Originally posted by @Jay Hinrichs:
@Bill Gulley would appreciate your input here and your help on the project.
AS this is going to be a private citizen not a Habitat type org.
How would you structure this to make sure that the person doing this is successful.
I want to make sure the job gets done.. your detailed thoughts on structure would be a good learning experience for others.
Thank you in advance for your assistance on this.
Several ways to attack this Jay. The grantee is going to have a gift tax applicable to them, they could have less of a tax burden with the forgiveness of debt from a seller financed note. If the grantee is to sell later on, the note could be paid off and the proceeds donated.
I'm not concerned at all about your "advertising" free, the intent is not to profit from the transaction. "Free" to a non-profit works because there are no tax consequences for the non-profit, there will be to a tax payer. Free may not be the best solution. Not only does the grantee have gift tax issues, they have no basis in the property so all sale proceeds will be a gain. That's why I mentioned speaking to your accountant.
Another way, probably better as to control the project, would be to use TIC, TAC, TOE, Tenancy In Common with a TIC Agreement that spells out the conditions, restrictions and requirements along with a reversion of the interest in the event of default, a repurchase agreement. A seller financed note can buy 49%, (whatever) upon completion the note could be paid and funds donated.
You donation is the same, in cash or at market value. I keep donations on a cash basis, much easier and no questions arise as to the value. Otherwise, you may need an as is appraisal and an appraisal upon completion.
The desired end result is to help the BP member get started. In a TIC, profits are not restricted to the % of ownership interest held, you can make the grantee, minor interest holder any deal you want to, but they will still have taxes on gains.......so be it, we all pay taxes. Gift taxes can be a killer!
The issue I see is granting title under conditions, you can make a gift with strings attached, you may restrict the deed but, after conveyance control is more difficult. Using the TIC allows the member to go in a rehab, staying in title gives you control over the project.
If it's a buy and hold, you can be the minor interest holder, that limits your liability and the member's from judgments, bankruptcy, creditors, etc. You can stay in for 3 years, then quit claim your interest. Rents can be donated and the member may take profits under the TIC Agreement.
Another way is to use an LLC and admit the BP member, use an Operating Agreement, convey capital/equity as earned income to the BP partner. The same strategy can be accomplished under a TIC Agreement as well. Compensation paid must be reasonable, but it can reduce any gifted amount later on.
I don't mind "helping" you on this project, however I cannot put the deal together for you, general consultation is one thing on the internnet, having no interest in a property and specifically facilitating the transaction I can't do, I'm not an attorney, much less an attorney in Indy!
How this is best structured will depend on who the lucky member will be, their experience, skill set, funding available, rehab requirements, their intentions to hold or sell.
Just saying, I've turned down $1 houses. Good luck :)
