All Forum Posts by: Tim Joyce

Yeah @John Woodrich I see what you're saying about estate tax maybe being non-issue. I see a potential for a large event on Jon's side here, when he either gets the property or the company that owns the property. Once the equity is cashed-out and there is just a smaller amount left, that might be the time to set up a kind of equity vesting schedule, where in return for son's services managing the property, dad releases some of his ownership over to son. (sorry for impersonal writing - law school habits die hard) The periodic tax burden of receiving more ownership over time would still fall to son, but in smaller chunks and perhaps(?) offset by company depreciation losses.

[I'm not an expert in this kind of planning, unfortunately. I know the LLC mechanics, but tax is still a bit above my head.]

Hey @John Woodrich - from tax perspective, do you have an opinion one way or the other if @Jon Loca did the following:

• Dad deeds property over to LLC, for "consideration less than $500" to avoid hefty deed tax when recording.
• Dad invites his partner-son to become a small part-owner of the operation of the business that is this rental property by buying into the LLC for "services to be performed"
• Lender like @Tim Swierczek helps get the property refi'd under the LLC, with cash distributed pro rata to the owners -- does that get ordinary income, or capital gains treatment? (Dad gets $$ for bills, but pays cap gains rate on it, right?)
• Then, over the course of years, Dad yearly "gifts" the legal maximum ($14K?) to son in equity of the company (so ownership percentage, and therefore share of future distributions, grows without(?) any tax consequence).

What did I miss in terms of taxable events? Does it impact it if Jon becomes an owner after the cash-out refi? Does this potentially solve the problem?

Thanks @Chris Mason and @Wayne Brooks - exactly the kind of quick and dirty math I was hoping to find. 

In the market I've been reviewing lately (Rochester NY - hometown), an extra $50-90K in buying power would exponentially increase my ability to close on a decent-quality multifamily instead of SFH.

Will definitely make sure to confirm with local lender, but it's after banking hours and the question was burning in my mind.

Can any lenders who do conventional lending tell me how wide a snapshot you’d take of my debt obligations when calculating DTI? Like, does the short-term debt service I have now really hamper my borrowing capability for the length of that loan? Here’s the reasoning - We have a 30 year mortgage on primary, law school student loans on 20 year plan, and two car loans on 6 or less. Even though the principal on the cars combined is less than my student loans by 2/3, the combined monthly payments are more than student loans. I’m wondering if I found an extra $10K this year to pay off a car and eliminate my monthly payment $200 or so (or $22K to pay off both cars for extra $450/month), what impact would that have on my ability to borrow on an investment property at 30 year conventional terms? Is there a predictable relationship between more available funds per month and increased borrowing ability? For example, could I assume that an extra $450/month makes me able to borrow roughly $60K more on a new 30 year investment property note?

@Account Closed For that scenario, my expertise worry is definitely way less. If you self-represent in court, I would assume you'd still be paying for his time to coach you? Could get pricey, as it's almost certainly less efficient that him just appearing for you. That said, I would think only evictions and small claims court things are the ones where you'd need someone in person. For most of the purchase/negotiation/entity work, that can be done very capably even remotely. And, I know in some parts of MN a landlord must have an attorney when in housing court. Not sure if NH is that way too, so something else to think about. (if he's really that experienced, he should probably be able to tell you - for free - whether you'd want boots on the ground)

(Sorry posted too early) ... I can with many MN matters. A local attorney with experience could conceivably save you time (and therefore $$). And if you need to appear in court (at least most official state courts; not sure about local housing court requirements) you’ll need someone with a license in that state.

One thing you may want to consider is local expertise. For instance, I’m an attorney licensed in MN and WI, but I do 95% of my work on MN matters. When a WI matter comes up, I need to do extra research to refresh myself on WI law. It makes it so that I can’t usually offer flat fees on WI matters the way

Yeah good call on the extension idea @Bill F.! I'm almost embarrassed that it slipped my mind when responding.

@Chivas Miho I think lots of debt investors just want certainty, and if you can define this stuff up front, like what happens if the property isn't ready to cash out by balloon time, that makes the conversation easier. Then you don't have to "sell" a 50/50 split of some unknown number where you're both sharing the risk. Instead, you pitch them on a pretty safe and predictable XX% return (less than what equity investors expect, obviously) with defined time horizon. As long as it's competitive with the stock market and bank lending, shouldn't be a tough sell.

As debt, a promissory note certainly brings with it different expectations of the kind of involvement required from your money partner. If other partners have fizzled on you before and you think you can handle coordinating the work solo, I don’t see much wrong with this situation. The analysis I would be doing is along the lines of (1) can I handle the interest only payments in the meantime, and (2) what happens if I can’t refi by the time balloon comes due. The main risk shifting that this does is put the burden on you as the sole equity person in the deal that things don’t go as planned. Your creditor (this lender friend you have) will expect to get paid regardless. One variation you could consider (though I’ve not heard of it done in REI before; speaks more to my relative newness to the field than anything else) is convertible debt. There you would determine what percentage ownership of the property his loan would convert to, and whilst conditions would trigger talk of conversion. You more often see it in startups that are ongoing enterprises, but that could be one way to hedge your bets.

Thanks for the nod, @Nathan Platter.

I'll begin with the standard caveat that I am NOT licensed in California, and I know that their legal regime can be quite different in many aspects from MN (where I live now and studied law) and NY (where I grew up). This is something that *should* be pretty standard for CA estate planning and/or real estate attorneys, and someone may be able to give you a free consult that answers this question quickly.

In broad terms, if you and your SO held in a joint tenancy with right of survivorship, if one of you dies the other gets immediate possession of the entire property without going through probate (i.e., the legal proceedings that determine how property passes after you die). Broadly, a tenancy in common means that you each own undivided shares in the whole property, but those shares can pass to your heirs (something you don't get in JTWROS). It sounds like that is of particular concern to you. General downfalls of a TIC is that one person can bequest/will/sell their portion to someone else without the other person's consent. In a JTWROS, you generally have to petition a court for something called "partition" or else a forced sale - neither great options if your goal is to have a place to stay.

The inheritance issues are outside of my wheelhouse even in MN, unfortunately. I assume a legal guardian would manage your son's share of your estate until he's of legal age. Again, though, this is very high level and I sure don't know enough about CA law to claim to give any sort of expert advice here (sorry).