Hi BP people, I'm a novice investor looking for some advice: I got an offer from my father the other day but I don't know how to make best use of it.
Some background: I'm a US citizen living abroad (Australia) for the last 10 years, but I stupidly closed all my US-based credit accounts at the time. 4 years ago, even though I had zero credit history, I started an LLC in TX, found a TX bank willing to finance a TX rental purchase, and have been paying down the loan ever since. In fact, since then, I've used the same bank to buy 2 other TX rentals, the last of which my dad contributed $10k towards the acquisition costs. This earns him a nice return (~15%) which he really likes and wants more of :)
The problem is my last purchase attempt failed due to my lack of credit history and tighter lending restrictions (the bank lowered the requisite DTI). The last one (DTI) was partially my own fault for stubbornly refusing to accept less rent despite what market conditions were telling me, so I suffered extended vacancies, negatively impacting my DTI and the purchase attempt. I now try to maintain low vacancies (even if it means a lower return) which has helped my DTI improve.
But I'm still suffering from a lack of credit history as my bank (maybe all banks?) has a policy of not reporting business loan activity to the credit bureaus, either to my LLC's record or to my personal record. So I still have zero business and zero personal credit history. I've taken steps to address this, having my dad add me as an authorized user to his US-based credit account, and using my good credit in Australia to get an AMEX card which allows me, after a few months, to apply for one in the US using my foreign credit history.
However, while my personal credit score bakes in the oven, my father has offered the use of his excellent credit score to purchase further properties into my LLC. This is not just for my benefit as he wants to share in the profits by helping to fund future acquisition costs (as he did on the last successful purchase). There is a bit of urgency here too as a) he is retired living off a fixed income and b) several of his investments have liquidated outside his control leaving him with a lump sum of uninvested money.
He wants nothing to do with managing, operating or running the property and doesn't want to own any property in his own name, or indeed even in his own (hypothetical) LLC. As I am a novice investor, I just don't see how to structure such a deal.
I considered having him purchase a property temporarily in his own name, or in an temp LLC we set up for the purpose where he must personally co-sign the loan along with his LLC (as so far I've found all banks require). Then, in the same year for the same price (thus avoiding capital gains*) he on-sells the house to my LLC which then assumes the trust deed / note. But then I arrive at the same problem: my LLC probably wouldn't qualify for the assumption due to its lack of credit history.
*also avoids the need for a 1031 exchange, although his nominal tax bracket may be low enough (I need to check) that he wouldn't have to pay capital gains tax anyway, even if the house was sold at a gain
I need help navigating the endless possibilities (temporary corporate structures, seller finance arrangements, 1031 exchanges, etc) to figure out how this might be done... and have it spelled out for me in layman's terms :) Ideally he'd like not to personally guarantee a loan but I just don't think that's realistic given it's his credit score we're using.
I suspect that, in the end, we'll just have to wait until my credit score is large enough that I (my LLC that is) can buy property directly, and just have him contribute capital as he has before.
Any and all ideas welcome.
Peace & thanks,
Lance
