forced sale of inherited property

[lazygood4nothinbum]

if i decide my best interest would be to sell, will i be able to force the sale of a property jointly inherited with my brother?

and related to that, at what period from time of death would we need to sell so that the gains are considered simply inheritance and not our own personal capital gains?

thank you.

 

[Brat]

I am neither an attorney nor a CPA, but it is my understanding that the value of the inheritance is it's value at the time of the grantor's death. Any increase from that value is taxable gain.

Were I in your position I would hire an appraiser and task him/her with valuing the property at the time the grantor died and today. Then offer to buy out your sib's half interest (after which you can sell it all), or have him buy out yours, at a discount from the current value to account for selling costs.

Forcing a sale will cause family grief.

 

[2B]

if i decide my best interest would be to sell, will i be able to force the sale of a property jointly inherited with my brother?

Yes -- unless there is a provision in the will preventing it. That would be something like "my second wife can live there rent free for the rest of her life." You'd own it but she'd have use of it for as long as she stays there.

and related to that, at what period from time of death would we need to sell so that the gains are considered simply inheritance and not our own personal capital gains?

That is open to some interpretation but if it is put up for sale within a few months (like 6) you can argue it was part of the liquidation of the estate. There would be no capital gains tax either.

If you wait past this (like 2 years), you're definitely screwed. You do get the cost basis on the "day of death." You'd use that no matter when you sell or at what price. You could get a capital gain or loss. If you plan on not selling, you need to get a fair market analysis or plan to use the tax value for the property. If it's big bucks, get it done right.

 

[MasterBlaster]

OK:

You nailed down the stepped-up basis for the property and any capital gains.

I see the bigger problem as... What if your sibling that you inhereted the property with has an emotional attachment to the house (family house you all grew up in etc.). What if the sibling does not have the finacial means to buy you out. Can a sale be forced in this case ? 

What if the sibling (or a friend/inlaw/girl-friend/ex-wife of the sibling) lives in the house and refuses to pay "fair rent".

Can the sibling drag their feet so that you cannot cash out ?

What are the rules and precedents ?

 

[LovesLife]

I was in a similar situation. I was co-owner of my father's condo in FL with my (former) brother. He didn't want to sell so I was forced to use an attorney. The attorney told me that he would petition the court to force my (former) brother to sell the condo. I can't remember the exact term but basically my (former) brother could not make me co-own the condo with me.

 

[MasterBlaster]

LL:

What exactly is a former brother ? Just cause you don't see eye-to-eye doesn't mean that you aren't still related.

I myself would very much like to former-ize some of my family members. However they are yours, no matter what.

 

[lazygood4nothinbum]

thanx all. i love the way you guys flush out the issues.

the house is mom's (hospice on board and death likely within a year).  i'm most emotionally attached as i'm 49 & i've pretty much yet to leave home (my house is nearby). but emotions are moot considering that i don't think we could afford to either buy each other out or keep the property on our own.

five years ago, when we assumed guardianship, he & my uncle wanted to sell. (accountant uncle is an advisor to my brother & has no stake in the will.) i insisted we keep it & convinced them and so we've watched the values skyrocket since then. it is waterfront in very high end area and would sell for about $1.4mm as a tear-down.

i'm no longer convinced holding is such a good idea. though i'm not convinced yet either to sell. my big concern is that it will be a large part of my inheritance and so between that and my own house i won't be very diversified.

my brother wants to keep the house as an investment and possibly even construct a 6,000 sq footer on it to sell. but for him it is not as big a risk as it is for me. he also has his house, lakefront property in tenn., plus he got the family engineering biz. so the same venture, from which we'd profit (if profit at all) equally, it is a much bigger risk for me and i don't know that i'm comfortable with that.

this house over that past 37 years has averaged 9.52% annual increases & the house to the north averaged 8.75% over the past 22 years. (we have more waterfrontage) for most of that time there were lots of lots to build on. now there is not a single vacant waterfront parcel. the new houses built on this block sell for about $2.8mm, though the corner people just built a 7500 sf monster which i'm sure would fetch $3.5mm or more. the medium price in this zip code for waterfront houses about $4.5mm.

the will stipulates simply what i get, what he gets (what the grandkids get) and what gets split in half. the house is part of the split in half. i think we'd be able to rent it out to pay for insurance & taxes if we got at least $3000/month if we wanted to just hold for a while. i would have taken that route hadn't i been learning so much about investing from you guys and all the other materials i'm reading.

so now i'm not so sure what i'm going to do. just was curious to know what sort of legs i'd have to stand on i if i decided to take a stand.

ps ll i agree with masterblaster on that. even when we didn't get along i always said "i'd give him a kidney, just not the time of day." now we get along and it's real nice. family dies too soon as it is, no reason to rush it.

 

[LovesLife]

MasterBlaster,
A former brother is one whose actions are so despicable that they no longer have the privilege of being considered family. Harsh, I know but that's how I feel. Technically we shared the same parents but that's where the relationship ends.

 

[Brat]

...
the house is mom's (hospice on board and death likely within a year).  

...but emotions are moot considering that i don't think we could afford to either buy each other out or keep the property on our own.

..
i'm no longer convinced holding is such a good idea. though i'm not convinced yet either to sell. my big concern is that it will be a large part of my inheritance and so between that and my own house i won't be very diversified.

my brother wants to keep the house as an investment and possibly even construct a 6,000 sq footer on it to sell. but for him it is not as big a risk as it is for me. ....it is a much bigger risk for me and i don't know that i'm comfortable with that.
..
so now i'm not so sure what i'm going to do. just was curious to know what sort of legs i'd have to stand on i if i decided to take a stand.
...

In a nutshell, your brother wants do a flip/spec build and you don't have the stomach for that. 

He can't do that if you don't agree, so, plan to negotiate how you will get your equity out of the property.  You will need to have it appraised when your Mom passes away so now is the time to scope out the appraisers in your area.  What you want is the price the property would sell for when actively marketed, as is.   Your brother could take out a mortage on the property to buy you out and then he could flip if he wants to do so.  If he can't do that on his own or with another partner he is "pipe-dreaming." 

Were I you I would start telling him now, gently, that your situation has changed since you commented that you wanted to keep the house and that you don't feel comfortable as a partner in developing the site.   Tell him that you are willing to sell your interest to him for what you would receive if it were sold by a realtor.  He can then adjust his expectations.

Remember there would be selling costs and carrying costs were the two of you to sell it on the open market so factor that in.

 

[ladelfina]

LZG4NB.. I would trust (what I think are) your instincts and try to get out now. Your brother probably sees a "win-win" situation, with you fronting half the risk. But if that risk isn't right for you, he should respect that. And if the upside is as big as he expects, and that is "normal" for the area, then it shouldn't be so hard for him, with his business and other collateral, to get a mortgage and buy you out if the deal makes sense from his perspective.

The hard thing to keep an eye on here seems to be the ability to make a sound business decision (this goes for either of you) leaving aside the fact that this is a family home / inheritance or "found money". $700k for each of you is nothing to sneeze at, and my question would be, if you "can't" buy each other out, who's going to put in almost that much again to tear down and rebuild; where's that going to come from?? How long might it take, what might be the opportunity costs, and who's going to spend time following the project? What might happen to the RE mkt. in the interim? I would say, if you are not eager or experienced, or both, let this be someone else's headache; don't just take it on solely because it's dropping into your lap.

If you both found a diamond necklace in the street, he might say "let's go to Vegas" and you might say "let's buy a T-bill". Better to split it now somehow. However tough it is now, it may be more difficult later to deal with the consequences.

More succinctly, if your mom left an investment portfolio of cash and stocks worth $1.4 mill: would you or your brother get a wild hair and say "let's buy a tear-down and re-develop it; I need you to come in with me on it, so fork it over"?

If your answer is "no!" all you have to lose are the eventual broker's fees for the sale.

Best wishes, LZG4NB..     my sis and I are trying to deal with an elderly mom's living situation in a probably terminal illness situation.. food for another post.. but we are (fortunately?) dealing with RE an order of magnitude less valuable than are you..

 

[lazygood4nothinbum]

In a nutshell, your brother wants do a flip/spec build and you don't have the stomach for that.

now there's a nutshell i can live in. actually i would love to build and make even more money i'm just not convinced the cash is there to be made. as i am only starting to understand the risk vs reward concept, i want to make sure a chance of reward is actually there. it's very risky to throw money out the window, but there's very little reward if there's nothing to collect.

appreciate your other info as well. i've been trying to show bro numbers on the risk side but i can't get him to give me number on the reward. well, as mom is still sort of with us we still have time to see how this plays out. good to have all this information to mull about though as i'd like us to have our decision made soon after we inherit. life goes on.

Your brother probably sees a "win-win" situation, with you fronting half the risk. But if that risk isn't right for you, he should respect that.... The hard thing to keep an eye on here seems to be the ability to make a sound business decision...if you "can't" buy each other out, who's going to put in almost that much again to tear down and rebuild; where's that going to come from?? How long might it take, what might be the opportunity costs, and who's going to spend time following the project? What might happen to the RE mkt. in the interim? I would say, if you are not eager or experienced, or both, let this be someone else's headache; don't just take it on solely because it's dropping into your lap...More succinctly, if your mom left an investment portfolio of cash and stocks worth $1.4 mill: would you or your brother get a wild hair and say "let's buy a tear-down and re-develop it; I need you to come in with me on it, so fork it over"?

If your answer is "no!" all you have to lose are the eventual broker's fees for the sale.

Best wishes, LZG4NB.. my sis and I are trying to deal with an elderly mom's living situation in a probably terminal illness situation.. food for another post.. but we are (fortunately?) dealing with RE an order of magnitude less valuable than are you..

hey this aint found money. this is years of taking out the garbage, mowing the lawn, cleaning the pool, washing the cars & scrubbing the decks. maybe if the buffett kids kicked in more with chores around the house dad wouldn't have left them only a billion a piece. and who do you think served all those beers on all those hot days we were out cruising on the ocean, oh, wait, that was mom. well, it was whoever was down below.

brother might see the win-win thing in peripheral but i don't think he's looking directly towards taking advantage of me and i think he'll be understanding of how i feel about risk. especially now that i know i can force the issue. amazing how force can lead to understanding, isn't it?

you have some really good clear thinking. i've noticed that in some of your other posts. a good friend just a few hours ago said something similar to what you are saying.

i've been looking at the costs including costs of holding onto it for a year if we had trouble selling after a two-year completion period and it just seems to me that most of the profit is in the land which we already own outright so why bother. i don't know if it is my stomach, maybe i am just too lazy. but hey, that's why i gotta million bucks in my pocket; so i can afford to be lazy.

best regards to you as you also deal with your mom. life was so much better when i didn't have a penny in my pocket but everyone i loved was alive and healthy. i'd trade it all in a second to go back to that for a minute. ob-la-di, ob-la-da.

 

[ladelfina]

hey this aint found money. this is years of taking out the garbage, mowing the lawn, cleaning the pool, washing the cars & scrubbing the decks.

True. I'm not saying it ain't true.

But kids take out the garbage and wash cars, BMWs or Plymouth Dusters as they may be, all their lives and end up with a s***load less than $700k for their troubles.

Taking out the garbage in suburban RI is much the same as taking out the garbage in Palm Beach or wherever, FL, I dare to imagine. Or do shrimp shells and caviar jars weigh oh-so-much more than hot-weenie wrappers and Chunky soup cans?? Tell me, do. 

(not to be rude, but get a grip on what you really after in this scenario.. where you really need to be...)

If you're on this board, it's probably a given that you're not "lazy", but that you know when you have enough (as you've already said!).

You don't need to pay your dues, get a 'reward', or show off your investment "chops" by making the 'big score' in RE development IF it's not right for you (especially if it makes you largely reliant on the success of this one investment and screws up your asset allocation). Developing (aside from whatever tax concerns) would also put you in a complicated multi-year business partnership situation with your brother (and, it seems, by default, your uncle). Is that a good idea?

Just from a buyer's point of view, if I'm going to be spending upwards of $500k, much less $3mm, for new construction I'd want a say in the design, finishing, and so on!! I certainly wouldn't be buying "off the rack" but that market is a bit rarefied for me to opine about.

If development is dear brother's need and desire, wish him all the best. If you're not convinced, you're not convinced.. Your proximity to this particular property and to him and your mom could color your decision. Instead, you have the latitude and the privilege to look beyond this one opportunity into the ones that *are* right for you, and that's a rare, and nice, place to be! 

It's hard to reconcile what you say about how you would "love to build" and make "even more money" with some of the other stuff you have written. But personally I would cycle with your millions off into the sunset and off into what YOU want to be doing.. that's what I am reading between the lines. 

All the best for when you make your final decision..

---------------
I got plenty o'nothin' and nothin's plenty for me
I got no car, got no mule, I got no misery
Folks with plenty of plenty, they got a lock on the door
Afraid somebody's gonna rob 'em while they're out a'makin' more
What for?
I got no lock on the door, that's no way to be
They can steal the rug from the floor, that's OK with me
'cause the things that I prize, like the stars in the skies, are all free

 

[spideyrdpd]

I am really confused. When you wanted to keep and they wanted to sell they stuck by you . When they want to keep it and you want to sell your looking for the shotgun (lawyers) ?
If anything is risky its involving lawyers. Apoligies to any lawyers on the site (in advance )
Oh the part I am confused on is how do they plan on financing the development. Building that size house is going to cost major bucks. If they have the ability to do the build and handle the costs. It doesnt really sound all that risky .
Of course I am a Real estate guy
Rob

 

[lazygood4nothinbum]

But kids take out the garbage and wash cars, BMWs or Plymouth Dusters as they may be, all their lives and end up with a s***load less than $700k for their troubles.

nope. just lazy & spoiled here. always have been, likely always will be. wouldn't have taken out the trash for anything less than 700.

I am really confused. When you wanted to keep and they wanted to sell they stuck by you . When they want to keep it and you want to sell your looking for the shotgun (lawyers) ?
If anything is risky its involving lawyers. Apoligies to any lawyers on the site (in advance )
Oh the part I am confused on is how do they plan on financing the development. Building that size house is going to cost major bucks. If they have the ability to do the build and handle the costs. It doesnt really sound all that risky .
Of course I am a Real estate guy
Rob

nothing to be confused about.  they only "stuck by me" because i convinced them that i could be right and, as time told, i was. i might not have a problem sticking by my brother now if only he'd convince me. even if it was just in the crystal ball then, i could see some numbers. but i'm not sure i see them now and my brother has done nothing to show me. when i show him current data he just tells me i'm being short-sighted and that my information is irrelevant to waterfront property.

he says he can do the building practically for cost through family contacts. i figure cost on the structure would be about $1mm for a 5,000 sq footer plus an auger pile foundation. say $1.25 total. he thinks less, at cost, but hasn't given me any figures. also i'm so totally just guessing on even my figures. taxes would run about $25k/year during construction with another, say, $5-10 insurance. i figure 2 years to build. then what if the house takes a year to sell after it is built? well, a certificate of occupancy on property then worth maybe 3 mil will probably be about $60k/year. all the while i've lost opportunity of other investing & a safe withdrawal of ~$30k/year.

so on top of not having $90k to spend over 3 years, of spending $110k on taxes & maybe $30k on insurance before selling this non-income producing property, there's also p & i on a huge construction loan. i'm not a real estate guy and i don't understand how you make money at this. seems to me, given these figures, we'd have to sell for $4.5mm just to break even.

if real estate was still going up at 20% plus per year, not a problem. any chance of that?

 

[GTM]

if real estate was still going up at 20% plus per year, not a problem. any chance of that?

LZG4NB I do not think there is much of a chance of that. Especially in Broward County. Fort Lauderdale is a great town but well overpriced considering the job opportunities.

If the property is on the Intercoastal or A1A it will hold a better value than homes west of that but I do not think it will appreciate much more.
A great amount of the money in the Florida economy is brought there from Northerners and the hurricane situation is making people think about other warm weather states to live.

 

[spideyrdpd]

You could possibly up the loan by the 90k your discussing and still come out ahead. Especially if the people doing the work know what they are doing and can get it done fast.
Its located in Broward county ? Thats where I live they get millions for some crummy small apartment on the water.
Rob

 

[lazygood4nothinbum]

LZG4NB I do not think there is much of a chance of that. Especially in Broward County. Fort Lauderdale is a great town but well overpriced considering the job opportunities.

If the property is on the Intercoastal or A1A it will hold a better value than homes west of that but I do not think it will appreciate much more.
A great amount of the money in the Florida economy is brought there from Northerners and the hurricane situation is making people think about other warm weather states to live.

ya, i don't think so either.

florida unemployment rate in may was 3.2% with broward at 2.8% & palm beach county at 3% as opposed to the nation at 4.6%. medium income in broward is $58k, i think higher in palm beach. of course that salary does not pay for a medium priced house here, but i don't know anyone, besides maybe a spec guy, who buys a $400k house without some serious cash down.

property in question is on deepwater in palm beach county with dockage and within easy walk to a very nice beach.

 

[nfs]

Is the form of title specified in the will? If you end up as tenants in common, either of you can sell half. If you end up as JTWROS, you're basically playing a game of chicken with one another. Neither of you can sell or mortgage without the other, so it's a death dance of "I dare you". It's not usually good for long term relationships with relatives.

(I've got a client who owns a 1/4 share of an inherited oceanfront parcel, with the other three parts owned by siblings as joint tenants. He could use the money, his siblings won't buy him out, it's a staredown at the OK corral. Basically, they're all waiting for the other three to die. What a nightmare.)

P.S. Good luck with Florida real estate. I wouldn't bet even money that prices in five years - maybe even ten years - will be higher. Yeah, yeah, they're not making any more land, especially waterfront. It doesn't mean that it can't go down in price. I saw a news item out of Naples the other day where the president of the local real estate board let slip that there were 5,000 real estate agents licensed in town. The 2000 census shows Naples only has a population of about 20,000! Even if those realtors cover the whole county, it still says that way too much easy money has been floating around the last few years and, IMO, a whole bunch of it is going to disappear.

 

[lazygood4nothinbum]

no joint tenancy involved here. that would be pretty awful. if my reading of the will is correct, it simply lumps the house in with "the remaining trust principal" which is divided into "separate equal shares", one for him & one for me.

ps. this area is not naples. the demographics here are completely different. but thanx for the warning.

 

[macdaddy]

at the prices you are talking about (for the land with a new home on it), buyers want exactly what they want and start to get real picky about it. i've seen buyers who would have been happy to pay 1.4 mil and build for 800k but won't pay 2 mil for the same size house because it doesnt have all the details they want. it's tough building a spec house that appeals perfectly to people spending that much cash, whose desires can be so particular. not to mention i agree with what all the others have said about florida, plus property in that range is hit very hard by high rates and a recession (its at the top of the trade-up ladder). especially if you need it for retirement, i would take the money and run. one idea would be to try to sell it to buyers who agree to use your brother as the builder, locking in more profit for him (this is quite common where i live). then they hire and architect to work with him.

 

[Brat]

Let me give you an example of a prime realestate purchase with an old house on it:  sale price 2M, half of house has good bones but the other half will be removed, entire roof structure replaced (including the part kept).  Probably spending another 600T to make it their own.

The sellers (as in your situation) inherited the property and invested ~65T.  Frankly, short of clearing the site, they wasted their money.  It would have sold for ~1.95, the realtor would have gotten a smaller cut and they would have had money in their pocket at least 6 months earlier.

The purchasers looked at a number of 'modern' properties but found fault with the floor plans.  In the end they felt that for the $$$ they were spending they want to do their own thing.

 

[lazygood4nothinbum]

i appreciate your sharing that thinking macdaddy & brat. i'm going to present all this to my brother.

i think someone here posted or i read elsewhere--& i think it is true--that houses are becoming, once again, places in which to live, not investments to flip. i call these houses teardowns but they are actually quite nice as-is.

there are currently two comparable "teardowns" for sale within blocks from mom's. one is going for $1.5 & one for $1.7. they've been advertised for sale for about 3 months now. so i'll continue to watch the immediate market & see what it does. even if it drops a little, which i doubt it will, it's still a heck of a lot more money than it was 5 years ago.

 

[spideyrdpd]

It still seems to me that your brother is the one taking the risks. I think sometimes you have to take the risk to get the reward.
Anyway why not read the book by the guy that has done this succesfully and see what you think then
http://www.amazon.com/gp/product/04...3082/ref=pd_bbs_1/002-0905948-7401634?ie=UTF8

 

[2B]

Lazy,

I'm about to be faced with a similar "problem" with my in-laws' house. It's a teardown with a lot value about $600K. The answer to this question should give you some insight into what you should do with your mother's place.

When you get done developing and flipping your mother's lot are you planning to buy another teardown and do the same thing again?

 

[lazygood4nothinbum]

It still seems to me that your brother is the one taking the risks. I think sometimes you have to take the risk to get the reward.
Anyway why not read the book by the guy that has done this succesfully and see what you think then
http://www.amazon.com/gp/product/04...3082/ref=pd_bbs_1/002-0905948-7401634?ie=UTF8

i don't see at all where my brother has more risk and no idea what you are thinking on that. risk is relative to somebody's personal situation. someone with $20 million has very little risk of running out of money if they toss $5 million out the window. someone with less resource incurs more risk.

i'm familiar with frank's work. it should be kept in mind that he made that money during the real estate boom which seems to have waned quite a bit since. i'm also familiar with his resources. and they are not mine. good to see, however, a book written by a guy who actually made big profit from development and not simply profit from the development of a book. had this been three years earlier i wouldn't even question my gut telling me to rebuild. it is only now that i am not so sure. hmmm, maybe i can get frank to buy mom's house.

Lazy,

I'm about to be faced with a similar "problem" with my in-laws' house. It's a teardown with a lot value about $600K. The answer to this question should give you some insight into what you should do with your mother's place.

When you get done developing and flipping your mother's lot are you planning to buy another teardown and do the same thing again?

good question. i suppose the answer is in my screenname.