OfflineHere is the idea. My grandmother has a duplex that she has owned for 38 years. Free and clear since 1982. I help her find and manage tenants currently and she talks about me buying it from her. Here is the problem with me buying it, she wants $140K for the porperty. No cashflow at that price and it is currently assessed at $85K. I offer to buy it for $60K with financing form my Credit Union, I can get loan for 80% of the assessed value in Scott County Iowa. At $60K purchase price I can gain control of the property for NO MONEY DOWN!!! But, Grandma will not sell for that amount.
So for a solution this is my proposal to my Grandmother. If she Gifts the property to me with a Warranty Deed (free and clear title in Iowa) I would then pull out a loan of $60K. There will be about $450 of Cashflow monthly after being refinanced. I take that $60K and by using the skills taught by Dean and Matt I do Buy, Fix, Sell, or Buy, Fix, Rent, Refi.
To pay back Grandma I pay her a percentage of the profit from completed deals, and we split the cashflow on the properties that are held for rental.
So how does that sound? My questions are legal/financial questions. If I am gifted what taxes do I pay or can I buy her property for $1?
The next thought to move forward is partnering with grandma? I will ask my accountant and attorney about this, but for now I am looking for ideas. If we partners how could that be done so our profits are properly recored and our tax liabilities are figured out? LLC, LP, etc?
Or should we both be on the title she has now instead of gifting it or selling it for $1 to me? If that were done then we would get a loan together and proceed with investing.
My only largest concern with doing all of this is that I wan't as much control as possible. It is amazing how much we learn as we grow older. I never knew that my Grandmother really Invested as much as she does in Real Estate. She is no Dean Graziosi, but she does know a thing or to. She tested me at a recent wedding reception by asking me;
"How do you sign a contract?" She asked,
"And or Assigns, Everytime!" I stated,
She clapped her hands and stated that I am the only one of her Grandchilderen and Children that have taken Real Estate Investing this serious. I found out that about 40 years ago she did an assignment of contract on a farm! She does know a thing or two about real estate, but not when it comes to rehabbing or properly screening tenants (38 years and never once completed a background check). This is why I want to pilot the ship and let her put the coal in the fire.
I know it is a long post, and I know I will get alot of answers when I talk to the professionals on my power team, but I greatly appreciate any insight on talking to attorneys, accountants, and ideas about structering a partnership. I will keep everyone posted on the answers i recieve.
Jake
Quad City Real Estate Investors Association
Here is the proof of getting a loan to buy a deal with a 585 Credit Score.
http://www.deansmedia.com/play.php?vid=165
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Jake, you sound like you have a good head on your shoulders; you're thinking/asking about a lot of the great questions. Do the BEST thing you can do (for yourself & all concerned).....see a Lawyer >>> YOUR Lawyer_team member (especially IF Grandma uses the same lawyer)... perhaps even a second & third opinion wouldn't hurt (you know you should have 2 or 3 anyway, so your EGGS aren't all in the same basket). Every state is different and therefore the laws in each state are sometimes very different, similar is not always accurate enough. There are several ways you can acquire this property, make it a win-win! You may get several responses to your post but remember, DON'T become "emitionally attached" to this "deal," by spending more time trying to make this deal work, more so than you would if it didn't involve Grandma because you could be spending some of the time doing a couple more deals AND people that may respond probably don't live in your state so their laws are different AND Most Important Of All, unless they are a lawyer and from your state you should only be seeking legal advice from a "competent" lawyer. Wishing you unlimited TIME & FINANCIAL $UCCE$$!!!
Attract Private Investors to fund your deals so you can do more deals while using Other People's Money (OPM). For more info go to:
http://www.mcssl.com/app/aftrack.asp?afid=1029023
Regards,
John <>< Future DG & DL REI Billionaire
ASPEN PROPERTIES "I BUY (ALL CA$H), HOLD, LEASE & SELL Commercial and Residential Properties" ANY LOCATION, ANY CONDITION, ANY PRICE
http://ctaffordablehomesforall.usapropertywholesale.com/
The more creative we are the more deals we can do. Glad to see you are thinking creative on this one. Based on all the facts, the other thing you may want to consider is your Grandmother's "tax basis" in the property. If she has owned it for more than 38 years, the basis is probably pretty low. If she sells it she may have some capital gains tax to pay. In regards to adding your name on the deed, etc. this may be a good way to go. If you do a quitclaim deed and she adds your name to the title, you both may be able to get an equity loan and then cash her out. If she want to give you a gift, you might still want to do the equity loan to give her cash and get you working capital for other deals. Attached below is a link to the IRS for "Frequently Asked Questions on Gift Taxes" with applicable info:
http://www.irs.gov/businesses/small/article/0,,id=108139,00.html
If your Grandmother wants to gift the property to you another option is get the property appraised to get a FMV basis and she could gift out an equivalent percentage each year up to the $11k gift threshold. Thus, if the property is worth $60k, within 6 years you would own 100% based on the annual percentage gift of your Grandmother. As you indicated, your CPA and attorney should be able to direct you on this. Good luck and congratulations for thinking outside the box on this potential deal. Believe and Achieve!
- Joe
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