To sell or not to sell - Which option is best?

Question

Greetings to all:

I have a property with a partnership with my father in law who is retired and in need of some cash. He wanted to sell his fully paid condo, but my wife and I advised against it. Instead, we offered to sell the jointed property which will be enough for him ($15,000) for some time.

Since we are liking the RE business we are considering buying his share and keep this property. After all expenses it generates about $270 per month.

We tried getting a HELOC but got declined because our primary does not meet the amount required, and we cannot do it for rental properties. We have 2 including the one in question.

We are considering getting personal loan, which will be more or less $300 per month for 5 years. Although the money for the loan can come from our personal finances, we are hesitant as our expenses has increase dramatically, and will be for at least another year and a half or two, that beside some job insecurity (we are both fulltimers).

So, it comes to the option of to sell or no to sell. We still consider ourselves newbies and rely on the wise opinions of the BP forums. That said, here are my questions:

- Is it worth to keep the property and get a persona loan to buy his share?

- Shall we sell and if so, what do we do with the cash?

We have considered various scenarios in the case of selling. One, is to apply it ($15K) to the principal of our first investment (current balance $63K market value $120K). Another option is to keep the money until we get some extra cash to purchase another property, or use it to buy a small apartment in the $30K-$50K range.

Our goal is to maximize our options and go with our best scenario.

What are your thoughts?

Charley F. · Answer

I will ask if there is an option for him to pay over time. Thank you for your kind advise. Regards.

Duncan Taylor · Answer

I understand families sometimes don't communicate fully and openly. But, you are guessing at answers without knowing the real question.

Charley F. · Answer

Hello Duncan. When I learned he wanted to sell this condo, I discussed with my wife and we both agreed it was not a good idea. Then, in a casual conversation we both brought it up. We explained why we thought it was not a good idea to sell and he agreed. He also welcomed the idea of selling the jointed property to he can get the cash needed. Then, in a conversation with wife we considered the option to buy him out. We talked to him about it and he liked very much the idea of us keeping the property. We then went the several banks and applied for a HELOC which we did not qualified. That takes us to plan B, which is a personal loan. I think I understand where you are coming from. The conversation is open both ways, the only thing we don't know is why he needs the money. We would not want to ask that, as we feel it belong to his private life. You have been the second person who told me to ask him if he is willing to accept payment over time, which is an option I did not considered. Definitely an option to consider.

Duncan Taylor · Answer

I'm a firm believer in honest open communication in business and even more so when family is involved. I would sit down with him and just be honest. State that first and foremost you want to make sure his needs and desires are met to the best of your ability. Then find out what those are. You are fumbling around trying to solve a 'problem' but you may end up solving the wrong problem while making the real problem even worse.

Charley F. · Answer

Hello Jean. I would have my wife talk to him and gather as much info as possible. Yes, I have the taxes in mind. This, alone with the process of selling, plus our interest in RE is what has made us contemplate buying his share instead of selling. Also, he is not on the title, so I don't know what implications would that have on taxes. My next task would be determine what are those implications, specially since this would be my first selling experience ever. If you can share some info it would be greatly appreciated. :)

Jean Bolger · Answer

It sounds like you're trying to solve a problem for your father-in-law, but you're not exactly what that problem is. Can you sit down with him and get clear on what his financial situation really is? You probably already have this in mind, but don't forget to consider the tax implications of selling the joint property.

Charley F. · Answer

Hello Duncan. I am not sure if he needs the money right away. My concern is that he is a very good man and will accommodate us at his expense. Asking him the question will be enough for him to say yes ( to buy him over time) without disclosing whether he needs it right away or not. My sense tells me he needs it, otherwise he wouldn't consider selling his fully paid condo, which brings him $700 clean per month. We found out because he started to bring up similar subjects to his children who immediately suspected his intentions :) Lets assume we decide to talk to him and he really don't need it immediately, I would still think it should be paid of Within a year, which in any case I will still need to get a loan as the money has to come from somewhere. What would you do?

Duncan Taylor · Answer

Does he need all of his cash now? Would he willing to let you buy him out over some period of time?