Deal / Entity Structuring Tips- Family partnership, Non-Arms Length Transaction

[Ryan Robbins]

Good afternoon everyone,

I am looking for some general advice regarding structuring a deal that my brother-in-law and I are working on. This is our first deal, and we'll be purchasing the property below market value from a relative that needs cash quickly and wants to kickstart our investment portfolio (not as a partner, simply to keep the property within the family and to speed up the closing process). We're looking for helpful tips on both how to purchase the property as well as structure our partnership.

Below I've listed facts of the deal:

- Property located in rapidly growing Speedway, Indiana - less than a mile from the world-renowned Indianapolis Motor Speedway.

- Property worth $190-200k, conservatively.

- Purchase price in the $130-140k range (aware this could trigger potential gift tax, looking for advice here)

- Interest rate of ~7% results in P&I of $874/mo (assuming no money down, using the built-in equity), market rent in the area is $1700-$1800 for comparable properties.

- Property is in good shape and only needs $10-15k of improvements.

Below I've listed the financials of our joint partnership:

- Access to roughly $40k in Cash

- 700 & 780 credit scores

- Joint Income of $300k+, $400k+ including spousal incomes

- Both of us have sub 20% debt-to-income

- One partner highly skilled in managing people, and plan to have him be the “people” side of the business (screening tenants, working with contractors, etc) Other is experienced accountant that will manage flow of money, refinancing down the road, financial reporting, tax, etc.

Main questions:

1. How should we joint purchase the property? Should we form an LLC or just put in both of our names?
   1. Would we be better off keeping in just our two names or including our spouses?
2. How should we structure the deal to minimize gift-tax to both of us & the seller? The last thing we want is the family member we are buying from to be hit with a tax bill. Would we be better off paying a higher purchase price to side step potential gift tax?
   1. Can we avoid the down payment considering the considerable equity we’ll have at closing?
3. Loan tips for not paying for improvements out of pocket and instead wrapping into loan? 

Apologies for the long post, just looking for any advice from people who have done similar deals.

Thanks!