The cost of homeownership in recent years has been rising, making it impossible for most Americans, especially young people, to acquire homes. But it’s not always necessary to buy a home. You could build from scratch. If you’re planning to do that, you’ll need land. So, can you build a house on your parents’ land?
You can build on your parents’ land. But whatever you build on the land belongs to them, which means they’re the owner of the house. This has some legal implications. You can avoid these issues by using subdivision or joint ownership. Another option is to simply build a temporary house on the land.
There are other ways to build property on your parent’s land while retaining ownership of that house or being sure that the ownership will transfer to you after their death. But it’s important to involve an attorney and real estate expert to achieve the best results for everybody. Here, we discuss whether you can build a house on your parent’s land.
Who owns property on land?
There are no open lands in the US. The standard rule is that whoever owns the land owns the property on it. When in need of accommodation, your parents or another family member may offer you the chance to build on their land. While it’s theoretically simple, the legal implications are more serious. The general rule is that everything attached to a land belongs to the landowner, so your building on land owned by your parents may belong to your parents even though they permitted you to build on it. The legal implications are numerous and include:
- The house belongs to the owner of the land, i.e., your parents, rather than you who paid for or built the house.
- If your parents, the landowners, die, the house will form part of their estate and be dealt with based on what they have in their will.
- If your parents, who’re the landowner, have financial problems, their creditors will have the power to take over the house built on it and can sell it.
- You’ll have no ownership claim on the property and, at best, can only get compensation should you be dispossessed of the house in the future. The compensation is usually near impossible to claim in many cases.
When Is a Building Attached to a Land?
Since any building or property attached to land is automatically part of the land, it’s important to determine when a building is attached to the land. The standard is that any building on the land is attached to the land unless it’s obvious to an independent person that the house isn’t attached. For example, a mobile home such as an RV might not be considered attached to the land. But since most homes built on family land are attached, they automatically become part of the land.
How To Build House on Your Parent Land While Retaining the Right to The Property
If you still want to build a house on your parents’ land, there are several ways to do it that you can retain ownership of the property. Here are some of your best options:
This is when a large piece of land is divided into smaller pieces, usually to sell for profit. If you want to build on your parent’s land, one of the best ways is to ask them to subdivide the land and then buy a piece of it. The process for subdivision can be quite complex and maybe a bit costly. But it’s necessary to follow due process and get the approval of the relevant authorities before you go ahead with it. It can take months or even up to a year to subdivide the land and get the title of the subdivisions. Once your parents have subdivided the property, they can then gift a subdivision of the land to you. The gift of real estate to children isn’t tax-deductible, and they may need to file a gift tax return to report the gift. Since the lot will have its market value, this can play when calculating whether they’ll pay taxes on the gift. As long as they have sufficient unified gift and estate tax exemption, they may not have to pay tax. With subdivision, the title of a lot is transferred to you, which means you own the property and anything you build on it. Of course, subdivision and transfer work best when there are no obligations such as debt or mortgage on the land. Subdivision can save the donor from any future obligation that may arise should the gift recipient run into legal trouble.
2. Joint Ownership
Another way you can build effectively on your parent’s land is when your parent adds you to the deed as a joint owner. That means you can build on the property since you’re an owner. Such addition without any consideration will amount to gifting you 50% of the property’s fair market value. So your parents will have to file gift tax returns but don’t necessarily have to pay gift tax. Joint ownership can have other implications for debts, so it’s not always the best approach.
3. Build a Mobile Home
If your parents offer you land to build your house but aren’t open to subdivision or joint ownership, you can simply build a mobile home. Such homes won’t be attached to the land, which means you’ll retain the ownership right in the house no matter what happens. Mobile homes are quite common in some parts of the country and require simple permits and license to build and use.
What belongs to your parents isn’t automatically yours. So building on their land doesn’t give you ownership rights in the property. When you consider all these legal implications, you’ll understand the dangers of building a house on a property you don’t own, even if the property belongs to your parents. This is why it’s important to seek legal advice before making such a move. With a legal agreement, you can secure your interest in your property on the land and consider all the necessary legal issues you should be aware of before making a move.