All Forum Posts by: Quincy Mingo

I own a 3-unit multi-family with a business partner. The mortgage is in the name of my business partner. The interest rate is 4.5. We put 5% down when we first purchased it in 2019. The loan is not assumable. I want to get the mortgage in my name and buy out my business partner. The current owed amount on the property is $407,000. The current market value is roughly $600,000. We have an Operating Agreement, that states I can buy him out.

Reasons for the buyout

• Business partner wants out of real estate
• To put the mortgage in my name and renovate to have as a primary residence
• Low Cost purchase of the multi-family over buying anything on the current market.

Possible Solutions I See

• Purchase the property from my partner with a new mortgage:
  • My interest rate would be market, anywhere from 6.5 – 7.5% rate for primary residence either using FHA, Conventional, 203K. Purchase price would be the current owed amount on the property. If possible, not use an agent, to lower commission owed expense (not sure if this is possible in Chicago, IL). From a purchase and tax standpoint, I would operate the business expenses as usual in the name of the LLC as previously done. Buyout my business partner with an agreed upon amount soon after the closing and change LLC to single member. Next year file taxes for the LLC with it now being a single member LLC. This is so neither of us would have to pay capital gains on the sale since it actually stayed as a property for the LLC, my business partner was just bought out. I would dissolve the LLC the year after the property purchase is seen on the return.

Please share thoughts about my idea and if there are better alternatives or details I am missing. I am working with my accountant and CPA to ensure this works and the have suggested this path forward.

I own a 3-unit multi-family with a business partner. The mortgage is in the name of my business partner. The interest rate is 4.5. We put 5% down when we first purchased it in 2019. The loan is not assumable. I want to get the mortgage in my name and buy out my business partner. The current owed amount on the property is $407,000. The current market value is roughly $600,000. We have an Operating Agreement, that states I can buy him out.

Reasons for the buyout

• Business partner wants out of real estate
• To put the mortgage in my name and renovate to have as a primary residence
• Low Cost purchase of the multi-family over buying anything on the current market.

Possible Solutions I See

• Purchase the property from my partner with a new mortgage:
  • My interest rate would be market, anywhere from 6.5 – 7.5% rate for primary residence either using FHA, Conventional, 203K. Purchase price would be the current owed amount on the property. If possible, not use an agent, to lower commission owed expense (not sure if this is possible in Chicago, IL). From a purchase and tax standpoint, I would operate the business expenses as usual in the name of the LLC as previously done. Buyout my business partner with an agreed upon amount soon after the closing and change LLC to single member. Next year file taxes for the LLC with it now being a single member LLC. This is so neither of us would have to pay capital gains on the sale since it actually stayed as a property for the LLC, my business partner was just bought out. I would dissolve the LLC the year after the property purchase is seen on the return.

Please share thoughts about my idea and if there are better alternatives or details I am missing. I am working with my accountant and CPA to ensure this works and the have suggested this path forward.

Extremely grateful for this thorough breakdown! As one point of clarity from my side, in my letter from the VA it states I have used up $140k. Therefore, based on your calculations I would have approximately $40,000 of entitlement left?

When I spoke to the VA in depth back when I received my letter in 2021 they expressed I had two options. A.) I could refinance out into anew product and gain back my full entitlement. B.) Sale the current property to free up my entitlement.

Based on your information I should circle back to find out about the remaining $40k.

Thanks! 

 Thank you! I learned how to run the numbers and was able to get the properties after persistence and unique financing. 

That is a good point. That have told me everything about the programs through phone calls, but I never disclosed I already had other properties through our conversations. I'll take that as a note. 

This idea of refinancing has come up before, I just dont believe there is enough equity to do it in either of my personally owned properties. However, I will take another look at that approach. 

Yes! I did my one year with the VA Loan and then jumped into an FHA. One lender did both for me. For the FHA, I simply needed a letter stating I would be moving into the new property. They didnt ask for anything out of the ordinary in my perspective.

@Paul De Luca, Yes that is what is was thinking! A setup that isn't intrusive on my life and space.

I haven't come across properties with a 2-4 unit type layout. Honestly, I probably haven't looked for that type setup either. That is a good approach. Thanks!

 @Jonathan Klemm, Thanks! I've tried to research and do things on my own initially, but with growing I need to branch out more. 

Unfortunately, with the woes of marriage cost, it is going to cost us a good amount of money that we would have used for a downpayment. With the total savings, it wouldn't be enough to do both. 

As it relates to refinancing my loans, I don't believe I have enough equity in my personal FHA or VA to refinance. Is there something I'm missing?

It would be great to connect since you are local. I'll be reaching out in the near future!

 Thank you for the welcome, @Doug Spence!

Yes, the VA loan is such a cheat code and I love it. I'm trying to eventually create a strategy where I can rinse and repeat with the VA loan. You and your wife are doing it smart by house hacking with your VA. I think one of the best programs.

I'll be sure to connect with those folks. Thanks!

My business partner is a friends not my partner. Yes, we ensured we had similar values and goals. It was our first real estate investment, so it wasn't perfect but it still works and we've addressed different things along the way, but we are still in a great working relationship. 

I do think the thought on documenting my experience is important. To be honest, I dont have the time to strategize and market, so that is something I need to figure out. Using OPM is going to be the next real way to grow, so I need to figure it out. Let me know if you have any recommendations on how to efficiently make posts for social media. I have content from renovations and things, but need someone to create the strategy, content, and keep up with the page. 

 Thank you! Glad to finally be on here connecting with the community.

As for option 1, it was my intention to only do it for a year and get out of there as soon as possible. 

Okay, thank you for your advice!

I am looking to identify my next investment strategy to acquire another 3 or 4-unit property. I would like thoughts on what makes sense based on my situation.

Current Properties:

1.) 4-unit purchase in 2021 using my VA loan. Benefit is all used up on $550K property. Cash Flow is $1,500 Monthly. Property in McKinley Park

2.) 4-unit purchase in 2022. Using FHA. 4-unit in Bronzeville, two blocks from Hydepark area. Purchased for $740K. Cash Flow $500 monthly.

3.) 3-unit in Woodlawn. Purchased with a business partner in March 2019. Property in business partner's name. $500 monthly Cash Flow. Most likely a good amount of appreciation.

My Situation:

• My location is Chicago, IL
• I work 9-5 in the Tech industry
•  Military Veteran
•  Strategy is Buy and hold in up-and-coming neighborhoods.
• Currently planning for a wedding occurring early in 2023, so paused on any major purchase with my cash.

My initial Idea:

• Use a Navy Federal mortgage program to (0$ downpayment and no PMI benefits) purchase a Primary residence single-family home in early 2024. Rent out some of the rooms.
• Purchase a 3 or 4-unit in my partners name using FHA, after the wedding in mid 2024
• Any creative ideas?????