All Forum Posts by: David Pendergraft

Dave, It is to be an investment property. 4 plex. Non owner occupied. 

BP,

We have our eyes on a Seattle multi family property. We know the seller is motivated and in our one conversation with the seller's agent, although they were hesitant with the details, we know there is a mortgage and there may be some consideration of taking over the mortgage.... though we know such a thing would have to be agreed to by the mortgage company and we would have to be approved. They said they are probably not interested in holding a note, they want cash to buy another property elsewhere. Is such an approval by the mortgage company any different then if we were to go apply for a loan on our own. Is there any benefit to keeping the existing mortgage in place?

We can put together a 25% down payment for a traditional loan, but we would prefer not to. And, because my wife has made the leap to self employment in real estate she doesn't have a W2, nor two years of tax returns, to verify income, and therefore we can't qualify for conventional lending.

Our agent is somewhat hesitant to present any offer that is "creative" as he doesn't believe it is going to work. I understand, but I am frustrated by this because I want my agent to call the sellers agent and find out if there are ways the seller might help finance.

BP - Before I direct my agent to go to the table and figure out a solution that works for everyone, what strategies, if any, can I arm him with? Master lease, lease option, other? How do you convince a seller to carry a note, help with financing?

Thanks,

David

This gift is a no strings attached, "we won't accept payback" type gift. I have proposed a loan with a payback but no dice. This gift is not something we will get used to. If we can't make this lifestyle work it's back to the w2 coal mine for my wife.

My wife and I are buy and hold investors and we are taking the leap! My wife will be quitting her full time job to manage our rental properties and stay home with the kids. In the intermediate and long term we will be fine cash flow wise for our household finances, but the truth is in the short term things will be very tight. We really want to have my wife home with our young kids. My wife's parents have offered us a cash gift to make life for our family more comfortable in the short term. They have loaned us money for real estate purchases in the past and they helped with our wedding costs. They are very generous and financially comfortable but they are not wealthy by any means. They were given a similar sum of money by their parents when they had young kids and it made all of the difference, they want to do the same for us. I know it is the best thing for our family in the short term and my wife has no problem taking the gift. Part of me wants to just take the gift, but I am struggling with 1.) Pride - at the end of our lives I feel that I want to look back and know we made this transition on our own. 2.) my in laws are comfortable but not wealthy, this gift probably won't impact their retirement, but they should really be taking care of themselves at this point in their life. I know this is nice problem to have, play me a violin, etc., but I really would love to hear how you would approach such a gift offer? Swallow my pride and go for it? Take the money and when our finances mature we will be in a better place to help them? What are your thoughts? Please share your experience BP!

BP,

We are buying a rental property in Seattle, Washington and our family would like to invest with us. They will be giving us $50k towards a $600k property. It is not a "gift", they want their share of the income and appreciation when we decide to sell. We can't put the property in an LLC because we don't want to risk the due on sale clause with the mortgage. We also would like to avoid them being named as an owner to prevent them from any liability (though an umbrella policy may be the solution to that). And, I think it would be easier from an accounting prospective if everything ran through our return and we could just give them a distribution of net income.

- Is there a way to structure this investment as a loan that has a variable rate based on net income and then some sort of balloon payment when sold?

- I presume it would be fraud for them to use their annual exclusion gifts to give us the cash, and then for us to use our annual exclusion gifts to "gift" back an amount equal to net income and then to "gift" back an amount equal to their share when the property is sold in the future ?

I would really appreciate you sharing any thoughts or recommendations you may have.

Thanks, 

David

Katherine,

You were right, the DoL was very helpful.

I spoke with an auditor about having a real estate firm and a physical office or records depository. She stated that a home office is perfectly acceptable. A business sign needs to be posted, with company name and hours, etc., but it can be the size of a business card. You licenses need to be visible.

We were concerned about the home office requirement as we read elsewhere that the home office had to have a public entrance and that it must be closed off from the rest of the house. That is an old rule and does not apply. I asked that they would have "no problem walking through our living room into our home office", and she confirmed.

A records depository is the same as a home office. I asked about electronic records and having all of our documents in the cloud. She said the DoL is behind the times so we will have to provide a list of files available in the cloud, they will mark the ones they want to see, and then we will have to print them out for them.

Greetings all!

I just signed up and have been really enjoying the site and podcasts. I'm going to jump right in and try and tap all the BP knowledge!

I am hoping to start a property management firm in Washington state. State law requires property managers be licensed managing brokers, I will be licensed but I came across this:

RCW 18.85.231

"Every licensed real estate firm must have and maintain an office or records depositories accessible in this state to representatives of the director. The firm must maintain and produce a complete set of records as required by this chapter. The director may prescribe rules for alternative and electronic record storage."

I was hoping to work out of my home until it makes sense for a commercial location. Does anyone know what qualifies as a "records depository"? Does anyone know of alternative solutions?

Thanks,

David