Help...Inherited Rental Properties...Sell or Keep

[Karen Scheil]

I inherited rental properties around the Atlanta area  1 1/2 yrs ago which are all mortgage free. The obvious...keep them, but I am overwhelmed (also inherited active commercial supply b'ness and many other personal properties). Considering selling rental properties but have seen online articles warning against selling with large tax implications etc.

What type of person in my city can I go to for advice and a pro vs con analysis? I have NO knowledge or prior experience in this arena.  HELP

With the commercial supply bness I have ordered a Valuation which is complete and will be handed to me this week. The 25% partner feels I should hand the business to him because he has worked there 30 years. He has said he will reject a loan offer from the bank because he "will not go into debt for what he has earned over the last 30 years".

My other options if he rejects a loan offer from the bank to buy me out are: selling to a competitor or liquidate inventory and sell business? > HELP

[Oren K.]

Karen,

I assume that this was someone close to you so first let me express my condolences; sorry for your loss. Inheriting can be both exciting and daunting since there can be a number of complications that you had no hand in creating but now have to deal with.

With respect to the rental property; you should get in touch with both the PM (assuming there is one) and the accountant that handled the books for person that passed away. The PM can advise you on the current status of the properties; how many units are occupied, any big expenses coming up, monthly / annual cash flow to expect, current value of the properties and so on. The accountant should be able to inform you regarding the underappreciated value of the properties. He may also be able to advise you regarding the estate issues but if not, you will need to find someone else to help you understand those issues. IF there is a PM, do not feel rushed. They have  been taking care of the property for some time so another month or 3 while you figure out what is best for you should be no issue.

With respect to the business, from your brief comments, there are / were unresolved issues between the partners. Selling the business for inventory will get you pennies on the dollar and also wipes out the goodwill of an operating business. Selling to the competitor would be better but again, you are at a disadvantage as they know the business and you are in a forced position. Either is found money for you but may not the best course of action

Keeping the business going will require you to step to some degree which you may or may not be able to. With respect to the minority partner, IF its not documented on paper, it doesn't exist and there is no reason for you to just hand the business over. Having said that, unless you believe you can walk in and take over the operation, having a discussion with the minority partner is a place to start. Perhaps you become the silent partner and they formally (put it on paper!!) grow their ownership share over time and hitting certain targets. Another thought is to recognize that they in fact have been critical to the operation / growth and make them the majority owner. There are many possible options and so creativity and a good advisor / mediator will be needed.

Anything you get over simply selling the assets (e.g. inventory) is again found money so being generous is both good Karma and good for the pocket. Also, again, you need to talk to the accountant who did the annual statements to understand the current status (e.g. is the business actually making money?, what are the current liabilities?) and a commercial agent familiar with valuing this kind of business.

Probably the most important thing you need to do is 'buy' some time so you can get your head around these issues, seek proper advisors and figure out what is in your best interest.

Oren