Should You Buy an Impoverished Sibling’s Home and Let Them Live Rent‑Free?

A reader asked whether her sister should purchase their struggling brother’s house and allow him to live there rent‑free. This scenario blends family loyalty with real estate, tax and legal complexity. Before moving forward, the sister should weigh financial, practical and emotional risks and put clear safeguards in place.

First, determine the true financial picture. Get a professional appraisal to establish market value and confirm there are no undisclosed liens, unpaid taxes or mortgage obligations. If the brother still owes a mortgage, the buyer must decide whether to assume or pay it off, or negotiate a short sale with the lender.

Tax and legal consequences follow. Transferring property below market value can trigger gift‑tax reporting and may have capital gains implications for the seller later. If the sister intends to let him live there rent‑free indefinitely, treating the transfer as a gift might be appropriate, but she should consult a tax advisor to understand filing thresholds and potential future tax bases.

Protect both parties with written agreements. Even among family, a clear deed, occupancy agreement or life estate can prevent misunderstandings and protect the buyer’s investment. Specify who pays utilities, maintenance, property taxes and insurance. Consider escrow arrangements for major repairs and spell out what happens if the occupant can’t live independently or causes property damage.

Evaluate alternative structures. Seller financing or a low‑interest mortgage with a promissory note can preserve more legal clarity than an outright gift. A life estate or retained right of possession can allow the brother to remain while the sister retains an ownership interest. If affordability is the concern, subsidizing rent or providing a housing stipend might be simpler and more reversible.

Finally, account for family dynamics. Financial help can ease immediate hardship but may create long‑term dependency or sibling resentment. Transparent communication, written terms and professional advisers — a real estate attorney and a CPA — are essential.

Buying a relative’s home and permitting rent‑free occupancy can be a compassionate solution, but it isn’t risk‑free. Thorough due diligence, legal documentation and clear expectations will protect both siblings and help preserve the family relationship.