Two people investing in Real Estate -- tough client

[tacks86]

Mother wants to puchase a rental property with her son.

I don't know why my Mom doesn't forsee the obvious problem here. I'll always think of my brother as the rent free tenant who didn't feel the least bit obligated to mow the lawn.

Anyway, I was thinking about going to Easy Legal Docs to get the basic partnership agreement needed to form 'Mom's Money, LLC' in the state of New Jersey.

I just spoke to my brother.

First off he says getting the mortgage in the name of an LLC adds 1.5 to 1.25 percetage point to the mortgage interest rate. So he doesn't think it's necessarily the best.

I inquired of what his option was. He said you can get 'joint tenants' maybe with 'rights of survivorship.'

"It's not that complicated," he said. "Aunt XXXXXX and Uncle XXXXXX didn't get a partnership agreement."

I really don't like the idea of my Mom entering in to business venture without a written agreement.

I'm a CPA and i feel comfortable enough to handle any tax issues.

My brother did actually make one good point that a lawyer might be useful when it comes to rental contracts etc. That i do not know.

Any thoughts?

[tacks86]

Ummmm.

Yeah. By the way. I'll fully admit to being the guy who posted the question about Mom doing a roth conversion at age 65ish. [Mom eats rabbit food, meaning lettuce, carrots, alphalpha, etc. Not meaning Quarter Pounder, cheeze fries, Marlboros, etc]

[jainen]

scaredy-cats

>>Any thoughts?<<

My thoughts are all over the board, trying to follow your exposition and see if I can pull out any kind of a question there. You are filling numerous roles and not keeping them straight very well -- tax preparer, financial advisor, legal consultant, and several based on family relationships.

There is nothing inherently wrong with joint ownership of rental property, even for related parties. It doesn't constitute a business that requires a formal partnership. Your brother is right that an LLC makes some problems more complicated and more expensive, so unless there are compelling reasons it's usually best to keep things as simple as possible.

Since you are the one with the anxiety about how to hold title, maybe you could have short conference with an attorney yourself. Don't let him write the rental contracts, though. Just ask the real estate agent for a referral to a property manager. Lawyers are big scaredy-cats about houses.

[OldJack]

First off he says getting the mortgage in the name of an LLC adds 1.5 to 1.25 percetage point to the mortgage interest rate. So he doesn't thing it's necessarily the best.

I inquired of what his option was. He said you can get 'joint tenants' maybe with 'rights of survivorship.'

Well... about the LLC... your brother probably thinks its too expensive to have liability insurance. The LLC is just a business expense and liability insurance not only from tenants but to protect your interest in her estate. What Aunt & Uncle did is irrelevant to your brother and mom. I would advise mom to insist on the LLC entity with a clearly written operating agreement to run things. Business should be conducted as business especially with a brother that will not mow grass.

Naturally, brother would like joint tenants with right of survivorship as he would be the survivor and you would not.

The Secy of State office usually provide blank forms that you can fill-out and setup the LLC yourself without the attorney fees.

[tacks86]

Thanks very much for your input, Janien

I was surprised to learn that my brother was bidding on properties already. Niether my sister nor i expected him/them to act so fast. So yes, my post was a bit hurried. And i have not really done any 'leg work' before posting.

My mom has a computer which is not hooked up yet. I should try to make the time to go over and hook it up. Once she is online she will research these issues herself, as she has done before in her old house. (I wish I would've done this earlier before busy season)

[tacks86]

Well... about the LLC... your brother probably thinks its too expensive to have liability insurance. The LLC is just a business expense and liability insurance not only from tenants but to protect your interest in her estate. What Aunt & Uncle did is irrelevant to your brother and mom. I would advise mom to insist on the LLC entity with a clearly written operating agreement to run things. Business should be conducted as business especially with a brother that will not mow grass.

Naturally, brother would like joint tenants with right of survivorship as he would be the survivor and you would not.

The Secy of State office usually provide blank forms that you can fill-out and setup the LLC yourself without the attorney fees.

Thanks very much, Jack, again.

This issue about liability insurance is an excellent point. My mom does have an estate (sizeable IMHO) so this will be a question that i want to raise.

[I'm dead curious. If superboy's research truly is so thurough, rock solid and air tight why did he not address this major issue of liability. "Well I guess we'll do it [form an LLC] if it makes Mom feel more comfortable"-- certainly does NOT sound like a well thought out business plan to me.]

[tacks86]

New question

Mom & brother are looking at rental properties to buy. If they do not buy a property can I deduct Mom's business mileage and related expense on a schedule C for 2007?


Again, thanks for everyone's input. Despite what i posted earlier, Mom & brother are not moving quickly with this decision. (Much like my sister and i were hoping they wouldn't.)