Updated 25 days ago on . Most recent reply
Seeking Advice: Transferring Property from Father & BRRRR Strategy on 4-Unit
Dear BiggerPockets Community,
I'm looking for some guidance on how to structure a deal that allows me to take over my father's 4-unit property in Baltimore while setting up my first BRRRR project. I want to ensure it's a win-win for both of us.
The property is a mixed-use multi-family (3 residential units, 1 commercial), with an estimated current value of around $360,000. My father currently owes approximately $175,000 on the building and has about $95,000 in equity. We're estimating that $50,000–$65,000 in renovations could bring the ARV to somewhere between $450,000 and $480,000.
My goal is to buy him out and refinance after the rehab, using the BRRRR method to start building my own portfolio. My father plans to use the equity to purchase another multi-family property to live in, and would like to defer capital gains taxes (estimated at around $85,000).
I’d really appreciate any advice or mentorship on:
- How best to structure the transfer or sale
- Financing options for the purchase and renovation
- Tax-efficient strategies for my father
- Pitfalls I should watch out for as a first-time investor
I’m eager to learn and do this the right way. Any insight or shared experiences would mean a lot.
Thank you in advance for your time and support.
Most Popular Reply
- Qualified Intermediary for 1031 Exchanges
- St. Petersburg, FL
- 9,512
- Votes |
- 9,179
- Posts
@Jeffrey Young, Selling the property to you will trigger the tax for your father. The most tax-efficient way of handling this would be to have him contribute that property into an entity that you become a member of. That would not trigger the tax. And upon your father's death, you could inherit it at a step-up in basis.
If your father is looking to continue his RE investing journey. And selling it to you is the best option, it would definitely be worth doing a 1031 exchange like @Upen Patel mentioned. It is perfectly fine for him to use the 1031 and purchase a multi-unit property that he lives in. This is what we would call a mixed or split-use property. Part is his primary residence. And part is used for investment. As long as the portion being used for investment is at least as much as the net sale of the old property, he will defer all tax and depreciation recapture in the 1031 exchange.
- Dave Foster
