Buying 3-family from Uncle who was to downsize

Innovative Strategies
7yFollow

Buying 3-family from Uncle who was to downsize

Peter Paxos
Investor · Bayside, NY · Member since 2016 · 23 posts · 1 vote
Hi BP: I have an Uncle who is an owner occupant of a 3-fam home. He has owned it for 40 yrs and is ready to downsize into a single family home about 10 miles away. He needs proceeds from sale of 3- family to put a down payment on the new home. I would like to buy his 3- family as an investment. He will incur alot of cap gains tax. MARKET VALUE: 1.3 MIL RENTAL INCOME: 5K/MOS. Does thIs make sense? If so, is there a way we can do this transaction that will accomplish both our goals? Thanks. Peter.
0Reply
20 views

3 Replies

Jump to latestLatest
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    7y

    @Peter Paxos, $1.3M would be just a down payment? He does get a big capital gains tax break because of living there though, right?

    Whereas, what's in it for you at just 4.6% (gross?) return per year? [But sure, not including appreciation].

    I'm guessing he'd be penalized by the IRS if he sells to you for less than market? [Am I wrong?]

    I don't know your actual goal for wanting it, though I do question it. But good luck...

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    7y

    $1.3m property renting for $5k/month?

    I just bought a 38 unit for about that much that has ~$22k/month in rent. 

    I suggest you buy something else. 

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    7y
    Originally posted by @Peter Paxos:
    Hi BP:

    I have an Uncle who is an owner occupant of a 3-fam home. He has owned it for 40 yrs and is ready to downsize into a single family home about 10 miles away.

    He needs proceeds from sale of 3- family to put a down payment on the new home. I would like to buy his 3- family as an investment. He will incur alot of cap gains tax.

    MARKET VALUE: 1.3 MIL RENTAL INCOME: 5K/MOS.

    Does thIs make sense? If so, is there a way we can do this transaction that will accomplish both our goals?

    Thanks. Peter.

     Is the rental income after applying the 50% rule (so actual rent is at least $10K)?  or at least after subtracting all expenditures?  I live in an area with low cap rate, but that rent (assuming $5K is the full rent) to value number would be real low for a triplex here.  So something does not add up (literally and figuratively).  If the numbers reflect the full rent, I would recommend looking for a different investment.

    Assuming something is amiss with the numbers and it is a good investment, I assume the point of post is that you cannot qualify for a conventional loan for that value. Are you confident you can make the payment if you got the loan? An option would be to get your uncle to finance you. Your uncle would likely want 20% of his new purchase to avoid PMI. Can you come up with 20% of his new purchase? Then it comes down to how generous your uncle wants to be but I think a 1% above conventional loan rate may be fair with him holding the first. You will be getting a loan that you do not qualify for, at a rate much less than HML. Your uncle will get his new place and a rate of return far in excess of FDIC account. If you fail to meet your commitment, your uncle gets his triplex back (or you sell it and pay your uncle what he is owed). Seems fairly low risk for your uncle. Win-win.

    Good luck

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free