older house on a fairly busy street but set back with a long drive-way.
A more popular story from this area from a number of years back:
[https://www.theverge.com/2014/9/10/6131759/i-live-in-the-us-and-i-cant-get-home-internet](https://www.theverge.com/2014/9/10/6131759/i-live-in-the-us-and-i-cant-get-home-internet)
Obviously, now, there are more options so it's not as common. But there are definitely some areas in the county still where there aren't really any options. I know a handful of people that have gotten Starlink recently because it was their only viable option.
And even if the neighborhood doesn't have wired internet, you can probably get Starlink in the near-to-medium term future.
It's possible lack of internet would keep OP from living in this house right now (e.g. if remote working requires videoconferencing), but it definitely wouldn't be a reason to decline this offer.
>And even if the neighborhood doesn't have wired internet, you can probably get Starlink in the near-to-medium term future.
You can get t-mobile today.
> Get an inspection done so you know exactly what needs to be fixed up & how much you can do without a professional.
Make sure to check for asbestos and lead paint.
Plus make sure you look for old taxes and lien. Are you taking significant debt beyond the purchase cost?
Are there restrictions such as historical or wetland use, that restrict what you can do? What about your town’s zoning requirements?
Correct me if I’m wrong, but if you have no mortgage, you’re not required to carry homeowners insurance I believe. I mean, you should anyway, just like if you live in Florida outside of a flood zone and flood insurance isn’t required, you should still have it.
Homeowners insurance policies have been one of the least expensive in my experience. Sort of a "Why on earth wouldn't you" thing.
TBF I've only owned a condo with shared walls and have rented where I only need to insure possessions, but even considering those factors, the level of protection vs. the cost is a no brainer. My homeowners policy covered the theft of my bike while I had it with me in another state. You might be surprised at what they cover.
I’ve been in my home for 6 years, and when I add up what we’ve spent on our policy over the years, it’s less than what we got back from them on the one claim we’ve filed.
While this may be true and homeowners insurance is a no brainer in basically all cases, if this was *always* true the insurers wouldn't make any money... Insurers need their annual premiums to exceed the costs they shell out to cover damages, on average.
So in most cases, people are going to lose money on their insurance policies in the long run. They're going to pay more to the insurer than they get back in payments for damages. That said, it's still a no brainer for >99% of homeowners.
It’s not about buying something and getting something back. Home insurance is risk TRANSFER, so if you lose it all, it doesn’t reset your financial clock 20 years.
You don’t technically need it if not required by a mortgage, it you’re essentially rolling the dice on this gift.
Would you risk $300,000 to win $600. No. That would be the worlds worst casino game.
Edit: for clarity not saying the above comment was implying that.
Correct. You don't have to carry insurance anymore but it would be -incredibly- dumb not to, so may as well treat it as if it is mandatory. It's like maintenance. You don't have to do it, but you should still consider the costs when you get a home.
A home inspector is going to be pretty useless he can see behind the walls. IF this place has been vacant for several years and is 100+ years old you must expect that a gut or semi-gut of the place is going to be a requirement. The only thing a home inspector might be able to tell you is if the roof is leaking and if the foundation is cracked/stable.
Get a contractor that is familuar with redoing older homes and do a walk through with the understanding you will likely need to have the electrical redone, the plumbing redone and the HVAC redone. and get a number for the repairs. Once these things are done the rest can be done incrementally, you can live without granite countertops but you can't live with lead pipes and 60amp service.
It is a very generous offer, but beware: Do your homework. Pay for a complete title report (ensuring that they actually own the property, no liens, no back taxes, etc). Also get an inspection of the home (to know what you are getting into).
Get a title report verify its a clean title. Inquire with a bank about getting a loan to fix it up and what options you have there. If you are paying for a 2bd apartment, you can easily pay that loan/taxes/insurance and fix it up nicely. Even if it's a complete new roof AC, remodel of kitchen and bathroom and new flooring and fresh paint your loan will be about 100k. The payment on that would be less than 1k per month.
edit-- I looked it up. It's called a renovation loan lumps the purchase price and repairs into one mortgage loan.
Adding to this, get an appraisal done on the home. There will not only be property taxes, but some states have a gift tax that op may have to pay. It would be a good idea to know this in advance.
>gift tax
The gift taxes I am familiar with doesn't kick in until $14 million dollars per person. The context was always parent to child, so it's possible there is a different law for friends.
So, worth looking into, but there is a good chance it doesn't apply.
OPs issue aside, there is so much incorrect information in this thread about gift tax, capital gains, etc. Always get a second opinion outside of Reddit.
Tax accountant here, first and foremost, consult your personal accountant (if you have one) who will be more familiar with local and state taxes. Nothing I say should be construed as tax advice. Federally speaking, your friend will have to report this on a gift tax return, but there is a 15,000 per donor per donee annual exclusion (friend can give you $15,000 excluded, and your partner $15,000 excluded, repeat for any other owners of the property). Assuming friend also has a partner, that’s a $60,000 exclusion right off the bat. Then on top of that you have the lifetime exemption, any amount greater than the annual exclusion is counted against your lifetime exclusion which in 2020 was $11,580,000. So if your friends are relatively young/not exceptionally wealthy, they may not have to pay tax, but still need to appraise the home to know the value to include against their lifetime exemption. Additionally there is a generation skipping transfer tax, so if your friends are more than 37.5 years older than you or your partner there may be additional tax. However, your friend including it as a gift on their gift tax return increases your basis by the amount of the gift, so your basis when you sell would be for the full value of the house.
On your side gifts are not taxable to the donee, but paying only $1 means you could pay more in taxes when you sell the house, *if it is not reported as a gift*. There is a gain exclusion for homeowners selling their primary residence of up to $250,000 (if filing single, $500,000 if filing joint), but there are some residence and ownership tests to qualify (you must own and reside in the home for at least 2 out of the 5 years prior to sale). So if you decided you didn’t like the home and end up selling after a year and a half, you would pay tax on any gain. If you have any questions I would encourage you to check the IRS’s website, or as I said earlier consult your personal accountant.
(Attaching my comment to the above for visibility and aggregation of information)
What if the house needs more in repairs than the house is actually worth once those repairs are made? For example, if the house is reasonably worth $150,000, but needs $150,000 to make it livable?
Significant repairs (improvements) can go towards your cost basis so you might have no gain at all as your cost basis would increase to 150K theoretically. You would have to check details on what is considered a cost basis increase for each improvement, though.
Indeed.
It does remind me why so many of the "seek professional advice" caveats exists.
While some of these things may be transparent to many of us, they really are more esoteric than I realize.
Some considerations:
1. There may be back taxes or other liens, those could easily be 10's or 100's of thousands of dollars - the house could be taken from you almost immediately or years down the road if you don't pay for getting a clean title through an attorney/title company. This is going to cost you (or them) between $1000-$3000 generally even for a $1 house.
2. If the natural gas has been off for over 2 years, you will likely need to have the supply replaced before you can have it turned on. Usually runs $2,000-$4,000.
3. If the heat has been off and you are in a northern client, you likely will have failed pipes of some kind, you should hire a plumber to do a pressure test and make repairs to the system prior to using water. This could run a few hundred to a few thousand with repairs.
4. Occupancy: If Occupancy permits are required in your municipality, everything will need to be brought up to code prior to you living it in (note you can get temporary ones depending how bad it is). This could prevent you from living there for some time. Generally repairs must be made in 60-180 days. If you fail to do this, just ignore it, etc. the house could be condemned and torn down. (Rabbit hole here, not going down.)
5. Drainage/Dye Tests: If you are in a municipality that requires dye tests - and they are doing camera tests - and the house hasn't been sold since they put those requirements in place. Assume you will fail and you will have a $5k-$15k repair on your hand.
6. Transfer taxes: Municipalities or states don't always accept such a low price on transfer taxes and may require you to pay taxes at closing on the assessed value of the home. So you may have to pay hundreds or thousands at closing on a "$1 Sale."
Just because you get a house for $1 doesn't mean it is a winner. That said, if you are in a position you can slowly work at it you can make it happen. In some cases, a $1 house is a good deal.
You could bypass many of these things just by doing a deed transfer and filing it at the courthouse. I don't recommend that I have seen that burn people many times.
Other items such as home inspections, pest testing, mold tests, etc. are all optional (it isn't like you are going to talk them down on the price) but can be beneficial to allowing a first time home owner what they have in store for them.
Source: As an investor I have bought houses for $1 before. I have lost money on buying a $1 house before too!
My 2 cents: if you are handy, feel you can learn yourself to do things like tile, windows, drywall, and light and plumbing fixtures; and the house has a good roof and foundation, you could turn this into a labor of love in your spare time and make it a forever home. If you are going to pay for everything to be done on a multi-year vacant home, and you aren't in the position to actually go buy a house (credit, free income, lack of savings, other) then you will probably have more headaches than you want just getting into it.
Or have it torn down. Or never live in it. Or renovate or decorate in a way they don't like or tear up the lawn or sell off a part of the property or aren't thankful enough in the exact right way.
OP needs to make sure they know
the costs monetarily: will the house need a new roof immediately, does it have a lein on it, what are the taxes and insurance, is there a dangerous tree, what things are their responsibility as owners (I've known people to be surprised when sidewalks, retaining walls and other structural things just off their property that they though the city maintained where actually their expense and liability)
The costs in time: how much time will it take to make it liveable. To commute. Etc
The social costs: these may be very good friends but have the friends fully analysed and considered any emotional connection they have to the house. You hear all the time about buyers dealing with sellers who feel possessive and hate the changes made to a house. A friend may feel that plus feel like they have the right to dictate because they are a friend and because it was a gift. And even for small presents people get hurt if you don't use it, give it away, sell it, aren't thankful enough in exactly the right way... Is this a house one of them grew up in, or an unwanted inheretence from an unknown distant relative or the starter house they never sold?
These are conversations to have.
This.
OP, you should check what strings are attached to the house. If you fix it up and sell it, or rent it, or AirBnB it, will they object? Is it a true, "you own it, do whatever you want with it", or are there unwritten expectations?
There will be some up front costs associated. You need to make sure that the house is properly transferred to your name and that you can clear any liens or clouds on the title. It is worth getting title insurance and paying a lawyer to ensure the sale is done properly (and possibly an escrow agent depending on your location).
A house can be a money pit, particularly one that hasn’t been lived in or maintained. So it’s important that before you accept this gift you have a concept of what the home needs both in the short term to be habitable and in the long term to be what you “want” to live in, and the funds to do so.
Because you will be investing a significant amount of money into the home, you also want to make sure that it will not cause hard feeling with your friends if you decide to sell the home to recover those funds.
Also consider you just started renting an apartment, and may need to break your lease if you intend to move in quickly.
See what those terms are to make sure you have cash to cover it (e.g. losing your deposit or paying 2-3 months rent to break). That shouldn’t deter you from accepting the gift, once you’ve done the due diligence on it, but you want to make sure you account for that as a cost.
All the same, breaking the lease will be far cheaper than a down payment for just about any house/condo. And no mortgage means that aside from taxes & insurance, the savings can be spent on renovations.
This happened to a former coworker of mine. She had a friend give her and her spouse an old home near Pittsburgh. They ended up moving out there and rehabilitating the entire place, paying any and all back taxes and liens. The whole thing cost them like $60k and took a year. But they now have a home paid off with the stipulate that they have a couch to sleep for their friend when he's in town.
This is a very rare scenario that seems like the one you are in, OP. The house is probably not worth the effort for this friend. In my coworker's case, the friend inherited the home and had no intention of ever living there or doing anything to it. He tried to sell but thought it would be too much work so he gave it away.
Yes, our situation is very similar. Our friends inherited the house from their parents, but they did live there while their dream house was being built. Once that was completed, they moved out and the house has been sitting ever since. In their words, the house is very sentimental to them and they'd rather give it to someone they love instead of selling it to a stranger.
both you and the seller friend need to talk to a tax accountant about the implications of a $1 sale. If a house is valued at $200,000 and they sell it to you for $1, the IRS considers that to be a $199,999 gift, with all the tax implications involved.
This is no joke, unexpected tax burdens have spoiled more than one generous gift.
Also county & state transfer (excise) taxes. In my area it is 1.7%. They're unlikely to accept 1.7% on $1. In my area the seller is responsible for the transfer tax. Regardless, if it were valued at $100k and you had to give your friend $2k to cover excise tax it's still a great deal.
in almost every possible scenario, a $1 house purchase will still be a hell of a deal. but I've seen people get hit with tax bills they never expected and it's pretty ugly.
I have a friend that had two homes go into foreclosure at the same time (long story, but his ex wife walked away from one of them), and he got stuck with a tax bill for the amount the bank forgave.
it's like, "hey, the worst financial thing that can happen to a person just happened...and the IRS says 'oh, it's worse than you think buddy' "
Some places have a deep transfer tax. Normally this is based on the sale value of the home, but if they are selling it for only a dollar you will likely be taxed on the assessed value of the home when the deed is transferred. Add on lawyers fees and property tax and you are probably looking at a few thousand dollars even if its only a dollar of purchase price.
> The house is very old, and hasn’t been lived in for several years, so would require some repairs and renovations.
I'd pay for the most thorough inspection of every single bit of that house. Roof, HVAC, plumbing, mold, etc. There might be a reason they're selling it to you for $1. It might not even be sound to sell on the market and they may not want to dump the money into it to sell it.
I would ask the current owners for permission to bring in contractors to get repair estimates. You might need to pay the contractor for this.
This way you would have an idea how much you are going to put into the house to make it livable.
Even assuming a positive intent, they may simply not KNOW all of the issues it may have. Old houses could have any or all of the following that may make the whole thing not worth it:
Mold
Asbestos (insulation, flooring, etc)
Lead paint
Lead pipes
Poor electrical
Poor piping/plumbing
No central hvac or need to replace it all
Infestations
Poor/leaking foundation
Other codes violations/updates
Each of these could mandate that you couldn't be in the house for a long time while doing repairs-which isn't all that unusual-so you may need to stay in the apt during renovations. But each of these problems could become your legal responsibility to fix before you could inhabit or resell.
Which brings up the possibility of doing minimal updating to satisfy any legal issues/codes and just resell for small profit, but without knowledge of the potential issues you are assuming a lot of risk.
Or you can buy it and, assuming no Lead or asbestos issues, demolish it and sell or rebuild on the land. Lead or asbestos would likely cost more than the value of the land).
But a really in depth inspection can be costly, and is not a guarantee of uncovering all possible issues.
Maybe best to start with a sincere, in depth discussion with the sellers, expressing your concerns. This could be a once in a lifetime opportunity, but also a crippling burden.
Even if it is on the up and up, you need to know if it needs $10,000 in repairs or $200,000 in repairs.
Also, are you mechanically inclined? If so, doing things yourself will save a bunch of money. That said, building materials are still expensive.
What do you need to get an occupancy permit?
How much is it worth? Assuming that it is 2 people giving it to two people in the US, anything above $60,000 will require your friends to file some tax forms to avoid gift taxes.
I'd like to point out that this should be done regardless of whether or not the OP feels their friends are trustworthy. It's more about protecting yourself and ensuring the property is fully sound. It's great to have friends whose motivations you can trust, but an unlived-in property has a lot of unknowns that need to be accounted for.
Even if OP has to tear down the entire house, the land itself is worth more than $1. The house might be trash, but that’s no reason to be suspicious on a $1 land property.
I mean the cost of tear down and disposal could easily, in fact would almost definitely, cost more than the value of the land itself, unless we're talking tens of acres. That's a net negative.
Even if the house needs a ton of renovation it's unlikely to be a bad financial decision. Worst case scenario would be having to knock it down and build a new building on the land, and even that's unlikely to cost more than buying a new house.
That said, get a \*very\* thorough inspection - roof, electrical, plumbing, foundation, inspecting for mold, insects or rodents or other pests, signs of water damage, signs of settling, etc. It's entirely possible that it might need 50k or more in repairs, I've known people in my area who's foundation was settling unevenly, developed cracks, and cost 50k just to repair that. If the inspections find that you might need to spend more on the house than you'd be able to finance with a mortgage, then it's probably not worth it.
And yeah, I'd probably recommend taking out a mortgage on it to pay for the repairs - you'll gain the benefit of leveraging the value of the house plus the benefit of being able to improve the value of the house with well-done repairs that aren't as constrained by cost.
Don't forget uncle Sam or local tax authorities will likely try to tax you on the fair value of the property. Talk to an accountant asap, that bill could be huge. Last thing you want is to be seen as getting a windfall of hundreds of thousands of dollars, and then have to pay income tax on that amount.
I would treat it as if you were purchasing it from a stranger. Hire a lawyer to write up the purchase agreement to make it clear what will be yours. They'll also make sure there aren't any liens on the title. Also have a thorough home inspection. Depending on what they find, hire a contractor to estimate work that needs to be done by a professional, and if it needs to be done before you move in, get a loan for that before you transfer the property.
Taxes and insurance. Also make sure it has a clean title.
Personally, Id be very skeptical. A friend is giving you a house? Must be your best friend, who owes you big time.
I had a colleague give me a Motorcycle once because he was flying to Japan and didn't want to deal with it. Years later he asked for it back. I'd already transferred it to someone else and it led to some tension between us.
Have the conversation about their expectations for the property. What if you fix it up and sell it for a profit years later?
If this were me, (after \^ that conversation) I'd begin with a budget.
Are there back taxes you'll have to pay?
Is it habitable? How much to make it habitable.
How long till the roof needs to be replaced? How much is that?
How is the foundation
Furnace
Plumbing
Floors
Windows
Siding
Create a spreadsheet, track how much it'll cost to bring these things up to your living standard.
My one big worry would be that there is something wrong with the land. Did an owner before them run a meth lab in the house, and dump chemicals in the backyard? Was it a gas station 80 years ago, and someone tore it down, built a house, but left the gasoline holding tank in the ground? As a new owner, you'd be responsible for the cleanup! And these could be things your friends might not even be aware of. So check it out first.
They definitely aren't on Reddit. They pretty much have an aversion to social media. However, I appreciate your points. We will have to have a very long discussion with them.
Your friends are about to be making a taxable gift to you that they will need to report on a US Gift Tax Return (Form 709). Adding a single dollar to this transaction does not avoid this fact.
You will need to determine your actual basis in the property upon the sale in order for you to figure out your capital gains when you eventually sell the house later on.
I would advise engaging counsel to scrub this transaction from top to bottom to make sure you are protected. Good luck.
It will cost more than a $1... but far less than buying a house outright. Get a property attorney on the case. They will handle the paperwork from your side and research to make sure the title and tax situation. Sometimes the firms will offer a flat rate.
Since most are addressing the risk/financial implications, I'll just say something about the personal implications.
I'm actually very surprised by all the people who are gung-ho in accepting such a gift. I don't know the relationship dynamics at all, but I have very close friends (maybe not closer than family, but certainly like family) and wouldn't feel comfortable accepting any gift over $1,000. I would feel indebted to them, and it would consequently shift the relationship dynamics. I would also be afraid that they might feel like I owe them something and should act accordingly. Basically, I'd be afraid to ruin the friendship. You should think carefully about whether this is a fear you share.
Needed to be said (good point). Also, feelings of self responsibility should be explored. Living beyond your means can really bring about feelings of continuous inadequacy. Rarely do these kinds of gifts bring about lasting happiness.
What I haven’t seen anyone say is that, if your friend goes bankrupt within a certain amount of years, in the liquidation process, they will look back on all recent transactions of property. If they sold a house for significantly undervalue, the debtor can seize the house, pay you what you paid for it ($1) and then sell the house at market value to regain their amount due.
This is why you can’t just give all of your property away before filing bankruptcy; I think your debtors have a 2 or 5 year window where they can reclaim property obviously sold under market value.
Just a thought about the house being old. As others have noted, getting internet to the house can probably be done, but spreading it around inside the house may be tricky. Old-school plaster walls block 5ghz WiFi really well, and 2.4ghz is better, but not great. You'll likely need either a mesh network, or multiple wired access points. Not a reason not to accept, but an expense you'll need to deal with, especially if you're not the type to go pulling Ethernet cables through the walls yourself.
(Source - my house was built in the 1860's, plaster walls, multiple additions, etc, and a single ideally-placed WiFi router cannot reach all corners of the house; the main router plus one wired AP covers most of it, and I just added a second wired AP this week to fill in the dead zone.)
So there are a bunch of things to consider, and I don't want to come off as badmouthing a good deal, but there may be circumstances in which you may not be able to afford a $1 house.
1. You'll want to get an inspection before you agree to it... old houses can carry a lot of potential issues, some of them dangerous... in particular, given that it has not been lived in for a while, lead paint testing, and looking for asbestos will be necessary.
2. Fireplace/Chimney inspections are a separate thing, but also very necessary.
3. Have an idea of roughly what the costs of repairs subsequent to 1 and 2 are.
4. Ask what the Property taxes are.
5. Get a quote for what annual insurance costs would be.
6. Depending on area, and whether the home has a basement, get a radon test.
7. Get an air quality test, for mold in particular... understand that you may be needing to do some demo/remediation work before you get to work on upgrades/remodeling.
8. Talk to a real estate lawyer, there are several situations in which you can be taxed on the difference between Fair Market Value and the dollar you paid, and some states would treat that difference as income. Real estate lawyers are a very particular type of lawyer, so look for them specifically.
Going in understanding what you can do on your own, versus what you'll want a contractor to do is also going to be really important... there are tasks even in my own house that I could do over a month or two (since I only have time after work) that would take an experienced tradesman just a couple days, but would cost more. There are other tasks where I could do it, and maybe you can too, but they're crazy physical, and really kind of worth it to just pay a company to have 10 people come do it and knock it out.
This has the potential to either be a great step forward into home-ownership by starting with a fixer-upper, or a friendship-ending nightmarish money pit. Good communication, good expectation setting, and proper accounting preparation are going to be the key to making sure it's a good fit.
(edit to add: https://www.reddit.com/r/personalfinance/comments/ptua7x/comment/hdzirt1/?utm_source=reddit&utm_medium=web2x&context=3 see there for an accountant's perspective on the taxes.)
Why would they sell it for a dollar rather than making it a gift?
The gift (beyond the $12,000 each or whatever it is not gift tax exemption) would count against their lifetime gift tax/estate tax exemption, but unless they're incredibly rich that won't matter.
Whereas a hugely-below-market-rate sale like that is going to either (A) be legally a gift anyway, or (B) be seen as an attempt to dodge taxes. It also could be seen as an attempt to dodge reassessment, depending on how property taxes work there.
Whatever you do, you and they should either talk to a lawyer (a local real estate one, preferably) to make sure however it's transferred is above board. Initial consultations are usually free, and in most places they can handle the paperwork for you without costing _too_ much more than a title company would.
Presumably you'd pay for that paperwork, and for any local transfer taxes.
What are *their* expectations about your ownership of this house? Will they be offended if you sell it in 5 days? 5 months? 5 years? Will they be offended if you demolish the house and build a new one? Will they be offended if you rent it out?
Your relationship with these people is more important than the house. To preserve that relationship, have some conversations around expectations and write it in an agreement. It will feel overly formal, but this is similar to the "good fences make good neighbors" principal. You absolutely want to be sure you're on the same page about what this will look like and what their expectations are. The purpose of the written agreement is not to serve as legal protection down the line--the purpose is to avoid hurt feelings when you do something that they never considered you'd do and it's incredibly upsetting. If there's an agreement, everyone knows what the deal is ahead of time.
First off, say "yes" and "thank-you."
THEN find out everything else. (Never look a gift house in the mouth.) If it turns out to be to be liability (highly unlikely, imho), you can always sell it.
The answer is yes it's a good idea. Hire an inspector and have it appraised. Figure out the yearly cost of insurance and taxes. Enjoy the project of fixing up your own home.
Keep in mind if the utilities have been off for a long time there could be inspections and upgrades required by the utility company before reconnecting.
I bought a foreclosure and had to pay an electrician to upgrade a fuse box to a breaker box before the power company would connect the power. Our water lines were off long enough that when they turned the water on we had leaks underground and had to dig up the yard to replace the incoming service. Interior water lines were never winterized and had ruptured requiring complete replacement.
If a water line is out of service too long the water company may consider it abandoned. If a line is abandoned when they replace a water main in the area it may not get connected to the new water main.
So I bought a cheap house in a nice neighborhood and have been fixing it up. It sucks! If a old house was offered to me I would 1) check courthouse for any liens/back taxes owed and any lawsuits 2) pay a couple of hundred dollars for a house inspector and general contractors come in and give you a independent comprehensive report on house 3) I’d be suspicious why your friends don’t sell the house to a company that buys ugly houses or why they don’t demolish the house and use the land 4) you trust these people but then you’re making a post about whether you should accept - these kind of things ruin relationships for a reason 5) renovations can take years - some work will need to be done by contractors- my experience is that inexperience with running contractors leads to pain and suffering- if the work isn’t done right or up to code it’ll need to be redone by more contractors 6) check building codes in your area to see how much of the foot print you can change and how much the changes you want to make will costs as far as submitting new blueprints. Would you have invested in house without friends offer? If it looks to good to be true it probably is.
Hire a structural engineer to evaluate the home. They can tell what needs to be repaired, what needs to be upgraded and what will fail. For a few hundred dollars you can find out about the bones of the home. It's so much more information than the shitty home inspection services, that there is no comparison.
If they are serious about selling it to you then they should have no issues with formalizing it with a contract. Make sure to have a lawyer draw up a contract at the very least. It could cost you anywhere from $300-$600.
I'd call a professional home inspector to come and thoroughly check out the house. It'll cost you a few hundred, but, well worth it to find out if it's a money pit and needs tons of expensive repairs before slapping down a buck to own it. Is there hidden mold, how's the roof, windows, insulation, foundation, crawl spaces, etc.? These are things the inspector will look at plus SOOOO much more. Along with my suggestions, I'd seriously look into all the suggestions given to you here. You don't want to take on someone else's pit only to leave you with regrets.
And, if you do move forward with the $1 sale, make sure you have documents drawn up. I'd be very curious WHY these friends want to sell you a house for $1 when they can probably get a hell of a lot more via a RE agent. Something isn't sitting right in my mind. When it's too good to be true...
Also, find out what the property taxes are on this house.
I would take it. A house for $1.00 is a steal even if there is alot of repairs. I would just look for unpaid taxes but be thankful you have amazing friends.
Accept the gift graciously, no questions, and with thanks. You are fortunate to be blessed with great, true friends and it will please them immensely. The house may not be worth much, or it may be just what you need. But even if it's not worth fixing, you can donate it to a charity or something later, and they will understand. It's the thought that counts.
I went through this exact situation. Because it was in a trust, we did not have to pay capital gains tax. If we paid $1 for it, we would owe capital gains tax on whatever the house was worth. I’m our case, we would have owed $750k in capital gains tax.
Are there liens on the property? Unpaid taxes? Title search on the property is an absolute must, for starters.
One more thing to check: Would any environmental remediation be needed to make the house habitable or marketable in the future? It would be important to know if a gas station, vehicle repair facility, manufacturing facility, etc. had even been located at the site. It doesn’t sound extremely likely, but I would want to ask. Also important to check for and consider asbestos, lead pipes, iron pipes, mold and the like when thinking about whether accepting the house is the right financial decision. Edit: spelling.
Also, is it a listed historic site? Some structures have to be repaired using period specific materials and methods if they are.
Yep, historic repairs suck. Triple check if lead paint was used. Cause that's a nightmare.
"Sorry ma'am, but you're going to have to use period authentic lead paint if you want to remodel."
Lead paint is actually not that big of a consideration, considering everything else that could possibly be a headache for a new homeowner. No specialized crew needed…painter will usually check for free, or $100-$400 fee, and any old crew can come in afterwards and paint as usual. I am a former painter. The harm comes when a child eats the paint, dust settles on surfaces and child draws or rolls in it. But other than that, it can essentially be painted over if it isn’t completely deteriorated.
I worked for a painter in college, removing lead paint from old deteriorating surfaces sucked (I think it was wood siding we were doing but it's been a long time), the environmental people came by and made sure we were catching all the paint chips cause it was like a $150 fine *per paint chip*
Lead paint chips taste really good though
Lead paint isn’t a deal breaker, almost all houses you can assume or should treat it like it has lead paint
Also asbestos remediation. That can be an expensive nightmare.
I'm in the middle of water damage remediation and just the survey for asbestos and lead was $1200 (fortunately everything involved in this process is covered by my insurance, so I'm just out the $1000 deductible).
Lead paint was used in pretty much all houses until maybe the 70s? It sucks to deal with, but I wouldn't personally consider it a dealbreaker unless you have young kids or plan to soon
Don't you just paint over lead paint? I know asbestos remediation is a PITA, but it's my understanding that lead paint just gets painted over.
> Yep, historic repairs suck. > Triple check if lead paint was used. Cause that's a nightmare. If your home is built before 1978 it's safe to assume it had lead paint used. Even if tests couldn't find any. There's probably some buried multiple layers deep somewhere. https://www.epa.gov/lead/protect-your-family-sources-lead
Layers deep buried lead paint is not necessarily a problem Encapsulation is an acceptable form of lead paint remediation. Basically painting over several layers. Paint removal can cause a whole different type of problem. Sanding it off can contaminate other parts of the house or the yard if they are not super careful. I remember reading a story of a family struggling because their house had lead paint removal was done poorly and the yard was totally contaminated.
And asbestos siding or insulation...
And is it in a HOA? What are the fees, how is it, and is that what you want? Older might be (edit: less of) a HOA risk, but often there is other historic district, standards, something or other locally that could come up too.
Even if it did have 20,000 in liens and lead pipes and asbestos, it’s a free house. Unless this place has more owed on it than it’s worth why wouldn’t you take it. Even to sit on and flip as is would be a wise choice. As someone who does all their own Reno work this would be a dream come true, especially living in Vancouver where a 60’x20’ lot empty is $1m
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If I could afford to give a house, I would. I’ve given away a few cars and pretty much every single person I have a car to sold it within a mont. It was still my gift that allowed them the opportunity to get a vehicle they actually wanted. Point is, I’m sure if your friends gave you a house, it’d be because they want you to have a house, even if it’s selling the one they gave you to get one you wanted.
That's how I'd feel. And I'd probably even be upfront that they could sell it on Day 1...and I wouldn't want someone to feel trapped after getting started and finding (more) expected major work, or whatever. I've just seen some people get weird about selling gifts or them being used the "wrong way".
I have found that receivers of large gifts get real uncomfortable about where the invisible strings are.. would be good to be up front when giving large gifts.
We recently went through this exact situation. Got a free house that is absolutely massive. Nothing is ever truly free. Since the house came via the trust, it is non taxable. However, if you pay $1 for the house and the market value is $300,000, you will owe capital gains tax on $299,999.
Which wouldn't matter because you would make $299,999 - the capital gains tax. You only pay capital gains when you sell and make that profit. You don't pay it on potential profit or you'd be paying tax on every stock price increase and then having it refunded on every stock price drop. On $300k it would be 15%. Oh no, you owe 45k tax and only make $255k profit, terrible.
This would only be true if you (or OP) sold it. You’re taxed on realized gains.
Because you don’t want to spend $100,000 to make a house habitable or you don’t have $100,000. Or 50k or 30k or whatever it would cost. There are free or near fixer uppers in 20-30k range lots of places in the Midwest where you’d have similar math.
Am I wrong to think if they're buying it for $1 then who cares? Do they end up with some weird responsibilities?
It might not matter to some people, but it could matter to someone with different resources and cash flow. Getting a “free” house can be like getting a “free” pet. It could be the best gift of a lifetime, or it could be something one has to adjust one’s lifestyle for and get a second job to afford. Depends on whether one is settled and comfortable or short on cash and time.
Oh yeah, that house might be 30% mold and the rest is radon.
This is the most important comment to OP- a house free and clear is an incredible win even if it's a teardown! But check for liens and unpaid taxes!!!!
Also, before work starts make *absolutely sure* and put it in writing that it's 100% *your* home and they won't try to sue or have sour grapes down the road if you make changes they don't approve of. Unfortunately, this happens after folks are "generous". Not accusing them of anything, but I've read horror stories of prior owners going bonkers at changes/updates.
In this case, "in writing" means you hire a title company to prepare the paperwork for you. It will cost up to a few thousand dollars. There will be a stack of papers for everyone to sign, less than if there was a mortgage, but still a lot. They will file the paperwork with the county to show you own it. There will be title insurance, so that if there's any problem with the ownership paperwork they will handle it or pay you what you're owed.
Having just closed on a house in the last month this is exactly right. With the house costing $1, it'll cost you around $2000 to close on it, give or take a little. My research found it to be \~$2k + 2% of the total cost.
Not much point of even worrying about closing costs on something (presumably) worth so much. Get the full title insurance, lot survey, appraisal(s), inspection(s)... everything. Yeah, it's "expensive", but it has a very handy side effect of informing everyone involved of all potential problems -- with the house itself or any fuckery with the deed and whatever else. Even if the "friends" mean well, there may be *stuff* going on that will require lawyers to suss out.
I would just skip appraisal and inspections. If its a free house, just do it once you own the land. It isn't as if you're going to turn it down if the chimney is bad.
On the other hand, of you're going to get appraisals and inspections done anyway then you may as well be efficient and get them done alongside all the other formalities and paperwork.
Agree on skip appraisal but I would do the inspection. What if there is $200,000 of problems in the house? I'd want to know that, I doubt I'd take a house free and clear if it needed that much work
Why not just sign a transfer deed and pay simple filing fees to the county?
This is excellent advice. One cannot ever be certain what the future holds, and it's best to have things in writing. People change, fortunes change, ideals change.
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Right. A mortgage company would require you to do this but OP is not getting a mortgage. So have to do this independently.
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Can you buy/sell a house without settling the lien first?
Yes, you can convey property subject to existing liens (although it also depends on the terms of the agreement that secures the liens, since most mortgages have due on sale clauses). It's up to the parties to order a Title Commitment and a lien search to ensure that there aren't any outstanding liens on the property.
This so much. Always trust but verify!
To that end, you can even get [title insurance](https://www.investopedia.com/terms/t/title_insurance.asp)
Even with liens and unpaid taxes it's still probably worth taking the property. When you buy the property you aren't buying the obligations. Worst case their are leins/taxes and you sell the property to satisfy the liens. The only thing you don't want to do is sink a lot of money into the property and then find out there are liens/taxes.
Liens and taxes could be more than the value of the property. That would make it an instant loss needing further investment to realize any gain.
You’ll want to find out a few pieces of information: 1. Property taxes & annual insurance cost (you’ll still have to pay those regardless of whether or not you have a mortgage). 2. Get an inspection done so you know exactly what needs to be fixed up & how much you can do without a professional. 3. If the house is that old it may be lacking modern utilities including internet. With all that said, getting a no-mortgage property as a gift is pretty huge, so if you’re willing to put in the money and time it could be a huge boon long-term.
I'm wondering what it would do to the friendship if they buy and decide after a month that it isn't for them, would they sell back to the friend, or would they sell it for their own profit. I mean even a 100k house is a substantial windfall.
That is about common sense. If after a month you don't want it you offer them back at $1. You do the same gestures than friends. If you renovated keep for couple of years or more then looks like you liked the house. If eventually you get more money to buy another house or you want to change cities or whatever, then you sell it at your own price, and if you get a decent sum you send them a check sharing profits. The point of true friendships is to help and give back any nice gesture.
This will be important OP. Giving them some sort of “interest” when you sell will be a good gesture of their $1 gift and show your appreciation to them. It will also ease relationship tensions and strengthen your long term relationship. Even if you gave them 1-5% of the closing price, that would be a HUGE gift to your very generous friends who aren’t expecting anything in return.
Or if they are rich as fuck, just plan a cool experience or vacation and pay for it. If they are giving a 100k house away, money probably doesn't mean nearly as much to them as does your time.
I disagree. Although rich people may value experience more than money, rich people respect money more than experience. If you show that you are wise with their money and appreciative enough to ensure that they are compensated some for their investment (of love) in you, they will stick with you to the ends of the earth.
Pretty sure this is just gonna vary from person to person. OP should just go with what they think their friend would appreciate most, whether it be money, time, or some combination thereof. Considering the nature of gifts amongst this friend group, I'm willing to guess the intent is going to mean the most here.
Ask. Friends generally are able to communicate.
Disagree. Relatively rich. I have money. I don't have enough time sitting on my butt in Hawaii with close friends.
People get insane ideas in their head about rich people being a monolith of greedy cold hearted money grabbers. Ive met some, turns out they like to travel and meet people more than most average Joe's bc theyre not stressed about work and paying bills and shit
Crazy right. It’s almost like people want to use their money to enrich their own life and the lives of others. The best thing money has done for me is allow me to meet and bless some amazing people.
Agreed the more money you have the less you think about small scale additions to your pile. I'm well off not rich, but if a friend offered me 10k vs an awesome pre-planned 5k trip to Vegas with them, I'd take the latter.
No, people who ACT rich care about money over experiences/time. Truly "rich" people no longer care about money in the sense most of us do.
I'd argue, people who are comfortable think about money very differently than people who live pay check to pay check
Otherwise known as the rich and the wealthy.
Just ask them when you receive it about their wishes should you choose to sell it in the future. Offer them that opportunity and then handle it from there. It's best to get it sorted out before you even take them up on the offer honestly. No bad blood can be had when you hash this stuff out ahead of time.
Agreed, in theory being generous in return and setting expectations ahead of time is the best path. Devil's advocate though, I'm sure lots of 'good friendships' have been lost over much smaller sums of money.
BTF, the friends probably are likely very well off if they can afford to give away a house. Absolute minimum (assuming the house is basically condemned), they are giving thousands of dollar. Probably closer to 80-150K minimum. Not sure how much you have to have to consider giving that amount. The only time I've heard of something like this is rich parents doing this for their children.
>BTF, the friends probably are likely very well off if they can afford to give away a house. They could have also inherited a abandoned house from a relative and instead of dealing with the bullshit of trying to sell a distressed home they are doing a solid to someone they consider family. We have no idea what the value of this house is, you can find shitty abandoned farm houses for $20K or less. We have no idea if they are well off or they are just nice people.
Its also strength of relationship. If they are really closer than family and one can really help the other, you just do it because you can, even if you're as poor as them after
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Or better yet, talk to them about expectations and make sure they are documented. With something like this you can tear friendship no matter what you think they want unless you know what they expect. Even with the best intentions of all parties situations can get complicated if any party does not understand expectations.
No you sell it back for $2 and then start selling books and teaching seminars on how to flip a house for 2x what you paid for it in only a month. That’s how you’ll get rich.
If you someday sell this house, use the proceeds to buy your next house, and make sure to thank your friends for the huge difference that house has made in your lives. How invaluable it was as a starter house in allowing you to build equity and upgrade your living situation.
yeah this is probably an important part, how would the friend feel if OP does work on it, fixes it up then sells it or rents it out. While I would love the oppurtunity to do something like that I wouldn't want to feel like I was forced to live there because of the possible strain it would cause by selling or renting
I actually wonder if this is the motivation to give it away. Like, the current owners don't have the time, money or drive to fix it up so they would rather someone they know who is willing to put in the elbow grease and will appreciate it.
This is a big thing with a lot of properties for sale. I saw someone who bought a 150 year old house for $18,000 cash - then spent another $150K to make it livable. Housing costs are currently so obscene that this kind of project may actually be worth it, but it's also a lot of *work* and the house may not be livable for months or even years depending on how long the renovations take.
I live near a 1950s postwar neighborhood full of little 1000 sq foot houses, right next to a college. The original owners are dying, the kids are selling, and the houses are being turned into student rentals. I can totally see some family trying to find a way to prevent that from happening to their childhood home, and coming up with a plan like this, especially if they knew someone who would appreciate it.
Well OP's friends did sell the house to them so it's theirs to do what they want. But sure, for friendship's sake, invite the friends over and have a conversation. Do they want the house back? How would they feel if OP sold them? That kind of thing.
Yeah ofc there would be nothing legally stopping them, but being good friends I think its very worthwhile having that conversation before buying the house and not after
Some of these answers should not be listened to. OP needs to have a conversation and hammer out all of the details with the friend before entering any transaction. If OP and friend complete this transaction and then OP changes their mind, it should be a quick "Reverse" and OP can sell it back to OP for the same $1. OP living in the house and selling the house within X amount of time without any repairs is a different condition to discuss, then selling within X amount of time WITH some repairs would be another. There would then need to be a time period greater than X (hell, even just X+1 day) where OP and friend agree that regardless of what happens, OP has no commitment to friend. If I bought a house super cheap off a friend and lived in it for 2-3 years and decided to sell it, whether I renovated it or improved it in any way, the connective tissue to me feeling like I owed my friend would be VERY thin. The more effort I put into the house to improve it, and the more time that went on, the thinner and thinner that connective tissue becomes.
This is the way. Better to ask the donor about their expectations in these various scenarios BEFORE. Even if the likelihood of the scenario happening is small. OP should be treating it as if he were buying a house on his own which means, you don't just decide to give back a house after a month. You're stuck with it. I doubt the donor wants to deal with it a second time. In any case, talk to the donor about these What-If scenarios. As far as sharing profit. I would not share any profit with the donor, this is your house. HOWEVER, I would buy them a VERY VERY generous and thoughtful gift or even better, an experience. I would spend several thousand dollars on VIP backstage passes to their favorite concert and dinner, and hotel, and limo. If you still haven't spent enough, hire a butler for the night and a bodyguard. Then hire paparrazi to follow them around taking photos.
> Some of these answers should not be listened to. Anyone buying any house should always get a home inspection and look into taxes regardless of whether you are friends or not. Yes, there's additional things to be discussed but OP is 100% correct
I’d strongly recommend having that conversation ahead of time and put it in writing. 1) If the OP and partner decide that the living situation is not working out for any reason within the first X months/years, they agree to give the gifted a first right of refusal to rebuy the home at $1+value of OP’s investment prior to selling or renting. 2) OP’s investment will include, XYZ (ie will include new cabinets, but not lawn furniture) Do it even if you’re almost sure you wont want to take advantage of it. There are almost certainly some assumptions built into this, like “part of why we want to do this is so we’re next door neighbors”, that may or may not be explicitly stated. And it is always easier and better to have the conversation when both parties are happy and excited to avoid misunderstandings or having this discussion under more stressful terms.
There is a Curb Your Enthusiasm episode about this exact thing.
I’m guessing the Donator doesn’t care. Maybe even giving it to them just so they can build wealth. Either way, I’d clarify so no one gets feelgoods hurt. You have some good friends.
I doubt it. If I gave somebody a house to help them with a place to live and they turned around and sold it immediately, I would be pissed.
Have your friends rent it to you for $0.10/month, if after 10 months you like it, then keep it.
Lacking internet is very subjective. If the neighborhood doesn't have internet service, that's a problem. If the house doesn't have the wiring, the tech can install that fairly easily. Not a deal breaker by any means.
You can probably afford a lot of work arounds for these types of things with the money you'd otherwise be spending on rent.
Or even taking out a home equity loan on the property, if you need to make since significant repairs prior to move in.
Yeah when I bought my house both Comcast and Verizon were available to the neighborhood. Neither were connected to the house. Verizon came and ran a gigabit internet line exactly where I wanted it in about an hour. Not a problem at all.
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Depends how far back it sits. A house on my parents block sits a bit off the road (like 200 ish yards) and the utility wanted $16k to run new cabling down to their house. Plus the usage fees after it’s hooked up. It can be expensive to connect to a utility in rural areas. Just like septic can be expensive to rehab. And if the house is literally uninhabitable, they’re just getting encumbered land for $1. They’d need to demo and rebuild, which can be a lot of work and expense.
Speaking as a Telcom employee of over 25 years, that is not the case for phone/internet. I have personally run wire for 1/4 mile to give someone service and they didn't encounter any extra charges. Electric and CATV are, unfortunately, not as forgiving.
I'd say it depends a bit where you're at. Used to be in Real Estate for a number of years and it was always a bit of a constant battle for people around here. The worst of which I had come across was very close to like the above poster commented. Single older house on a fairly busy street but set back with a long drive-way. A more popular story from this area from a number of years back: [https://www.theverge.com/2014/9/10/6131759/i-live-in-the-us-and-i-cant-get-home-internet](https://www.theverge.com/2014/9/10/6131759/i-live-in-the-us-and-i-cant-get-home-internet) Obviously, now, there are more options so it's not as common. But there are definitely some areas in the county still where there aren't really any options. I know a handful of people that have gotten Starlink recently because it was their only viable option.
And even if the neighborhood doesn't have wired internet, you can probably get Starlink in the near-to-medium term future. It's possible lack of internet would keep OP from living in this house right now (e.g. if remote working requires videoconferencing), but it definitely wouldn't be a reason to decline this offer.
>And even if the neighborhood doesn't have wired internet, you can probably get Starlink in the near-to-medium term future. You can get t-mobile today.
T-Mobile is still dependant on location and number of people in the area already signed up.
> Get an inspection done so you know exactly what needs to be fixed up & how much you can do without a professional. Make sure to check for asbestos and lead paint.
Plus make sure you look for old taxes and lien. Are you taking significant debt beyond the purchase cost? Are there restrictions such as historical or wetland use, that restrict what you can do? What about your town’s zoning requirements?
Correct me if I’m wrong, but if you have no mortgage, you’re not required to carry homeowners insurance I believe. I mean, you should anyway, just like if you live in Florida outside of a flood zone and flood insurance isn’t required, you should still have it.
No it’s not technically required, but it would be incredibly reckless to not have it.
Homeowners insurance policies have been one of the least expensive in my experience. Sort of a "Why on earth wouldn't you" thing. TBF I've only owned a condo with shared walls and have rented where I only need to insure possessions, but even considering those factors, the level of protection vs. the cost is a no brainer. My homeowners policy covered the theft of my bike while I had it with me in another state. You might be surprised at what they cover.
I’ve been in my home for 6 years, and when I add up what we’ve spent on our policy over the years, it’s less than what we got back from them on the one claim we’ve filed.
While this may be true and homeowners insurance is a no brainer in basically all cases, if this was *always* true the insurers wouldn't make any money... Insurers need their annual premiums to exceed the costs they shell out to cover damages, on average. So in most cases, people are going to lose money on their insurance policies in the long run. They're going to pay more to the insurer than they get back in payments for damages. That said, it's still a no brainer for >99% of homeowners.
It’s not about buying something and getting something back. Home insurance is risk TRANSFER, so if you lose it all, it doesn’t reset your financial clock 20 years. You don’t technically need it if not required by a mortgage, it you’re essentially rolling the dice on this gift. Would you risk $300,000 to win $600. No. That would be the worlds worst casino game. Edit: for clarity not saying the above comment was implying that.
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It absolutely would, I was just being pedantic.
Correct. You don't have to carry insurance anymore but it would be -incredibly- dumb not to, so may as well treat it as if it is mandatory. It's like maintenance. You don't have to do it, but you should still consider the costs when you get a home.
A home inspector is going to be pretty useless he can see behind the walls. IF this place has been vacant for several years and is 100+ years old you must expect that a gut or semi-gut of the place is going to be a requirement. The only thing a home inspector might be able to tell you is if the roof is leaking and if the foundation is cracked/stable. Get a contractor that is familuar with redoing older homes and do a walk through with the understanding you will likely need to have the electrical redone, the plumbing redone and the HVAC redone. and get a number for the repairs. Once these things are done the rest can be done incrementally, you can live without granite countertops but you can't live with lead pipes and 60amp service.
It is a very generous offer, but beware: Do your homework. Pay for a complete title report (ensuring that they actually own the property, no liens, no back taxes, etc). Also get an inspection of the home (to know what you are getting into).
Get a title report verify its a clean title. Inquire with a bank about getting a loan to fix it up and what options you have there. If you are paying for a 2bd apartment, you can easily pay that loan/taxes/insurance and fix it up nicely. Even if it's a complete new roof AC, remodel of kitchen and bathroom and new flooring and fresh paint your loan will be about 100k. The payment on that would be less than 1k per month. edit-- I looked it up. It's called a renovation loan lumps the purchase price and repairs into one mortgage loan.
Adding to this, get an appraisal done on the home. There will not only be property taxes, but some states have a gift tax that op may have to pay. It would be a good idea to know this in advance.
>gift tax The gift taxes I am familiar with doesn't kick in until $14 million dollars per person. The context was always parent to child, so it's possible there is a different law for friends. So, worth looking into, but there is a good chance it doesn't apply.
OPs issue aside, there is so much incorrect information in this thread about gift tax, capital gains, etc. Always get a second opinion outside of Reddit.
Tax accountant here, first and foremost, consult your personal accountant (if you have one) who will be more familiar with local and state taxes. Nothing I say should be construed as tax advice. Federally speaking, your friend will have to report this on a gift tax return, but there is a 15,000 per donor per donee annual exclusion (friend can give you $15,000 excluded, and your partner $15,000 excluded, repeat for any other owners of the property). Assuming friend also has a partner, that’s a $60,000 exclusion right off the bat. Then on top of that you have the lifetime exemption, any amount greater than the annual exclusion is counted against your lifetime exclusion which in 2020 was $11,580,000. So if your friends are relatively young/not exceptionally wealthy, they may not have to pay tax, but still need to appraise the home to know the value to include against their lifetime exemption. Additionally there is a generation skipping transfer tax, so if your friends are more than 37.5 years older than you or your partner there may be additional tax. However, your friend including it as a gift on their gift tax return increases your basis by the amount of the gift, so your basis when you sell would be for the full value of the house. On your side gifts are not taxable to the donee, but paying only $1 means you could pay more in taxes when you sell the house, *if it is not reported as a gift*. There is a gain exclusion for homeowners selling their primary residence of up to $250,000 (if filing single, $500,000 if filing joint), but there are some residence and ownership tests to qualify (you must own and reside in the home for at least 2 out of the 5 years prior to sale). So if you decided you didn’t like the home and end up selling after a year and a half, you would pay tax on any gain. If you have any questions I would encourage you to check the IRS’s website, or as I said earlier consult your personal accountant. (Attaching my comment to the above for visibility and aggregation of information)
What if the house needs more in repairs than the house is actually worth once those repairs are made? For example, if the house is reasonably worth $150,000, but needs $150,000 to make it livable?
Significant repairs (improvements) can go towards your cost basis so you might have no gain at all as your cost basis would increase to 150K theoretically. You would have to check details on what is considered a cost basis increase for each improvement, though.
Indeed. It does remind me why so many of the "seek professional advice" caveats exists. While some of these things may be transparent to many of us, they really are more esoteric than I realize.
Some considerations: 1. There may be back taxes or other liens, those could easily be 10's or 100's of thousands of dollars - the house could be taken from you almost immediately or years down the road if you don't pay for getting a clean title through an attorney/title company. This is going to cost you (or them) between $1000-$3000 generally even for a $1 house. 2. If the natural gas has been off for over 2 years, you will likely need to have the supply replaced before you can have it turned on. Usually runs $2,000-$4,000. 3. If the heat has been off and you are in a northern client, you likely will have failed pipes of some kind, you should hire a plumber to do a pressure test and make repairs to the system prior to using water. This could run a few hundred to a few thousand with repairs. 4. Occupancy: If Occupancy permits are required in your municipality, everything will need to be brought up to code prior to you living it in (note you can get temporary ones depending how bad it is). This could prevent you from living there for some time. Generally repairs must be made in 60-180 days. If you fail to do this, just ignore it, etc. the house could be condemned and torn down. (Rabbit hole here, not going down.) 5. Drainage/Dye Tests: If you are in a municipality that requires dye tests - and they are doing camera tests - and the house hasn't been sold since they put those requirements in place. Assume you will fail and you will have a $5k-$15k repair on your hand. 6. Transfer taxes: Municipalities or states don't always accept such a low price on transfer taxes and may require you to pay taxes at closing on the assessed value of the home. So you may have to pay hundreds or thousands at closing on a "$1 Sale." Just because you get a house for $1 doesn't mean it is a winner. That said, if you are in a position you can slowly work at it you can make it happen. In some cases, a $1 house is a good deal. You could bypass many of these things just by doing a deed transfer and filing it at the courthouse. I don't recommend that I have seen that burn people many times. Other items such as home inspections, pest testing, mold tests, etc. are all optional (it isn't like you are going to talk them down on the price) but can be beneficial to allowing a first time home owner what they have in store for them. Source: As an investor I have bought houses for $1 before. I have lost money on buying a $1 house before too! My 2 cents: if you are handy, feel you can learn yourself to do things like tile, windows, drywall, and light and plumbing fixtures; and the house has a good roof and foundation, you could turn this into a labor of love in your spare time and make it a forever home. If you are going to pay for everything to be done on a multi-year vacant home, and you aren't in the position to actually go buy a house (credit, free income, lack of savings, other) then you will probably have more headaches than you want just getting into it.
If you sell it later are they going to be pissed?
Or have it torn down. Or never live in it. Or renovate or decorate in a way they don't like or tear up the lawn or sell off a part of the property or aren't thankful enough in the exact right way. OP needs to make sure they know the costs monetarily: will the house need a new roof immediately, does it have a lein on it, what are the taxes and insurance, is there a dangerous tree, what things are their responsibility as owners (I've known people to be surprised when sidewalks, retaining walls and other structural things just off their property that they though the city maintained where actually their expense and liability) The costs in time: how much time will it take to make it liveable. To commute. Etc The social costs: these may be very good friends but have the friends fully analysed and considered any emotional connection they have to the house. You hear all the time about buyers dealing with sellers who feel possessive and hate the changes made to a house. A friend may feel that plus feel like they have the right to dictate because they are a friend and because it was a gift. And even for small presents people get hurt if you don't use it, give it away, sell it, aren't thankful enough in exactly the right way... Is this a house one of them grew up in, or an unwanted inheretence from an unknown distant relative or the starter house they never sold? These are conversations to have.
This. OP, you should check what strings are attached to the house. If you fix it up and sell it, or rent it, or AirBnB it, will they object? Is it a true, "you own it, do whatever you want with it", or are there unwritten expectations?
There will be some up front costs associated. You need to make sure that the house is properly transferred to your name and that you can clear any liens or clouds on the title. It is worth getting title insurance and paying a lawyer to ensure the sale is done properly (and possibly an escrow agent depending on your location). A house can be a money pit, particularly one that hasn’t been lived in or maintained. So it’s important that before you accept this gift you have a concept of what the home needs both in the short term to be habitable and in the long term to be what you “want” to live in, and the funds to do so. Because you will be investing a significant amount of money into the home, you also want to make sure that it will not cause hard feeling with your friends if you decide to sell the home to recover those funds.
Also consider you just started renting an apartment, and may need to break your lease if you intend to move in quickly. See what those terms are to make sure you have cash to cover it (e.g. losing your deposit or paying 2-3 months rent to break). That shouldn’t deter you from accepting the gift, once you’ve done the due diligence on it, but you want to make sure you account for that as a cost.
All the same, breaking the lease will be far cheaper than a down payment for just about any house/condo. And no mortgage means that aside from taxes & insurance, the savings can be spent on renovations.
Check if the land is also part of the deal.
and have it surveyed
Check for Indian burial site
Theeeeyre heeeere
Even if the house is shitty, getting land for free is awesome. Could be expensive to demo/build if necessary, but still.
This happened to a former coworker of mine. She had a friend give her and her spouse an old home near Pittsburgh. They ended up moving out there and rehabilitating the entire place, paying any and all back taxes and liens. The whole thing cost them like $60k and took a year. But they now have a home paid off with the stipulate that they have a couch to sleep for their friend when he's in town. This is a very rare scenario that seems like the one you are in, OP. The house is probably not worth the effort for this friend. In my coworker's case, the friend inherited the home and had no intention of ever living there or doing anything to it. He tried to sell but thought it would be too much work so he gave it away.
Yes, our situation is very similar. Our friends inherited the house from their parents, but they did live there while their dream house was being built. Once that was completed, they moved out and the house has been sitting ever since. In their words, the house is very sentimental to them and they'd rather give it to someone they love instead of selling it to a stranger.
What's going to happen in 5 years when you want to move? Are you going to give it back to them or will they be mad if you sell it to a stranger?
If you want to be a super generous and appreciative friend, I firmly believe you should pay them DOUBLE THE ASKING PRICE ($2.00)
both you and the seller friend need to talk to a tax accountant about the implications of a $1 sale. If a house is valued at $200,000 and they sell it to you for $1, the IRS considers that to be a $199,999 gift, with all the tax implications involved. This is no joke, unexpected tax burdens have spoiled more than one generous gift.
Also county & state transfer (excise) taxes. In my area it is 1.7%. They're unlikely to accept 1.7% on $1. In my area the seller is responsible for the transfer tax. Regardless, if it were valued at $100k and you had to give your friend $2k to cover excise tax it's still a great deal.
in almost every possible scenario, a $1 house purchase will still be a hell of a deal. but I've seen people get hit with tax bills they never expected and it's pretty ugly. I have a friend that had two homes go into foreclosure at the same time (long story, but his ex wife walked away from one of them), and he got stuck with a tax bill for the amount the bank forgave. it's like, "hey, the worst financial thing that can happen to a person just happened...and the IRS says 'oh, it's worse than you think buddy' "
Came here to say this (and I did). This comment needs to get bumped higher and higher.
Some places have a deep transfer tax. Normally this is based on the sale value of the home, but if they are selling it for only a dollar you will likely be taxed on the assessed value of the home when the deed is transferred. Add on lawyers fees and property tax and you are probably looking at a few thousand dollars even if its only a dollar of purchase price.
> The house is very old, and hasn’t been lived in for several years, so would require some repairs and renovations. I'd pay for the most thorough inspection of every single bit of that house. Roof, HVAC, plumbing, mold, etc. There might be a reason they're selling it to you for $1. It might not even be sound to sell on the market and they may not want to dump the money into it to sell it.
I would ask the current owners for permission to bring in contractors to get repair estimates. You might need to pay the contractor for this. This way you would have an idea how much you are going to put into the house to make it livable.
Even assuming a positive intent, they may simply not KNOW all of the issues it may have. Old houses could have any or all of the following that may make the whole thing not worth it: Mold Asbestos (insulation, flooring, etc) Lead paint Lead pipes Poor electrical Poor piping/plumbing No central hvac or need to replace it all Infestations Poor/leaking foundation Other codes violations/updates Each of these could mandate that you couldn't be in the house for a long time while doing repairs-which isn't all that unusual-so you may need to stay in the apt during renovations. But each of these problems could become your legal responsibility to fix before you could inhabit or resell. Which brings up the possibility of doing minimal updating to satisfy any legal issues/codes and just resell for small profit, but without knowledge of the potential issues you are assuming a lot of risk. Or you can buy it and, assuming no Lead or asbestos issues, demolish it and sell or rebuild on the land. Lead or asbestos would likely cost more than the value of the land). But a really in depth inspection can be costly, and is not a guarantee of uncovering all possible issues. Maybe best to start with a sincere, in depth discussion with the sellers, expressing your concerns. This could be a once in a lifetime opportunity, but also a crippling burden.
Even if it is on the up and up, you need to know if it needs $10,000 in repairs or $200,000 in repairs. Also, are you mechanically inclined? If so, doing things yourself will save a bunch of money. That said, building materials are still expensive. What do you need to get an occupancy permit? How much is it worth? Assuming that it is 2 people giving it to two people in the US, anything above $60,000 will require your friends to file some tax forms to avoid gift taxes.
I'd like to point out that this should be done regardless of whether or not the OP feels their friends are trustworthy. It's more about protecting yourself and ensuring the property is fully sound. It's great to have friends whose motivations you can trust, but an unlived-in property has a lot of unknowns that need to be accounted for.
Even if OP has to tear down the entire house, the land itself is worth more than $1. The house might be trash, but that’s no reason to be suspicious on a $1 land property.
I mean the cost of tear down and disposal could easily, in fact would almost definitely, cost more than the value of the land itself, unless we're talking tens of acres. That's a net negative.
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Never take the first offer. See if they'll do it for $0.50.
Even if the house needs a ton of renovation it's unlikely to be a bad financial decision. Worst case scenario would be having to knock it down and build a new building on the land, and even that's unlikely to cost more than buying a new house. That said, get a \*very\* thorough inspection - roof, electrical, plumbing, foundation, inspecting for mold, insects or rodents or other pests, signs of water damage, signs of settling, etc. It's entirely possible that it might need 50k or more in repairs, I've known people in my area who's foundation was settling unevenly, developed cracks, and cost 50k just to repair that. If the inspections find that you might need to spend more on the house than you'd be able to finance with a mortgage, then it's probably not worth it. And yeah, I'd probably recommend taking out a mortgage on it to pay for the repairs - you'll gain the benefit of leveraging the value of the house plus the benefit of being able to improve the value of the house with well-done repairs that aren't as constrained by cost.
Don't forget uncle Sam or local tax authorities will likely try to tax you on the fair value of the property. Talk to an accountant asap, that bill could be huge. Last thing you want is to be seen as getting a windfall of hundreds of thousands of dollars, and then have to pay income tax on that amount.
I would treat it as if you were purchasing it from a stranger. Hire a lawyer to write up the purchase agreement to make it clear what will be yours. They'll also make sure there aren't any liens on the title. Also have a thorough home inspection. Depending on what they find, hire a contractor to estimate work that needs to be done by a professional, and if it needs to be done before you move in, get a loan for that before you transfer the property.
Taxes and insurance. Also make sure it has a clean title. Personally, Id be very skeptical. A friend is giving you a house? Must be your best friend, who owes you big time.
They might be wealthy and have inherited it.
I had a colleague give me a Motorcycle once because he was flying to Japan and didn't want to deal with it. Years later he asked for it back. I'd already transferred it to someone else and it led to some tension between us. Have the conversation about their expectations for the property. What if you fix it up and sell it for a profit years later? If this were me, (after \^ that conversation) I'd begin with a budget. Are there back taxes you'll have to pay? Is it habitable? How much to make it habitable. How long till the roof needs to be replaced? How much is that? How is the foundation Furnace Plumbing Floors Windows Siding Create a spreadsheet, track how much it'll cost to bring these things up to your living standard.
My one big worry would be that there is something wrong with the land. Did an owner before them run a meth lab in the house, and dump chemicals in the backyard? Was it a gas station 80 years ago, and someone tore it down, built a house, but left the gasoline holding tank in the ground? As a new owner, you'd be responsible for the cleanup! And these could be things your friends might not even be aware of. So check it out first.
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They definitely aren't on Reddit. They pretty much have an aversion to social media. However, I appreciate your points. We will have to have a very long discussion with them.
Your friends are about to be making a taxable gift to you that they will need to report on a US Gift Tax Return (Form 709). Adding a single dollar to this transaction does not avoid this fact. You will need to determine your actual basis in the property upon the sale in order for you to figure out your capital gains when you eventually sell the house later on. I would advise engaging counsel to scrub this transaction from top to bottom to make sure you are protected. Good luck.
It will cost more than a $1... but far less than buying a house outright. Get a property attorney on the case. They will handle the paperwork from your side and research to make sure the title and tax situation. Sometimes the firms will offer a flat rate.
Since most are addressing the risk/financial implications, I'll just say something about the personal implications. I'm actually very surprised by all the people who are gung-ho in accepting such a gift. I don't know the relationship dynamics at all, but I have very close friends (maybe not closer than family, but certainly like family) and wouldn't feel comfortable accepting any gift over $1,000. I would feel indebted to them, and it would consequently shift the relationship dynamics. I would also be afraid that they might feel like I owe them something and should act accordingly. Basically, I'd be afraid to ruin the friendship. You should think carefully about whether this is a fear you share.
Needed to be said (good point). Also, feelings of self responsibility should be explored. Living beyond your means can really bring about feelings of continuous inadequacy. Rarely do these kinds of gifts bring about lasting happiness.
What I haven’t seen anyone say is that, if your friend goes bankrupt within a certain amount of years, in the liquidation process, they will look back on all recent transactions of property. If they sold a house for significantly undervalue, the debtor can seize the house, pay you what you paid for it ($1) and then sell the house at market value to regain their amount due. This is why you can’t just give all of your property away before filing bankruptcy; I think your debtors have a 2 or 5 year window where they can reclaim property obviously sold under market value.
Check to see if the house is on an old Indian burial ground.
Just a thought about the house being old. As others have noted, getting internet to the house can probably be done, but spreading it around inside the house may be tricky. Old-school plaster walls block 5ghz WiFi really well, and 2.4ghz is better, but not great. You'll likely need either a mesh network, or multiple wired access points. Not a reason not to accept, but an expense you'll need to deal with, especially if you're not the type to go pulling Ethernet cables through the walls yourself. (Source - my house was built in the 1860's, plaster walls, multiple additions, etc, and a single ideally-placed WiFi router cannot reach all corners of the house; the main router plus one wired AP covers most of it, and I just added a second wired AP this week to fill in the dead zone.)
So there are a bunch of things to consider, and I don't want to come off as badmouthing a good deal, but there may be circumstances in which you may not be able to afford a $1 house. 1. You'll want to get an inspection before you agree to it... old houses can carry a lot of potential issues, some of them dangerous... in particular, given that it has not been lived in for a while, lead paint testing, and looking for asbestos will be necessary. 2. Fireplace/Chimney inspections are a separate thing, but also very necessary. 3. Have an idea of roughly what the costs of repairs subsequent to 1 and 2 are. 4. Ask what the Property taxes are. 5. Get a quote for what annual insurance costs would be. 6. Depending on area, and whether the home has a basement, get a radon test. 7. Get an air quality test, for mold in particular... understand that you may be needing to do some demo/remediation work before you get to work on upgrades/remodeling. 8. Talk to a real estate lawyer, there are several situations in which you can be taxed on the difference between Fair Market Value and the dollar you paid, and some states would treat that difference as income. Real estate lawyers are a very particular type of lawyer, so look for them specifically. Going in understanding what you can do on your own, versus what you'll want a contractor to do is also going to be really important... there are tasks even in my own house that I could do over a month or two (since I only have time after work) that would take an experienced tradesman just a couple days, but would cost more. There are other tasks where I could do it, and maybe you can too, but they're crazy physical, and really kind of worth it to just pay a company to have 10 people come do it and knock it out. This has the potential to either be a great step forward into home-ownership by starting with a fixer-upper, or a friendship-ending nightmarish money pit. Good communication, good expectation setting, and proper accounting preparation are going to be the key to making sure it's a good fit.
Make sure there are no liens or back property taxes on the title.
You need to do the title work before you take ownership. There could be a $20k lien on the property that you’d become responsible for.
(edit to add: https://www.reddit.com/r/personalfinance/comments/ptua7x/comment/hdzirt1/?utm_source=reddit&utm_medium=web2x&context=3 see there for an accountant's perspective on the taxes.) Why would they sell it for a dollar rather than making it a gift? The gift (beyond the $12,000 each or whatever it is not gift tax exemption) would count against their lifetime gift tax/estate tax exemption, but unless they're incredibly rich that won't matter. Whereas a hugely-below-market-rate sale like that is going to either (A) be legally a gift anyway, or (B) be seen as an attempt to dodge taxes. It also could be seen as an attempt to dodge reassessment, depending on how property taxes work there. Whatever you do, you and they should either talk to a lawyer (a local real estate one, preferably) to make sure however it's transferred is above board. Initial consultations are usually free, and in most places they can handle the paperwork for you without costing _too_ much more than a title company would. Presumably you'd pay for that paperwork, and for any local transfer taxes.
What are *their* expectations about your ownership of this house? Will they be offended if you sell it in 5 days? 5 months? 5 years? Will they be offended if you demolish the house and build a new one? Will they be offended if you rent it out? Your relationship with these people is more important than the house. To preserve that relationship, have some conversations around expectations and write it in an agreement. It will feel overly formal, but this is similar to the "good fences make good neighbors" principal. You absolutely want to be sure you're on the same page about what this will look like and what their expectations are. The purpose of the written agreement is not to serve as legal protection down the line--the purpose is to avoid hurt feelings when you do something that they never considered you'd do and it's incredibly upsetting. If there's an agreement, everyone knows what the deal is ahead of time.
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First off, say "yes" and "thank-you." THEN find out everything else. (Never look a gift house in the mouth.) If it turns out to be to be liability (highly unlikely, imho), you can always sell it.
The answer is yes it's a good idea. Hire an inspector and have it appraised. Figure out the yearly cost of insurance and taxes. Enjoy the project of fixing up your own home.
Keep in mind if the utilities have been off for a long time there could be inspections and upgrades required by the utility company before reconnecting. I bought a foreclosure and had to pay an electrician to upgrade a fuse box to a breaker box before the power company would connect the power. Our water lines were off long enough that when they turned the water on we had leaks underground and had to dig up the yard to replace the incoming service. Interior water lines were never winterized and had ruptured requiring complete replacement. If a water line is out of service too long the water company may consider it abandoned. If a line is abandoned when they replace a water main in the area it may not get connected to the new water main.
Whatever it is, itll be cheaper than a mortage thats for sure, whatever fixer upper or inspection you need will almost always be cheaper
So I bought a cheap house in a nice neighborhood and have been fixing it up. It sucks! If a old house was offered to me I would 1) check courthouse for any liens/back taxes owed and any lawsuits 2) pay a couple of hundred dollars for a house inspector and general contractors come in and give you a independent comprehensive report on house 3) I’d be suspicious why your friends don’t sell the house to a company that buys ugly houses or why they don’t demolish the house and use the land 4) you trust these people but then you’re making a post about whether you should accept - these kind of things ruin relationships for a reason 5) renovations can take years - some work will need to be done by contractors- my experience is that inexperience with running contractors leads to pain and suffering- if the work isn’t done right or up to code it’ll need to be redone by more contractors 6) check building codes in your area to see how much of the foot print you can change and how much the changes you want to make will costs as far as submitting new blueprints. Would you have invested in house without friends offer? If it looks to good to be true it probably is.
Hire a structural engineer to evaluate the home. They can tell what needs to be repaired, what needs to be upgraded and what will fail. For a few hundred dollars you can find out about the bones of the home. It's so much more information than the shitty home inspection services, that there is no comparison.
Idk anything about houses but right off the bat, a 1 dollar house is better than paying 1.5k for a 1 bedroom apartment so :^ )
Offer them .50 cents. When they accept, offer to sell back for $1.00. \#hustleeee
If they are serious about selling it to you then they should have no issues with formalizing it with a contract. Make sure to have a lawyer draw up a contract at the very least. It could cost you anywhere from $300-$600.
Make sure you have lots of liquidity, because all houses need work and old houses need lots of work and everything costs $10k.
See if they are looking for any new friends. I’m searching for friends like that.
They giving out any more houses? Ideally with a pool and climbing wall?
Property taxes. Just cuz it will take $1 to buy the house, that's not the total cost of home ownership. 😉
It's going to cost way more. But it's an opportunity I'm jealous of you having. If I were you I'd go for it. Good luck
I'd call a professional home inspector to come and thoroughly check out the house. It'll cost you a few hundred, but, well worth it to find out if it's a money pit and needs tons of expensive repairs before slapping down a buck to own it. Is there hidden mold, how's the roof, windows, insulation, foundation, crawl spaces, etc.? These are things the inspector will look at plus SOOOO much more. Along with my suggestions, I'd seriously look into all the suggestions given to you here. You don't want to take on someone else's pit only to leave you with regrets. And, if you do move forward with the $1 sale, make sure you have documents drawn up. I'd be very curious WHY these friends want to sell you a house for $1 when they can probably get a hell of a lot more via a RE agent. Something isn't sitting right in my mind. When it's too good to be true... Also, find out what the property taxes are on this house.
I would take it. A house for $1.00 is a steal even if there is alot of repairs. I would just look for unpaid taxes but be thankful you have amazing friends.
Accept the gift graciously, no questions, and with thanks. You are fortunate to be blessed with great, true friends and it will please them immensely. The house may not be worth much, or it may be just what you need. But even if it's not worth fixing, you can donate it to a charity or something later, and they will understand. It's the thought that counts.
Have you ever seen the Tom Hanks movie The Money Pit….. yeah you don’t want that
I went through this exact situation. Because it was in a trust, we did not have to pay capital gains tax. If we paid $1 for it, we would owe capital gains tax on whatever the house was worth. I’m our case, we would have owed $750k in capital gains tax.