Need advice on possibly botched JV

[Edward Rueca]

Hi all, I am also new to the forum. Looking for some advice as to how to proceed.

In 2012 I partnered up and bought a triplex to rent . We went 65% for him and 35% for me on the ownership and rent split as I was still young and didn't know any better. We were still living with our folks at the time so our 5 year plan was to live in 2 units and rent out 1 unit until we saved enough to move out and rent all 3 units. 

 Long story short, my wife and I tried to buy a new home but unexpectedly were denied a mortgage approval because although the property was split 65% to 35%, I am still liable for 100% of the loan but only 35% of the rent. What would be the best way to proceed? Sell the property, or keep? What would you do? 

also FYI, We bought the triplex for 780k with 40k down. Recently has been appraised for 1.4m. 

Any insight, would be much appreciated. 

[Oren K.]

If I have this right, you invested ~275K (35% of 780K). IF you net out $1.4M on the sale, there is ~ 600K of capital gain which will be taxed 150K (25%) of which you will be responsible for ~50K for a profit of $157K; approaching 60% after tax profit over 6 years.

So, you invested ~$275K and will get out $432K ($275K + $157K); over 50% of your target purchase of $800K. Don't know of a bank that would turn you down on less then 50% LTV on a primary residence. Alternatively, do a 75% LTV (Still a slam dunk) and use the remaining $100K to remodel to your tastes, accelerate retirement savings, do a bit traveling, etc (or any combination).

As always, check with an accountant especially as sounds like your first time dealing with these issues. These are life issues and not stuff you want to make a mistake with.

@Jay Hinrichs - Canada does NOT have an equivalent of a US 1031 exchange (wish we did!). It simply does not exist and you owe taxes in the year that your sell. Hence why Canadians should not do 1031's in the US; Canadian taxes would still have to be paid 'now' and that creates other problems down the road.

Oren