I woke up at 4am with this idea: instead of selling, how about if I just deed my 3houses to my manager friend, so houses will be under the name of his LCC, so I will be free of responsibility of the houses? He can do repairs and cleaning and rent them out and we split the profit?

Actually last week, he and his wife made an offer on my smallest house, and we agreed on a price of $9000. I paid$8k for it five years ago and had floors redone so$9k is fair price. They are going to apply for loan under his LCC to buy it, so sale depends on the loan. But they don't want to be too much in debt and want to start small.

If I sell the other three, I may just get 60 k, 50k or less, after paying the realtor commission etc.

What do you think of this idea?

Hi NE,

Right, that is what I meant, give them the other three. So he can start working on them to rent them out, and he and I can discuss how to split the profit.

Hi plenty,

I don't have LLC. He does. I don't have kids either:)

Steve,

No, I am not trying to avoid income tax. They have been vacant for 3 or 4 years now, no income from them.

redwoods... Read the info at this link carefully, then talk to your CPA. I don't know why they lumped it under the link for small business, but it applies to anyone: private party or business.

What kind of trouble, NE?

Hi Sid,

I tried your link but it doesn't open. I don't know how to get to the site on my small cell phone. Will try from my laptop later when the wifi works again.

Plenty, you just gave me a new idea: maybe he and I can get a new,joint LLC? I pitch in with my houses, he does the work?

What is the down side of that?

redwoods.... The key issue is Gift Tax. When you give something of value (stocks, real estate, cash, bank account, etc) to someone for less than fair market value or for free, you are limited to $15,000 per calendar year. Anything over that, and you pay gift tax. it sounds like your "gift" will be significantly higher than that.

Btw, it doesn't matter what you call it: if it meets the definition I laid out above, the IRS calls it a gift.

Do a Google on "gift tax irs" and see what pops up.

Also, keep in mind that if you do decide to "give" this to your friend, they will inherit your basis in the property. This will impact their ability to use depreciation to offset income and also if they ever sell they will have to pay recapture and capital gains based on the value you paid, not what they paid since they didn't "pay" anything.

Even if you sell below FMV, the equity you didn't charge for is considered a gift. House is worth $60,000 and you "sell" it for $100? You just gave your buyer a $59,900 gift of equity.

Yes, I will keep thinking... One thought is, if it is a success, then all is well. But what if it failed? I guess we can always sell then:)

So, no downside?

Instead of giving them to your managers LLC with only a promise of splitting profits somehow (which said promise may or may not be fulfilled), sell them to the LLC and carry the note. Then you have a promissory note providing monthly cash flow and a mortgage securing your interest. If he doesn’t pay you can foreclose. Be the bank.

I think a joint LLC is a better idea. You need to work out the terms with him and write them down, I would suggest you seek the guidance of an attorney to help define it.

50/50 is way too generous with you providing all the equity in the houses unless the houses need lots of work to get them rent ready which he will provide. Think in terms of it this way: how many $ would it take a contractor to get them rent ready (he provides), how much are the houses worth now (you provide), how much is his yearly management fee (he provides). Add those together and you will get a starting point for the income split. That will give you a starting place to negotiate the terms with him. My guess is he will want a little more than this so he can build his own nest egg over time.

Once you deed your properties away, you're claim to ownership, equity and value are gone. And you may still have liability towards your current tenants with regards to the lease, deposits and/or any rents received for the current month. How do you "know" that the new owner will honor our contractual responsibility? You don't. You must have a sales contract, hand over any deposits held and distance yourself from any responsibilities. End the contracts for your gardener, utilities, property taxes, etc.

Thank you, Sid,

Good last question. What do I want...

1.I want to not lose money, or not lose too much.

2. I want to be free of responsibilities of owning.

If someone offers me 70k for all, I will sell. But not the auctioneer's estimate of 30k. But my houses, people who are interested in buying, can't afford. Those who can afford, they usually buy elsewhere.

Plus, some of my houses have problems, like, one has 30 steps to climb to the door, with only street parking. One has a garage apartment on top that also requires climbing. Two needs new roofs, and one needs a major renovation...

There are good things about my houses, too. So, it's a mixed bag...

Tim, they don't want to buy them all, they want to start small,one a time, like I mentioned before. Of course I want to sell all and carry a note, but it's not up to me alone...

Mike, good points and I will think about them.

Robert, no tenants for years, so no issue with what you mentioned.

Ok, plenty, so a joint LLC may work, just need to work out the terms, like Mike said...

JB, you make good sense. Should I ask him? He has a government job that allows him a lot of free time, plus he will retire with good government pension, in a few years. He is 46.

He and the realtor haven't signed my for sale contract yet, but any time now, or soon.

SID said “The key issue is Gift Tax. When you give something of value (stocks, real estate, cash, bank account, etc) to someone for less than fair market value or for free, you are limited to $15,000 per calendar year”

I believe that is:

That is $15,000 per calendar year PER PERSON

So give $15,000 to him and $15,000 to his wife if that helps

I don't see why you are so worried about a lawsuit, unless there is some hazard you are not mentioning and then you are liable for negligence, so make them safe to begin with.

Hi small,

The steps I wrote about earlier are my only concern. Trip and fall. Snow and rain too much in WV. One house has 30 some steps to get in. One unit has about 15 steps. 3 houses have only street parking.

And oh, I have not shared this idea with him yet...

Of course you are right, JB.

But, would this affect his decision to buy my smallest house? We don't have a sale contract yet. We just talked on the phone and texted. And then decided to put the other 3 on the market...

I don't know. It sounds like you really need to have a long chat with him and maybe together you can come up with a plan that seems to work for both of you. After that, speak with that RE attorney I mentioned earlier and have him draw up a contract.

Yes JB. I will send him the text and see what he thinks.

We have some unwritten rules we keep throwing around..

Never rent to friends or family

Never loan money to friends or family

Unless you have a written agreement as to what the future investment and profits are to be divided, you can not count on getting any of it.

Why don't you sell it to him with payments years from now when things are hopefully profitable for him? or sell him all for xxx dollars. Even if you sell for $60K, $50k or less and walk away, whatever you get minus commission etc, is yours, now!

You can't give people assets and avoid tax liabilities. To be clear, you can give anyone anything, but you'd have to pay substantial taxes on your gift. You could use some of your estate tax exemption credits in the gift if you wanted to do that. But you must pay tax.