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It doesn’t make sense this proposal. Also they will pay a lot of taxes on capital gains (assuming cost is amortized)
Where does the 50% come from? The federal gains tax is between 15-20% while the state gains tax in NJ is about 8%. Depreciation recapture also comes into play but it still would not lead to 50%
Coach
From a financial and tax perspective your best situation would be to inherit the properties. You would get a step up in value and no capital gains tax would be paid. If your parents don’t need cash, what if your parents hired you as the property manager? Or, what if you leased the properties from your parents and then subleased to the tenants. You might want to talk to an estate planning attorney to see if there’s a way to accomplish your objectives without paying capital gains taxes.
Coach
What are they going to do with the cash? Do they need it to support themselves? They are going to pay a lot of tax for this transaction. I would meet with an estate planning attorney and see if there’s a way to structure this so that everyone gets when they need without paying capital gains. This is probably a lot easier if you are an only child.
F
That doesn’t seem to make sense at all if they don’t need the money. You could ask for a discount and then have them hold the note and they could continue to make a return on the interest rate you pay them.
Also doesn’t have to be all or nothing if it’s not one building. I’m not sure how much these properties are worth but maybe they cash out on a few of them. Sell you a majority at a discount and then let you manage a few units with them holding onto them until you inherit them.
Are these residential units (below 4 units) or multifamily (5 units and above) properties?
Agree with the 'what do they need - income or a lump sum'... that will dictate some of this. Presumably they really want the cashflow without the hassle - I have an idea for that below.
If they want full market price, all cash, let them sell to the market! It's kind of a non-starter in my opinion. A private sale at market price, to a family member - that just sounds icky to me.
If you want to get into the game and you're just starting out, maybe take a few of them and get going on your real estate endeavors but starting out you need some below market stuff for a safety margin, maybe where your sweat can force appreciation with some improvements.
If it's full market at attractive financing, you might be able to make it work if they don't need all cash.
One idea if they're about the cashflow and getting out of the landlord headaches, could be a lease option - you agree to the market price but have X years to pay it (beware balloon payments notoriously cause insolvency) and coupled with that you set up a lease payment to them for less than market rents or for like 5% financing equivalent. so, let's say for simplicity it was 10 properties and you agree to pay them $7K/month and the rents bring in $10k/month and you take all the headaches and the profits and they make any underlying payments. And you have the option to buy properties at $100k at sometime in the next, say, 15 years, at your choosing. You could sell them off one by one, you could seek financing on one or more, whatever you want but it's your problem and your upside. You'd have to contemplate insurance and taxes and such. Also if you're just in the 'sandwich' - you would not be able to depreciate the properties until you are the actual owner... lots of other considerations too I'm sure but it's a concept that might fit?
or they just take back mortgages or land contracts on the properties and it's like interest and principal to them. if cashflow is their goal.
Thanks for the replies. I’m still trying to figure out what to do. I’m at the beginning of my law career so I know that if I want to grow in my career, I can’t have distractions like managing tenants. Of course I would have to hire a property management company but then I’m concerned I would have to manage the company.