Isa, Home Buyer in Austin, TX

Grad Student with Generous Parents

Asked by Isa, Austin, TX Thu May 3, 2012

I am a grad student living in Austin with my husband and renting. We will be living here for at least three more years. My parents suggested they purchase a house for me outright (200,000-400,000) to live in and charge us minimal rent and then sell in three years for a profit. My husband works in tile and knows how to repair kitchens and bathrooms. I am seeking advice as to whether or not this is a good idea for my parents and the type of risk they would be taking on. I would not want them to lose money on this shenanigan.

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15
Perry Hender…, Agent, Austin, TX
Mon Jun 4, 2012
Its a solid business plan but I'd run a good background on the tenants.... :-)
0 votes
Betina Forem…, Agent, Austin, TX
Sat May 26, 2012
Dear Isa,
Generally you need to be in a home at least five years to see a profit and even then, there is no crystal ball that says you will make a profit. You will have the tax benefit of Homestead Exemption and possibly get something back when you sell. Which may be better than paying rent ie: someone elses mortgage. The Austin market has been pretty consistant and I would think you would be able to at least sell it in 3 years for what you paid if not more. Right now there are still a thousand people a week moving into Austin, so the demand is still steady. I promise the home builders are not starting a 1000 homes a week. So our home market is pretty strong. If you like I could send you some homes in the $200-$400K range. What part of town are you interested in?
Cheers,
Betina
0 votes
Sal Zuniga, Agent, Austin, TX
Tue May 15, 2012
Although it is impossible to know where the market will be three years from now, data shows us that Austin is always in the top three when it pertains to population growth and quality job openings. I think that with these factors alone and with the old law of supply and demand, Austin should be as safe as a bet as there is going to be in the country. Also working with a Realtor with adequate market knowledge and that focuses on customer service should be a priority if you and your parents decide to invest. There are great master plan neighborhoods in the southwest part of town that are in your price range and are arguably the hottest market in town. Please feel free to call, text, or email me with any questions you may have.
Have an awesome day!

Sal Zuniga
Realtor
512.698.4800 (cell)
szuniga@gretx.com
0 votes
Dallas Texas, Agent, Dallas, TN
Sat May 5, 2012
Matter of locating the right home, and parents receive annual tax write off , as long as mortgage paid timely what would be the problem ?



Lynn911 Dallas Realtor & Consultant, Credit Repair Advisor
972-699-9111
http://www.lynn911.com
0 votes
Tim Page, , 99037
Fri May 4, 2012
Don't do it unless you are both under the agreement that the home may not sell or sell for a profit.
0 votes
Best Agents…, Agent, Austin, TX
Fri May 4, 2012
It depends.
I know that is a horrible answer, but there are too many variables. The good new is, there are some tax benefits that may offset any potential loss. Your parents could hire you to manage the property for them, the closing cost may have tax benefits etc.
Talk to your account and or CPA and then give me a call. I would be happy to assist you.
J. Rene Ward
Best Agents In Texas.com
512.694.2558
0 votes
Don Groff, Agent, Austin, TX
Fri May 4, 2012
Nobody knows exactly where the economy will be in 3 years. Sure we appear to be at a bottom but the only way to know that is looking back and it's too early to do that right now. If you purchased a home back in 2007 or 2008 you very well may have lost money or broken even selling it 5 years later.

Austin is a great place and there are fantastic values to be had all over. The important thing is finding the good values and understanding the market to put the odds in your favor of making a good purchase that will pay off in the years ahead.

Three years is not really enough time to guarantee any type of appreciation. While Austin has lots of factors in it's favor this is something to be aware of. On a $300k purchase the home would have to appreciate to at least $330k just to break even. While that is definitely possible and many areas have seen appreciation much higher it all comes down to making a good educated decision and knowing that your parents may or may not walk away with a profit.

I would put together a contingency plan where they may look at the possibility of renting the property for several more years in the event the market is not supporting the necessary appreciation they need to make a profit. That may be a good solution if things do not go as planned.

Always plan for the worst case scenario and be aware of the consequences and make sure your parents are OK with them.

Best of luck to you!

_______________________________________
Don Groff
REALTOR® | Mortgage Broker
Keller Williams Realty | 360 Lending Group
o 512.669.5599 m 512.633.4157
listings@dongroff.com | http://www.AustinListed.com
0 votes
Craig Tapley, Agent, Austin, TX
Fri May 4, 2012
Hi there Isa,
This idea is a fantastic idea for your parents, but they should keep in mind that it is important to take the house hunting process seriously. A carefully chosen home in Austin should (roughly) double in value every 10-11 years. Your three year stay in Austin is long enough that there cash investment will almost surely show a profit even if you paid no rent at all, but including even a small amount of rent will make the investment well worth there time. however there are a number of possible structures they may want to consider. For example, if they simply buy and then resell then they will pay taxes on the increase in value of the property during that time as though the equity increase was income. On the other hand if they set up a loan to you and your husband of the cash value and your rent was the payment on the loan for the three years, then you sold the property and paid off the loan amount then you and your husband would pay no tax on the increase in equity (homestead eximption would make the resale tax free). This of course would put the profits from the resale in your pocket rather than than your parents, but the payments on the loan would be profit to them and the tax ramifications might be a good deal less. Interest rates are at historic lows, but that having been said if your parents have cash on the side lines this would be a good way to leverage that cash into a return while also helping you through your school years. You would of course want to consult a qualified tax professional to make sure you work out the details correctly, but that may be a better choice than your parents buying and selling directly.
Also your parents may want to consider choosing a home that they would want to hold onto as a rental property after you finish with the home. I have worked in the Austin real estate market for just over 20 years and can personally confirm the value of longer term investment in this market. Austin is an excellent place to own rental property (I personally own 4 homes here and can't be more pleased with the return on investment) and a long term rental can very well be the gift that keeps on giving.

How ever you choose to structure the deal I think it is fair to say that your parents sitting on the sidelines with as much cash as you are talking about is very likely not the best return for there money. In this market place money market and savings accounts are actually loosing money if you calculate there value against the inflation rate. That is no where near true for the value of real estate. Although investing in real estate is not the only possible way to leverage that cash into future value it is one very well proven solution.
Good luck with the project and feel free to contact me if you need more guidance!
Craig Tapley
Casa Grande Realty
512-694-5232 (cell)
0 votes
Steven Nusin…, Agent, Austin, TX
Fri May 4, 2012
Isa,

I think it is great that you are opening up on this forum. The best thing you can do is to continue this thought with a professional that will provide you detailed analysis on any home, neighborhood, and area.

This would include past performance, average selling price,rental rates(perhaps, your parents will want to keep the property longer term), and many other aspects. Personally, there are a few areas that I would be comfortable purchasing in for both the short and long term, but it is important for you to formulate your own opinion with regard to this manner.

Please feel free to contact me anytime for a no obligation consultation.

Steve Nusinow
(512)922-7588
0 votes
John Crowe, Agent, Austin, TX
Thu May 3, 2012
I'm a conservative type, think 3 years is the bare minimum and would suggest you strongly consider renting for that short period of time. If you buy smartly, you can limit risk though there is no guarantee a loss will be avoided or a gain earned. Over such a short period of time, your parents should consider a cash management strategy where they take a loan out for some of the amount. Rates are so low and I really believe they will be higher in a few years - cheap money to be had.

Good luck!
0 votes
Charlotte Li…, Agent, Austin, TX
Thu May 3, 2012
There are no guarantees relative to future property values--period. However, a strong location will result in more predictable and increasing property values. I would focus on a property in the best location you could afford--hopefully a property that you could improve in order to increase its value and change its position in the marketplace.  I would not choose far outlying areas with lower pricing --That seems penny wise and pound foolish to me--that lower price often represents more risk for the overall investment. Choose something that meets your needs in a reasonable location that does not require a long commute to school.  

I consider 3 yrs a short term investment, with the cost of purchase and cost of sale significantly impacting your profit.  You must be careful, cautious, and conscientious--only thoughtful decisions allowed!!!  Do you have the time and resources to maintain and improve the property? Rather than low rent, commit your limited financial resources and labor to property improvements and then everyone wins.  Consider negotiating an equity share scenario with your parents on any profit over and above a specified return for them.  Please do not hesitate to call or email me if I can assist you or your family with anything.

Charlotte Lipscomb
512-789-6225
Realtor, CLHMS, CRS
Member Austin's Elite 25
http://www.CharlotteLipscomb.com
Charlotte@CharlotteLipscomb.com
0 votes
Erica Dunkley, Agent, Austin, TX
Thu May 3, 2012
I agree! I think now is a good time to purchase something. You could even do something less than the amount you mentioned, your husband could do some minor renovations and your parents could try to sell the property for more! 3 years is a short time frame but we can discuss options for you to get the most for your money.

Let me know how I can help. Feel free to contact me at 214-448-8859 or erica@raglandrealty.com

Erica Dunkley
REALTOR
0 votes
Jason Crouch, Agent, Austin, TX
Thu May 3, 2012
Hi Isa - I have seen this work well for a few clients over the years. If you choose the right location, the turnaround time would be okay, although it will probably end up closer to $300k+ than $200k. I would be happy to help you find the right place, or to show you some possibilities.

Jason
Web Reference:  http://austintexashomes.com
0 votes
David Drayer, Agent, Austin, TX
Thu May 3, 2012
Hi,
now is a great time to purchase a home.
I think it's a great idea that you have and I would like to meet for coffee and explain all the ins and outs.
I can help you develop a plan to achieve your real estate goals and save $.
Feel free to contact me directly anytime to schedule a meeting.

Regards,

David Drayer
REALTOR
512-743-8685
0 votes
Bill Austin, Agent, Austin, TX
Thu May 3, 2012
Isa,
It can be a god idea. Location is critical. 3 years is a short time line. Contact me directly for specific consultation.
Bill
0 votes
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