Father wants to sell companies office building but...

[Mitch Atkins]

I want him to owner finance to me so I can rehab it to lease it out and I want to sell him on that idea. His plan with the sale money would be conservative and put it in CD’s. I picture a different scenario where the building stays in the family because it’s close to a college that is likely to expand in the future. The property is free and clear and will sell for around 200k and he would pay around 150 k in capital gains. Seems like if he finances to me he would make more money than a CD.

I’m asking help if there are tax and capital gain advantages that I am unaware of. On the other side of the coin any disadvantages to holding the property.

Also anyone that’s has been in this situation willing to share their story would be appreciated.

[Nathan Gesner]

I assume you mean the capital gains would be $15,000?

The benefit of owner financing is that he will get a better return on his money, he saves on taxes, and he generates a steady income. If he puts the money in a CD or other long-term investment, it may grown but it's not available to spend. If he finances the loan, he gets a monthly paycheck that he can spend and he's only taxed on the amount he receives.

if he wants a big chunk now for a vacation or to buy a sports car or just to feel good, figure out how much he needs and try to negotiate a large down-payment and then finance the remainder.

Recommend a couple options and then ask him to talk to his CPA and see how each option would impact him, how much he would save, and how much he would earn.

[Greg Dickerson]

@Mitch Atkins you should talk to the company account about tax consequences and your plan. 

Once you have all the answers put together the presentation and your business plan and pitch it to your dad like a pro not his son.

[Mitch Atkins]

@Nathan G. The capital gains would be around 115,000 if he sold it out right.

I asked him a few times what he would do with the cash and he just says “I’m going to give it to my boys”. (I have 2 other brothers). He doesn’t have a lot of expenses so he just wants to live off interest and be debt free. Talking to his accountant would be a good idea.

[Mitch Atkins]

@Greg Dickerson I agree with you. All the conversations have been in passing I need to sit down and be more professional about. It will be good practice for me anyways.

[Ronald Rohde]

I'm on your dad's side. If you can't get a loan to pay him what he wants, he's likely going to put it in ladder CDs, have nearly risk free income. Much less stress than worrying about foreclosing on his failed son's project. Worry about renovation causing damage and reducing the value of the building.

[Bob Langworthy]

Your dad needs to look at the numbers. He might pay 15% to the IRS and 5.49% to the state on the $115k. That's ~$23,500 in tax. Has he figured the depreciation recapture amount in there as well? If not, he could be looking at 25% on the amount of depreciation that he claimed. His $200k will start to look like $170k pretty quickly. $170k in a CD might earn 1%/year. Can't live off that. Considerations for you:

1) Do you have the money to rehab it?

2) What would the NOI be once it's rehabbed and fully leased out?

3) How do your brothers feel about this deal? After all, he wants to give some of the proceeds from the sale of the building to them.

4) How does your dad feel about potentially having less to give to your brothers?

5) Might your brothers want to go in on it with you? (Pros: they may be able to bring cash. Cons: it's a deal with family so it could get real messy real quick)

Hope this helps,