All Forum Posts by: Tyler Brown

I'll preface this by saying I've already taken these questions to three separate professional accountants.  One straight up told me he has no clue, and the other two gave conflicting answers.  So hopefully the internet brain trust can maybe give me some guidance. 

I manage two rental properties.  One is a two family house in New York City, the other is a single family house in the suburbs outside of NYC.  They were originally owned by my mother in law.  In 2017 they were placed into an irrevocable trust as a part of Medicaid planning/asset protection for her.  My mother in law is the grantor and my wife is the trustee and beneficiary.

The Queens house was purchased in 1980 for $80k, and the SFH was purchased in 1990 for $180k. FMV for them today is roughly $800k and $600k, respectively. They generate a positive cash flow, but only because there's no mortgages. The rents are nothing to write home about, and that assumes we even have tenants paying their rent in the first place.

My wife and I are getting kind of tired of being landlords.  Largely due to the low quality tenants these homes attract due to their geographic locations and being in a very tenant friendly state/city.

Now due to their very low cost basis, the trust would be on the hook for massive capital gains taxes if they were sold. I just got off the phone with an accountant, and things are bleaker than I had anticipated. I had a simplistic view of how cost basis is calculated, assuming it was just original purchase price + value of all improvements. But he informed me that you also have to subtract all the depreciation from over the years, which vastly lowers it. In fact that brings our cost basis to not much more than they were purchased for, approximating $120k for the Queens house and $190k for the SFH. In short, the trust would be looking at approaching $400k in capital gains taxes.

One of my big questions is - when my mother in law dies, does the trust receive a step up in basis on the properties?  One accountant said yes, the other said no, on the reasoning that she no longer owns the homes, so her being alive or dead is irrelevant.  Initially my plan was to maybe keep with it until she passes away and they could be sold for little/no capital gains, but if the cost basis doesn't change on her death, then that's irrelevant.

The other big option is a 1031 exchange.  Personally I'd like to 1031 them into a property that is in a closer and more desirable area.  The accountant was also telling us about Delaware Statutory Trusts.  I don't fully understand these, but I gather it's a way to get the tax deferment benefits of a 1031 exchange, but in a more hands off vehicle that doesn't require day to day landlording duties. 

Our decision largely hinges on the earlier question - is there a step up in basis when my mother in law passes away? That'd save us nearly $400k in potential capital gains taxes. If so, I'm in favor of doing a 1031 into another physical rental property. My wife is more in favor of a 1031 exchange into a DST; she wants to be hands off and doesn't like being a landlord. Either way we could wait for her mother to pass before selling the homes. If the answer is no, (and assuming there's no other creative way around the taxes), then we may as well just bite the bullet and sell and write a giant check for taxes. Then we'd probably toss the money into index funds, which would have far far far outpaced the rental income the trust has received.

I'm open to any advice or other suggestions that we haven't considered.

Is there any reason you're not just creating one lease with both of them on it?  

It's important to note that while there are thousands and thousands of species of mold, only a very few are actually harmful to humans.  The vast majority are just ugly.  You can buy test kits off Amazon.

The remediation company's job is to find the mold that's there and get rid of it, not to fix the underlying cause of it, which is usually some plumbing issue.

When I did this, the chain of events was: Remediation company comes and opens up the wall and does their thing to get all the existing mold out.  They left some fans blowing for a day or two.  Then a plumber came to fix the actual issue (it was a line going to the shower that was leaking behind the wall).  Then a carpenter comes to close up the wall.

My pet peeve is when I have to call a bunch of different companies for that I view as ultimately one job, but that's just how it works sometimes.

Here in New York, there's a moratorium in effect until May 1st.  And that's assuming it doesn't get extended again.  And even if it doesn't, when May 1st hits, there's going to be a long backlog of cases to work through.

I have a unit that's currently empty, but with all that in mind, I have no problem just letting it sit empty until I see how everything plays out.  I'd rather do that than get a problem tenant right now.  If someone stellar comes along and everything checks out, then ok, but I'm being way pickier than normal.

As you said, since he's mentioned taking possible legal action, I'd talk with an attorney.  Most will give short consultations over the phone for free.  It's worth nothing about 98% of people who threaten that they're going to talk to a lawyer never actually do (or if they do, the lawyer quickly tells them they have no case).  But it won't hurt to have an attorney of your own lined up.

Personally I think you're in the clear, on a couple of fronts.  First, without more information, it isn't even clear the guy has a disability in the first place.  Tens of millions of Americans have what could be described as "some heart condition" without it rising to the level of a disability.  Typically, a disability must restrict a major life activity.  Your doctor telling you to take an asprin a day to help with blood thining, or giving you blood pressure medication, doesn't make a disability.

But who knows, maybe the guy does have a legit disability.  You've already taken reasonable steps by sending out letters to the other tenants.  I'd say installing some sort of physical divider is an unreasonable accommodation and it's unclear that this would be of any benefit to his medical "disability" in the first place. Does he have a letter from a health care provider stating this divider is necessary?  

These are just my thoughts and things like this are highly fact specific and of course we don't know everything.  Basically my advice boils down to - I don't think you have anything to worry about, but a quick chat with a lawyer can't hurt. 

I'm really surprised your attorney advised you to shut off the water.  That's pretty textbook constructive eviction and is illegal, and can come along with a host of civil penalties.  It would also seriously weaken your case if you do eventually wind up in a court room evicting this tenant.  Judges will frown very heavily on a landlord who takes action like that.  Also, most utility companies are having their own moratoriums on shutting off services during this time, so the argument that it was shut off for non payment may not even hold water.

I would *really* seek out a second legal opinion.  

I'm down state in New York, and if I filed right now, I'd be looking at getting an actual court date maybe sometime in the summer, and that's assuming the eviction ban doesn't get extended again.  Then it's another couple of months to schedule the marshalls if they're needed.

Yeah sure in theory you could sue the guy and get a judgement for all the back rent and everything he owes.  But the guy is living in a low income unit on government assistance.  Do you really think you'll ever see a dime of any money from a judgement?  I'd write all that off as gone right now.

All tenants in NY really have landlords by the youknowwhats right now.  I just did a cash for keys deal with a bad tenant I had in Queens.  I renovated the unit but honestly I'm just letting it sit vacant right now, unless a really steallar tenant comes along.  I want to see what happens with the eviciton ban in May.

My go to is Benjamin Moore Navajo White in Superhide Eggshell.  It's kind of a generic off white with a bit of yellowish tint to it.  I think it's a good all around color for rentals. 

All the people saying that you can still evict for other reasons not related to rent payment may be technically correct, but not correct in reality.

I'm also a landlord in NY State.  As per both of my attorneys, courts are not hearing eviction cases for any reason, save for the most extreme.  And even putting that aside, if you did get an eviction order, the Marshalls (in my area anyway) are not executing them for any reason.

There's a big difference between what the law supposedly allows you to do, and what you can actually do in reality.

I got lucky and had one problem tenant move out on their own.  I paid the other $2k to get out.  I wasn't happy about it, but I got the property back in October instead of... who knows?  Sometime this in the 2021 summer at the earliest.

It can't hurt, but it isn't strictly necessary.  Generally you'll meet with them at the time of move out, verify the place is vacant, and they'll give you the keys.

Article here

The short version is that no evictions may be brought for non payment of rent against anyone who declares that they have been financially impacted by the Coronavirus until at least May 1st.

I have property in NYC and Long Island, and I was talking to my lawyer a few months ago about needing to evict a problem tenant.  It wasn't even over rent - they were breaking their lease in almost every possible way and making life miserable for the neighbors.  And these were tenants that had great credit and perfect background checks.

He said that while technically the law only applies to evictions due to a nonpayment of rent and theoretically a landlord could still evict for other reasons, it's a moot point because courts aren't hearing any eviction cases for any reasons short of them literally burning your house down.  And even if you do somehow get an eviction order, the Marshalls aren't enforcing them for any reason.

I have a two family house in NYC now with one unit that's for rent, but most of the people interested in it so far have been questionable at best.  Honestly I think I might just let it sit vacant until after this expires.  The rent from this unit falls under the "nice to have" category and not "absolutely need it"   Of course there's a good chance it'll just get extended again.