Dad as investor?

12 Replies

BP Question Dad as investor

Background

I used to live in NYC and got a job in NJ 4 years ago. My father, generous man that he is, promised me a 20% down payment if I moved to NJ. He did this as an enticement, as I never wanted to leave NYC.

I made the move; he didn’t pay.

I changed my tune as I entered my 30s in 2011, got married, kid, etc, and I do not miss living in Manhattan.

I ended up paying my own down payment, no complaints, except that he reneged. Although he had the money, I never did actually expect him to follow through on his promise. He’s of the sink or swim school.

Anyway, he’s offering once again to pay a down payment, and this time I believe it’s coming from a genuine place. He’s fallen in love with my daughter and he wants to provide for her. I currently live in a 1.5 bedroom condo in metro NJ, which he believes is too small for my wife and child. I’m slowly starting to agree.

I’m looking at a multifamily in the New Jersey Metro area, 4 units, with a commercial property.

2 two bedrooms, and 2 1 bedrooms, as well as an existing deli.

I’ve only seen the listing online, and I’m waiting to get back to NJ from Austin to see the property. (I’m in the airport now).

The catch? The property is 5 minutes from Manhattan, and my parents plan to stay in one of the 1-bedroom apartments. They’d like to be able to stay there whenever they want. So 1 of the apartments can’t be rented.

The other option would be the purchase of a 3-bedroom, where 1 bedroom would be reserved for my parents.

Questions

  • 1.What is the most appropriate way to accept my father’s money as a 30% down payment on this property? There are large tax implications with him gifting me $225,000.
  • 2.Is now the appropriate time? I plan to house hack the units, but I have my hands full with the restaurant. I hope to: move from my current condo and rent it out (nowhere near the 1% rule, however), move into one of the 2-bedrooms, rent out the other 2-bedroom, collect rent from the commercial property, reserve 1 bedroom for my parents, and renovate the other bedroom and put it on the rental market in a couple of months.

If this is in the wrong forum, can someone point me to the correct one to post it in?

I don't think it's necessarily the wrong forum.

How do you feel about taking the money from your parents in exchange for them to be "reserving" one of the units?  If this was a stranger would you feel the same way?

Originally posted by @Dawn Anastasi :

I don't think it's necessarily the wrong forum.

How do you feel about taking the money from your parents in exchange for them to be "reserving" one of the units?  If this was a stranger would you feel the same way?

I actually feel pretty good about it.  It's quite a sum of money for such a small string attachment.

What is the optimal way for my father to pay the downpayment?  I've discussed it with him; it seems there's a huge tax implication for a gift of $250,000.

Joint Venture

@Andrew Son there are ways to move money without hitting the "gifting" tax, but it does take time, creative thinking, two willing and active participants in the moving of funds and your ability to carry the initial cost up front or wit until you build up funds.

Basically in standard practices, your father gets hit by the 1 time gift if he moves a large amount of money and has to claim it as such. However, there is nothing that says he cannot use his money in smaller amounts as he wishes. Does your daughter go to private school? Your father can pay for that without ever touching the gifting limit. Do you have car payments, he can pay for that. He could pay for all of your living expenses, clothes, food etc without ever worrying about "gifting".

Basically he can pay for anything he wants and only gets dinged when he moves large sums that show up on a bank statement and needs to be explained.

This allows you to keep your w2 income for the property purchase. But again, you would need to save money over time or deplete existing savings and rebuild it using this method.

Hope this helps,

Arlen

You started your post by going into detail about how your father reneged on his promise to pay your downpayment when the time came.  Do you have any concern or worry that the same thing may happen with this latest property your purchasing?  If so, it may be wise to find a way to get the funds under your control before you make and offer and potentially get under contract on the property (unless you're able to proceed with the sale without his money).

Originally posted by @Rob Anderson :

Joint Venture

That's what I was thinking Rob.  I'll do my due diligence of course, but do you have any more specifics?

@Arlen chou

Time is of the essence.  Well, not necessarily but I'd like to start sooner rather than later and I don't have that sort of cash right now.

Originally posted by @Andrew Son :
Originally posted by @Rob Anderson:

Joint Venture

That's what I was thinking Rob.  I'll do my due diligence of course, but do you have any more specifics?

@Arlen chou

Time is of the essence.  Well, not necessarily but I'd like to start sooner rather than later and I don't have that sort of cash right now.

 Specifics in regards to the Joint Venture? Sure. What do would you like specifics on? Thats to broad of question

Originally posted by @Rob Anderson :
Originally posted by @Andrew Son:
Originally posted by @Rob Anderson:

Joint Venture

That's what I was thinking Rob.  I'll do my due diligence of course, but do you have any more specifics?

@Arlen chou

Time is of the essence.  Well, not necessarily but I'd like to start sooner rather than later and I don't have that sort of cash right now.

 Specifics in regards to the Joint Venture? Sure. What do would you like specifics on? Thats to broad of question

 You're right, of course.  I have to get my read on before asking!

It seems like there are a lot of moving parts to this deal.  I trust my dad and know he would hold to his word.  Still we attempted a deal together recently.  Never closed, but made an offer and had a draft operating agreement before deal failed.  Even though we were both fine with a verbal agreement, we were glad we went through developing written agreement.  The devils were in the details.  We would have been fine, but there would have been frustration and hurt feelings because we had a couple of differing expectations.  For the sake of the relationship I strongly recommend a joint venture and spell out everything in operating agreement.  

Just passing on a thought, but am a total nube, I'm interested in borrowing 20% of purchase price for a home from my dad and asked a lender about this, he suggested he could lend that cash to us and at a later date, forgive the debt. I did a quick search on this site & google but did not find any solid answers if this is a possibility. Maybe a bigger pockets pro could shed some light on if this is possible?

Did find this post, but seems a bit complicated: http://www.biggerpockets.com/forums/70/topics/8156...

Please update this post as things develop, I'm interested to see how it works out. Hope all goes well!

Definitely do it in writing.  I would probably split 50/50.  It sounds like your 50% would be 100% financed.  His would be about 60% cash/40% financing.  The deli rent would be split 50/50.  If the 1 BR/2 BR rents are close, you can just split the amount of the rental income 50/50.  The other option would be he would get the 2 BR rent and you should be the 1 BR rent - although vacancies would have to be factored in some way.

Whatever agreement you come to, make sure it is in writing.

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