Money

Should You Ever Buy or Sell Property To a Friend or Relative?

While relationships can be enriching and are considered one of life’s greatest treasures, nothing worthwhile comes easy, though.

Relationships are challenging at times, and add in the sale of a major asset such as your house, and it can either result in a triumph or a complete tragedy!

So, should transactions on property take place between friends and family members?

Have a look at these considerations before you decide:

Forget about marketing

When selling, what could beat knowing the perfect person who happens to be looking to buy – a friend or relative?

Or, someone who is ready to sell a house you know well, and could see yourself living in.

Pros: This takes much of the stress out of the marketing, or house-hunting process.

Cons: If there is some hiccup in the process, is it worth souring a close relationship? Keep reading, and make sure you cover the following bases.

Better the person you know

Instead of entering into a transaction with a stranger, you have a level of trust in your friend or relative already.

Pros: You are starting from a position of strength, rather than building trust from the ground up.

You know the person’s basic background and earnings. They are less likely to take you for a ride.

Cons: A transaction of this size can strain even the best relationship.

Solutions? Communication is important. Keep it professional. Get everything in writing, following the normal legal process.

Perhaps consider using real estate agents to represent both the buyer and the seller. Make sure everything works in the best interests of both.

Considering a family discount

If you are selling, it’s tempting to help out that nephew who is starting out as a homeowner by reducing the asking price. The buyer will be so grateful.

Pros: We want the best for family and friends, and if we’re in the position to set them up for success, that’s a win for everybody.

Cons: The downsides concern the tax considerations. If the Receiver of Revenue sees a big difference between the market value and the asking price, it could be seen as a donation, liable to Donations Tax.

Also, when the buyer eventually sells, if he has bought at a low price and wants to sell at market value, he will have to pay Capital Gains Tax.

Rather consider selecting a price that is reasonably close to market value.

Use a bank or pay the seller directly

The buyer could avoid taking out a home loan to make his monthly payments and pay the owner directly (owner-financing).

Pros: The buyer avoids additional bank charges.

Cons: The buyer might default on his payments due to unforeseen circumstances, which can lead to awkward situations where the seller has to foreclose on a loved one.

It is possible to find an arrangement that works for both parties if you take the necessary care.

Whatever you decide, weigh up what’s most important to you – people or property.

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