Rental Property Investment Scenario Advice

[Erick M.]

I've been considering a few rental property investment scenarios that have been proposed and would like some advice and feedback from those who have much more experience between the two. Thanks very much!

Scenario 1:

-Rental Property Appraised Value: $200k

-Monthly Rent: $1400/mo

-Mortgage: $67k ($700/mo)

Current owner is looking to sell equity in the property to raise cash. Investor offers $67k for 50% ownership in the property. Owner agrees to sell equity at a discount and would keep the current mortgage in place. Owner and Investor would split net rent proceeds ($1400 - $700 = $700) each receiving $350/month until the end of the lease. At the end of the lease, the property will be sold for fair market value (estimate $200k) and the Owner and Investor would split the proceeds, each receiving $100k. Owner would be responsible for paying off remaining mortgage. 

In this scenario it looks like the Investor gets a good rate of return and the Owner gets access to needed cash without an expensive loan. Owner would also have the opportunity to benefit from potential appreciation. 

A few questions:

-How would the Owner show/record the 50% sale for tax purposes? Would it be a capital gain to be offset by the cost of the property? 

-What's the best way to structure the partnership? Move the property into an LLC with the Owner and Investor being members? Add the Investor to the Deed and draft an agreement between the Owner and Investor?

Scenario 2:

-Rental Property Appraised Value: $200k

-Monthly Rent: $1400/mo

-Mortgage: $67k ($700/mo)

Current owner is looking to sell the property to raise cash. Investor offers $150k for the property. Owner agrees to sell property at a discount to appraised value.  Investor would pay Owner $83k up front and asks that the owner keep the current mortgage in place for 2 years. Investor states they will be obligated to pay the mortgage for 2 years and the final payment will be a balloon to clear the mortgage. 

In this scenario it looks like the Investor gets a good discount on the property and the Owner gets access to needed cash. Owner receives initial lump sum + monthly payments.

A few questions:

-There could be a possibility that the mortgage could be called if the property was moved into an LLC?

-Should the current owner take a lien on the property behind the mortgage in case the Investor fails to pay Owner for the mortgage?