All Forum Posts by: Michael Badin

@Steve Babiak   Thanks for the info.  

@Brian Primost Thanks for the names.

@David Krulac

Seems to be a slightly different situation. If I was understanding you correctly you were doing a single transfer from an LLC to an individual.

So we are purchasing the prior business partners half of the property.  That half of the property is valued at 1.5m.  We will pay 1% transfer tax on that purchase and the former partner will pay 1% transfer tax.  (This has already been agreed upon.)  

However our mortgage company that we are using is requiring that we use a single entity to purchase the property. In order to do so my father-in-law then needs to transfer his half (also valued at 1.5m) into the LLC that we are forming and using to purchase the former partners half of the business. On that transfer we are the transferor (my father-in-law) and the "transferee" (the LLC). On that transaction we will need to pay the full 2% transfer tax. Adding both transactions together we would be responsible for 3% or $45,000.

Unfortunately the more I research the less hopeful I am that I will be able to avoid this.  

@Steve Babiak Yea, actually I believe that is how it is being viewed.  The property is worth $3,000,000.  Half obviously is 1.5.  As I understand it transfer tax is 1% for the seller and 1% for the buyer.  So on 1.5 each 1% transfer tax would be $15,000.  So to transfer the prior partners share would be 2% total or $30,000 and to transfer my father-in-laws portion would be another 2%, another $30,000.  

We are going to end up being responsible for a total of 3% = $45,000 (as we will be the transferee and buyer) and the prior partner 1% = $15,000 (just the seller)

@Brian Primost   sure that would be great.

@Carl Fischer The problem with doing it that way is then my father-in-law is actually selling his interest in the property to the LLC and not just transferring it. He would then have to pay his capital gains tax which would cost his $200,000.

If he transfers his interest he does not have to pay the capital gains yet.

@David Walkotten  I hadn't considered the Quitclaim deed.  However, I think it still counts as a transfer in PA.  I will have to look into it.  Thanks for the idea Dave.  

If anyone else has any other ideas that would be great.  Thanks again!

Hi all, I have a situation that I am trying to avoid.  If anyone has ever run into it before or knows how to avoid it your knowledge would be greatly appreciated.

So my father-in -law and his former business partner have a property valued at $3,000,000. We are buying out the former partner. Originally they had the property in a partnership agreement. The lender is requiring a single entity to refinance the property with and their current partnership has multiple properties so I can't just buy out the half of the partnership. (I will be buying out the other property as well but that will be a different transaction.) We also want to use an LLC for the added protection.

So here is the problem we are running into, we are being told that there will be two transfer taxes when the sale occurs. One for the transfer of the former business partners ownership to the LLC and one for my father-in-law to the LLC. I understand this is two separate people being transferred into the LLC but it is a single transaction. Anyone know of a way to have it be a single transfer tax? This is going to be an extra $30,000 hit.

The way we have the sales agreement is only between the former business partner and the LLC which is why they are saying it's going to be two transfer taxes. If we put the sales agreement between both the former business partner and my father-in-law to sell to the LLC it will be a single transfer tax. However, in that case my father-in-law will have to pay capital gains because he will actually be selling to the LLC and not just transferring his ownership. That would cost him $200,000. We are not looking to do that!

I was having a conversation with another investor about this last night.   Thanks for all the great info.

Are you actually purchasing the property from your mom or is she just giving/ transferring the property to you.  Unless you are actually buying the property you do not have to pay capital gains.  You are transferring the property from a family member.  There is no capital gains on that.  You will be responsible to pay the capital gains when you sell but not on the transfer.  In fact she will be able to write off half of the value of the house on her taxes as a gift to you.  (I am not an accountant so double check all this but I am pretty sure on it.)

There have been many opinions given on here, and pretty much all are correct from their points of view given.  If you don't have a mortgage you are not "required" to have insurance.  You are at that point considered self insured.  If the property value is low this might not necessarily be a bad thing.  However, if the value is not low (high or low depends on you and your personal financial situation) then I would highly recommend insurance.  For a flip you are not insuring for the small things but large catastrophic things like a fire.  As an insurance adjuster I have had many people try to put claims in when they did not have insurance or were just under insured and it wrecked them financially.  It might save you a few bucks to not get a policy and maybe nothing happens, but on the off chance something does I would want my property insured.

@ jordan turner Thanks for the vote

@Amad Osman being under the LLC you will not be able to stack unless you have other properties under the LLC, but it is a good idea to have it under your LLC. Get the umbrella policy.

Each insurance company will have a different quote on what it costs to rebuild and the costs could be wildly different.  Cost to buy and cost to build are very different.  When someone builds a communities they are getting materials at a much lower cost then when you build a single property.  If the property is older the cost could skyrocket.  I have a property that is only worth about $260,000 but the rebuild is nearly $700,000 due to the materials used.  It is an older building and the materials used are mainly stone.  

What you can do is use their estimate initially then get a contractor to get you a more accurate bid to rebuild, then submit that to the insurance company and use that for your limit.