Your view on options on purchase of office building

[street]

So, my son and his wife are looking to buy a 1800 square foot office building. It is in a small town very nice office all setup and ready to move in. A retiring Attorney will be selling it and everything is all in place nothing has to be done for my DIL to open an office there. She is an Attorney, and two other Attorney will be using that office space also for a few days each week also.
My question is we would like to help with the purchase of the building. So, what would be the pros and cons of barrowing them half the money to buy or just be a 50% owner of the property? Maybe we would take lease money or maybe we wouldn't but would be part owners.
I'm looking for tax help and best overall for us in the long haul. Not looking for landlord advise but how it could help them and us for the best path to take.

 

[Koolau]

I'm guessing some folks here will have some experience with this kind of situation. For ME, I'd be looking for some professional advice. You already have a lawyer in the family. Maybe you need a CPA?? A Financial Planner (hourly only)?? Tax professional??

 

[street]

I'm guessing some folks here will have some experience with this kind of situation. For ME, I'd be looking for some professional advice. You already have a lawyer in the family. Maybe you need a CPA?? A Financial Planner (hourly only)?? Tax professional??

yes, that maybe a good idea. I'm hoping for a few ideas for thoughts with so many smart people here.

 

[Ronstar]

You could create an LLC, and you and your DIL and maybe others would be members, The pct of ownership can be whatever works for the parties involved, and can be based on how you capitalize the deal. The lawyers pay rent to the LLC.

That’s what we did. We had an engineering firm and a separate LLC for the building ownership. Our LLC had a mortgage, and our engineering firm paid rent to the LLC. Gave us flexibility in having new partners in the engineering firm without them being part of the building ownership.

Worked easy for us.

You can sell portions of your ownership to your DIL over time to minimize your tax bite. Just a thought - best to talk to a real estate attorney / tax attorney.

 

[street]

Ron, thanks for your experience. DIL did say the best would be an LLC but never questioned her about it. Today was the first time we talked about it and said we would be interested in helping with the purchase any way he can to help out.
They could do it on their own, but this would be a good opportunity to offer if they except the help.

 

[Texas Proud]

If it were me I would not get involved with some kind of gifting when it comes to the real estate...

Have the LLC buy the building, you buy what pct you want to own... treat it like a business... charge market rent to your DIL... you can set up a 20 or 30 year lease...

Bottom line, business is business... gifting is just that, gifting... no ownership, no strings etc...

 

[Dash man]

To avoid IRS problems, I’d treat this like a real business. Set up the LLC and a real lease. It’s not like buying a home that they will inherit.

 

[pb4uski]

Another option might be to play bank and provide their mortgage financing. They still put up at least 20% down, but you provide the rest and they make mortgage payments to you. Your loan to them is collateralized by the property. Your income is interest only and none of the headaches of being an owner and lessor, depreciation, depreciation recapture, etc. You can set a mortgage interest rate that is attractive to you and also a good deal for them.

In another thread, cathy63 mentioned that there is a company called National Family Mortgage that administers the loan for you as the lender.

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[Kings over Queens]

I'm looking for tax help and best overall for us in the long haul. Not looking for landlord advise but how it could help them and us for the best path to take.

What do you seek for yourself? You mention helping them, but also helping you.

Do you need or want to get money out of your estate? Are you looking for a reliable income stream?

It could be as simple a holding the mortgage.

Thinking very much out loud without much consideration of legality tax wise, but perhaps an interests only loan where they pay you instead of a bank and you could gift loan forgiveness in place of them paying back principal. I'd be interested in others opinions on the feasibility of this type of arrangement.

 

[Time2]

You're working with attorneys, limit your liability.

 

[OldShooter]

So, my son and his wife are looking to buy a 1800 square foot office building. It is in a small town very nice office all setup and ready to move in. A retiring Attorney will be selling it and everything is all in place nothing has to be done for my DIL to open an office there. She is an Attorney, and two other Attorney will be using that office space also for a few days each week also.
My question is we would like to help with the purchase of the building. So, what would be the pros and cons of barrowing them half the money to buy or just be a 50% owner of the property? Maybe we would take lease money or maybe we wouldn't but would be part owners.
I'm looking for tax help and best overall for us in the long haul. Not looking for landlord advise but how it could help them and us for the best path to take.

WADR I think you first need to pin down your objectives and plans.

1) Is this an investment where a business plan is the basis?
2) Is this a hobby or a semi-gift where business aspects are less important?
3) What is your exit plan, including timing?
4) How will unexpected family events be handled? Your death? DS/DIL divorce? A judgment against or bankruptcy of one or more players?

LLC is nice, of course, but part of what you get with an LLC is the opportunity to spend $20K or more defending against a plaintiff's attempts to pierce the corporate veil and sue you personally. Also be sure to understand what "joint and several" liability means.

A good CPA, good outside lawyer, and a good insurance guy are needed here. Be sure to remind DIL that "If you are your own lawyer you have a fool for a client."

 

[HI Bill]

I only paid for financial advice once in my life. I was thinking about helping my landlord buy a new house, and I'd be part owner. The advisor said 'no way'. What happens if you lose your job or need to move? Since the landlord and his girlfriend couldn't afford the house on their own, it's likely they'd have never been able to buy me out.

Your case is different. You have as son and his wife as potential partners. What if they get a divorce? What if their business doesn't go as planned? What if they change gears and decide to do something else? What if they go on a spending spree or have a bad financial problem and can't afford the rent? What if a rift develops between you and your son? If you want to gift them the $ and can afford it, go for it. Otherwise, I wouldn't want to be in a situation where you need the $ later on, and can't get by without repayment or rent payments. It could ruin your relationship, and cause you financial harm.

 

[OldShooter]

Actually, I think I might approach it as simply the purchase of a small office building. Consider condition, RE market in the town, market rents, expenses, financing needed, etc. and end up with a cash flow. Then work with the seller on a price and see if the numbers work.

With DS and DIL as tenants, though, consider what you will do if the day comes when they can't or won't pay the rent. Will you pay the expenses, mortgage, etc. and for how long? Will you want to or have to sell it out from under them? On a brighter note, you might consider incorporating a friendly buyout or first refusal option in the lease. That could be your exit strategy and your way of helping them get started.

 

[Koolau]

It's true that mixing family and business can be problematic. I've done it all my life. Still doing it as my family's 3rd generation rents to me from the family business. (Touched upon in another thread recently.)

It's important to "know your family" and have trust beyond what you would expect of "strangers." No one can love you more or hurt you more than family. It's important for all involved to be ready to go beyond the "50%" one would expect from non-family.

All the best to you, street, as you contemplate this chapter in your family's life.

 

[street]

A lot of great advice again and I thank everyone. Well, my objective is to help them first. I also don't like just handing money out especial to my son and his wife/family. I want them to be responsible and an understanding if I help buy this building that I get something in return. On the other hand, I don't care if I ever get anything back. They both are very responsible adult people, and I have no doubt in what they say is what they will do.
This thing I believe will happen in a hurry or won't happen at all. I do agree having Lawyers involved is best to limit liability and that is what will happen for everyone involved. Having the building in my name is going to be an option if it happens.

 

[street]

It's true that mixing family and business can be problematic. I've done it all my life. Still doing it as my family's 3rd generation rents to me from the family business. (Touched upon in another thread recently.)

It's important to "know your family" and have trust beyond what you would expect of "strangers." No one can love you more or hurt you more than family. It's important for all involved to be ready to go beyond the "50%" one would expect from non-family.

All the best to you, street, as you contemplate this chapter in your family's life.

Words of Wisdom can't agree with you more.

 

[ivinsfan]

Do they need your financial assistance to make the payments on the building?

 

[street]

Do they need your financial assistance to make the payments on the building?

No, but they do have a couple of loans. They do have a large shop that free and clear in an industrial complex and they do own land bordering Yellowstone River that they own could use as collateral.