All Forum Posts by: Jon Schwartz

Thanks, @Jay Hinrichs! Great ideas -- especially regarding developing a relationship with the children. I'm meeting the woman's son with her next week.

To answer your question about how it affects me: I'm planning to "house hack" this duplex. I'll live in one unit with my wife and daughter and rent the other. It's a historical duplex in a fantastic area: walking distance to a great elementary school, a Whole Foods, and one of the biggest parks in LA. Properties like this don't come onto the market often; in fact, the potential seller responded to my direct mail campaign targeting duplexes in this neighborhood. So, it's not about taking equity from a sweet, old lady -- it's about securing the sale even at market prices simply because this opportunity won't come around again in the timeframe that I'd like to move my family.

That's why I'm eager to find another avenue that allows her heirs to take the stepped-up cost basis. For example, from the research I've done so far, I'm pretty sure that an heir can inherit a promissory note and only pay taxes on the interest income. Anybody know more about this?

Thanks so much!

Thanks @Eamonn McElroy for your perspective!

I will definitely NOT be advising her on tax matters. In fact, her 70-year-old son is a local CPA with decades of experience. Even if she doesn't consult him as her CPA, I'll insist she consult him and her other children (including another son who's a rabbi!) before completing a sale. I'm not interested in bilking an elderly woman!

Could you explain the options that you mentioned? That's what I'm hoping to hear about. My goal is to wrap my head around scenarios that could work for her as well as for me.

Thanks!

Hi guys and gals,

I'm in an interesting situation. Long story short, a 94-year-old woman has expressed interest in selling me her $2M duplex (in a very nice area of Los Angeles, hence the $2M price tag). She owns the property outright, so I'm trying to think of seller-financing options that benefit her and whomever eventually inherits her estate (she mentioned she has 16 grandchildren and 33 great-grandchildren!).

Also, she lives in the duplex, so keeping her as a tenant for the rest of her life could be part of the agreement.

Any ideas? For starters, I imagined writing a promissory note that was due upon her death to a named beneficiary. That would result in a tax-free payment to her beneficiary, I think, at the time of her death. Is this even possible?

Or perhaps a sale agreement that includes a 30-year lease agreement terminable upon death of either party. If she financed the sale, she'd get a big chunk of change upfront and probably make more on the note each month than the rent she currently collects on the other tenant.

Do these ideas carry any water? Any other ideas?

Thanks so much!

Hi all,

I'm in an interesting situation. Long story short, a 94-year-old woman has expressed interest in selling me her $2M duplex (in a very nice area of Los Angeles, hence the $2M price tag). I haven't dug into her motivations yet, but I can think of 20 reasons why she wouldn't: her adult children and adult grandchildren.

What I do know is this: if the potential seller put her duplex into a trust and named a beneficiary, the beneficiary would inherit the duplex with a stepped-up cost basis. He/she could sell it immediately and pay basically no taxes.

A few other facts I know: the potential seller owns the duplex outright. She resides in it. She owns it in her own name, not in a trust. She's owned the duplex for 49 years, so her cost basis must be $100k, if not less. She owns other property nearby, so I believe she's financially comfortable.

Here're my questions: how can I structure the sale such that the potential seller and/or her children aren't stuck with a huge tax bill? Is there a seller-financing option that reduces the tax bill if her children inherit the note? Is it possible for her to put the duplex in a trust, sell it to me, and then keep the funds in the trust until a beneficiary takes over the trust? And what the tax implications there?

Any advice from a knowledgable tax specialist would be greatly appreciated! I don't want to buy this duplex if it's not in the selling family's favor in some way, so I want to come prepared with some win-win scenarios.

Thanks so much!

Jonathan 

Nick,

I have two names for you, though I'm not 100% sure they'll be helpful. I'm in a similar but better situation: I'm also a freelancer, but employers 1099 my corporation, and then I receive a W2 from my corporation. Nonetheless, these two guys seemed very flexible and understanding of alternative income in LA: Benjamin Pruett at Chase Bank and Dan Millstone. I'll send you their contact info directly (because I can't post it here, apparently).

Dan is a broker and seems like he can get very creative. I sent him my financials and asked what my max purchasing power was, and he said something like, "Well, it's such-and-such, unless we go in and find some hidden income, and then we can probably get to such-and-such." So I get the impression he knows how to work with 1099s.

Hope this helps!

@Chris Mason, thanks! I'll get in touch with an insurance guy.

Is there a rule-of-thumb percentage I can use to calculate the insurance premium on a duplex based on purchase price?

For what it's worth, I'll be buying in Los Angeles, and redfin.com estimates regular homeowner's insurance here to be 0.22% of the purchase price.

Thanks so much!

My wife and I are considering house-hacking in style by buying one of those big, 1920's duplexes west of Hancock Park and renting the other half. We're looking at side-by-side or up/down duplexes that are 1500-2000 square feet per side with 3 bedrooms and 2-3 bathrooms per side.

Does anybody on here own a duplex that fits this description? If so, how long does your average tenant stay? Because the buildings are nice and have 3/2 or 3/3 layouts, I'm guessing tenants stay longer than in 2/1s. What has been you experience?

Thanks so much!

@Cameron Riley Another vote here for stessa.com . They also have the best weekly newsletter I receive!

Thanks, @Tom Gimer!