All Forum Posts by: David M.

@Dan Becker

Many times in high value areas, the tax liability isn't nearly as high as some would lead you to believe...

Anyway, to you question:  no, there really isnt a great way for you to get the property and get the step up in basis.

Honestly, your question doesn't make sense:  "Is there any creative deal structure that can be used so that I can buy and occupy the home including the assumed improvements, repairs and maintenance, while allowing the seller to preserve the step-up tax shield for their descendants?"

Are you doing the first half where you buy and occupy?  Or the second half, where the heirs take Title?

Similar type deals have been asked before recently on bp.  We never came up with a good answer. the step-up in basis requires the owner's death.  If the current owners didn't need the cash, a master lease type structure could be a way to go to get you control of the property, but somehow a Will, or Trust in this case, would have to name you as the heir.  That's a pretty big risk on your part since both docs can be modified at anytime.

Again, what is your goal?  just to save them the tax?  For you to buy it at today's market price, or future price?

@Jeremy Brown fyi don’t forget the broker/agent split…. So it’s even less

I’ve had clients be concerned.  Once I pointed how really little it affects my commission they all realized how stupid were there concerns and how little I make, especially all the time I have to put into just one transaction

@Sridhar D.

Seems interesting that they want to buy ONLY when the lease ends.  Maybe they have their own reasons for not buying now...  Maybe not sure if they are staying in the area??...

Otherwise, honestly I think a plain contract would work.  Just write it up like any other sale, its just that the closing date will be about a year out...  This would be if tenant is serious/sure about buying.

Otherwise, I agree that a lease with the option to buy structure would be the way to go...

Good luck.

@Steve K.

I think this is another reason why local agents can be beneficial.  Lots of "friction" can be handled if we understand the legal/reg as well as customary "limitations."

Oh, here's another one from talking to my lender...  Lenders want the Title search done right away, as that is they primary concern (ie. out of their control).  however, our attorneys generally order last, unless requested or required.  For us, while Title is paid at closing, they still get paid for their work.  However, since its the attorneys that order Title for their client, the attorney has to eat the cost of Title's work if the deal doesn't close.

Similarly, I try to manage client transactions to minimize exposure to costs.  For example, do the inspection first and quickly, but don't order the appraisal.  If we can't settle on the inspection, no point for the client to pay for the appraisal.  I had a client whose lender convinced her to order everything when we had an accepted offer, but not under contract.  I had told her upfront not do it and why, but she did it anyway.  We did go under contract, but the inspection went poorly.  So, that was some couple grand lost...

@Steve K. Yeah, isn't it interesting...  I'll give you some more...

NY buyers can be annoying because NY and NJ run their transaction, or at least the initial offering, "reverse" of each other.  In NJ, an entire contract is drafted and signed.  You need PoF for it to be a legal offer.  The contract isn't legally binding until after 3 days OR if you start attorney review.  But, in NY apparently if you write down anything that can be construed as a contract (which only take a couple lines / elements--- basic contract law), then you immediately have a contract.  So they expect to have the major topic agreed verbally, then go to the attorney to draft the contract.

CA and other "westerly" buyers are constantly recalculating the tax for every property as we tour.  So, annoying that its so hard for them to understand that we don't that Prop xx and whatever wackadoodle extra laws.  At least in NJ its straight ad valorem, with the various tax assessors updating assessments in a periodic hodgepodge way...

Pre 2007, our attorneys did the closings and the brokers held the initial deposits.  So, yeah in those days the attorneys had a lot of "paper prep" to do for their fixed fee.  My attorney back then had a stack of active files that ran the width of the paralegals desk.  But, the two of them were always attentive to my deals, helping with negotiations and other issues.  So, they were definitely hustling.

Now post 2007, apparently the closings have moved to the Title companies and their Closing Departments.  I found that annoying since that costs an extra $1k+ to pay for their Closing dept.  We didn't have those fees before.  It was explained that with the extra regulations and disclosures, it was easier to have the Title company do it...  whatever..

Also, now brokerages don't keep any deposits.  It was an administrative nightmare.  

I agree with your comment about "ignorance of seasoned investors / lawyers." of the transaction.  Not everybody is detailed oriented.  Then, there is that push for getting a team together.  So, some investors I've found are more like a figurehead, basically the source of funds and financing, while everybody else is getting paid to do their job.

So, your broker won't let you take on a rental listing?  Or, you mean all the "other PM functions?"

@Jay Hinrichs

Sure that's different.  Yup, ours are flat fee.  For you, that sounds like a "billing conflict of interest."  Isn't it in their interest to keep arguing?  Just like what I "hear" about divorce attorneys??

The good transactional attorneys here have negotiated some well.  The one I'm using now is very transactional:  she just wants to know "what to do."  Basically, what's the final answer.  But, I think that's because I'm a more experienced investor.  In many cases, the agents, when you have two good ones, really broker the negotiations since our conversations aren't so formal as attorneys.  Although, I did have one attorney long ago that was great since he would actually make phone calls and help close the deal.

As for time spent...  To me lets face it, they do make their money on volume.  So, if one's market doesn't customarily use attorneys, I guess I could see how they use a billable hour system.

Oh, why do you call it an "escrow fee?"  Do yours get paid either way?  Our attorneys get paid at closing their flat fee --- and only if there is a closing.  So, that's clearly incentivizing...

 @Alan Asriants yeah some lawyers can be really bad.  I think some clients get like the referral or reviews that the attorney "fights for them."  Too bad they don't understand they need a transactional attorney for a real estate transaction.  I think the worst one I had to do was with an attorney that also practiced divorce law!!!  Luckily, my attorney was somehow able to keep him in check.  :)

@Jay Hinrichs @Steve K.

I think its like a "sampling error" or misalignment of expectations...  I hear that a lot from investors  in non-attorney states --- the attorneys are useless...  Not saying that attorneys are great, but your attorneys wouldn't be customarily called upon to handle real estate transactions.  So, yeah I'd expect there to be much more friction when they get involved there, especially since its tough to find a "transactional attorney."

Sure, out my way I've had some tough deals because of the attorney.  But, there are plenty of good attorneys out here that help the deal go through, and work with the agent.

But, attorneys and agents do different functions/jobs.  That's pretty clear out here, and I haven't clients get "bounced back and forth."  It gets fuzzy in south Jersey where the agents and lenders are helping to modify the contract, for example.  Our brokers and even the Real Estate Commission won't allow agents to modify the contract (e.g. as mentioned, a repair request pursuant to the inspection clause) since it would be practicing law without a law license.  Lets face it, the regular buyer/seller aren't that sophisticated, so somebody has to 'lead them around by the nose'.  So, even within one state its a strange dynamic / way of doing business.

Then, I find it even "funnier.."  Discussions with agents in non-attorney states show they think they do all the work, while agents here don't do anythign because of the attorney.  When they list out all their functions, its the same as what I/we do, and sometimes less --- I guess I'm used to providing more service :).

Like another example I heard vaguely that some markets agents don't handle rentals, which is why PM's are pushed so much.  In my market, agents absolutely do handle rentals, so I'm not used to Pm's at all.  Maybe that person didn't find the right agent...

I get it when an ordinary buyer comes to a new region and I have explain and convince about the taxation, transaction process, etc.  But, why investors think that "their" way is the only way I don't quite get.

Anyway, just saying that some of the issues/perceptions are market/locality specific.  Just like real property varies from location to location...

@Jay Hinrichs @Shane H.

NYS is an attorney state.  You have to have an attorney.  Your negotiations are verbal so as not to create a contract.  If you wrote it down, it would have become a contract --- basically...

Yes, in NJ while its not an attorney state, in Northern NJ we use attornies.  So, yes 4 parties.  I find it is somewhat useful because it gives a better chance to have an avenue of communication to get the deal done...

gota run.

@Dave Hart There are no tax benefits to a LLC, unless investing with a non-spousal partner.

The taxation of the LLC will just about be always a "pass-thru" entity. In this case, the taxation actually occurs on your tax return. If you more than one owner/member in a LLC, the LLC will file a 1065 partnership return, but all that does is spit out a K-1 (like a w2 or 1099) showing the profit / loss that you need to report on your 1040 form.

If the LLC is single member, then you will basically continue file addition SchE for your long term rentals. single member LLC's are "disregarded entities" by the Federal IRS, which is to say that the IRS didn't bother to create another set of forms. Its an IRS tax status. By being "disregarded," it does NOT mean that the entity has no legal standing --- some people think the limited liability protection is reduced or not there because of this tax filing status.

Hope this helps.  Happy to chat.  Good luck.