Help with vacant lot question

[Jill]

Setup:
I have a good friend who recently discovered that a late uncle had willed him a small (~9K sq ft) vacant lot in a mixed-use neighborhood. It's still what I would consider a "C" area, but borders on an area close to downtown which is quickly being regentrified. There are several other lots nearby which, according to tax rolls, are owned by RE Investment companies who also anticipate this upward shift.

Since he didn't know it was his (on the tax assessor's records as his uncles, but titled to friend), he obviously hasn't been paying property taxes. It is quite delinquent to the tune of ~ $25K, but since they haven't figure out who actually owns it yet, it hasn't been auctioned off. He has no cash, after a long and nasty divorce, and is in fact, planning to declare Chapter 11 bankruptcy.

Question:
We have offered to pay the back taxes for him, in exchange for the title, provided we share some of the profits with him when we develop or sell it.
1) Is there a tax accountant out there who can tell me if we would be obligated to pay (gift?) taxes on the full value of the land (~ $100K)?
2) Is there a way for him to quit claim it to an offshore account, in which he owns 10%? (This isn't the case, but it was a consideration) I'm not asking for legal advice here. Just general knowledge!
3) Is this a big enough lot to build a small multi-family property on? As that seems to be the direction the neighborhood is going. I don't see it becoming an "A" or even "B" neighborhood for another 2 years or so. So building an "A" type property, with high rents wouldn't work, I don't think, until the neighborhood is more cleaned up.

Any other creative ideas for him? His objective: he needs some cash, but doesn't want it to show up in his name for fear the IRS would seize it (part of the divorce/bankruptcy deal) Our objective: help a friend, and hopefully make a little coin for all of us in the process

Edit: LOL. After reading this, I realized that it sounded a little shady. That's not our intention!! Just looking for something I might be missing.

 

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[andviv]

I don't think there is a gift tax but, as you well know, I am no accountant. That would be like paying gift taxes for buying a property at 25% FMV so I don't think that would apply, but call your acct and ask.

Offer him $30K for the property. $25K will pay the back taxes, the other $5K should cover his tax on the gain, if any. Once you start developing the land later you could make him a partner in exchange of sweat-equity. Any money/ownership he gets before bankruptcy would put the property at risk.

Another alternative is to buy the property as a Partnership, where you are the managing partner and he is a limited partner, but still the accreditors could seize his part of the deal, if I am not mistaken. But at least, by being a limited partner, you wouldn't lose control of the property.

I wouldn't do anything with the property for now... just hold it if you are positive the trend will continue and this is in the path of progress.

Anyone has more ideas?

 

[andviv]

oh, by the way, have you check if there are adjacent vacant lots? you could either try to buy those as well and then develop a multi, or play hard-to-get and let them come to you to buy you out.
9Ksq ft should be enough for a duplex or 4-plex (can you build more than two levels in that area?) but the risk may be too high.

 

[hatterasguy]

Well he is going to lose the property either way, why would you take him on as a partner? Partners are expensive and must bring a lot to a deal to be worth taking on.

I'd offer him $27k for it, and he should be thankfull to get a free $2k.

I'm not quite sure how probate is going to work with those tax leins. It may force a sale. I think the right course of action would be to have your attorney contact his uncles attorney who is handling probate.

I don't think you will have to pay taxes on the lot for the full value unless you sell it for $100k and make money.

 

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[Jill]

Well he is going to lose the property either way, why would you take him on as a partner? Partners are expensive and must bring a lot to a deal to be worth taking on.

While I agree in theory - and would totally agree if he were a stanger - we're trying to help him out of a financial crunch. He does more than his share to help us with other non-monetary things. Besides, he has another acquaintance who has offered him $100 for it already, but he had mentioned it to us first.

I'm not quite sure how probate is going to work with those tax leins. It may force a sale. I think the right course of action would be to have your attorney contact his uncles attorney who is handling probate.

I don't think you will have to pay taxes on the lot for the full value unless you sell it for $100k and make money.

I hope not. I don't think the property is in probate. My friend is the rightful owner. I think I misspoke in the initial thread, saying that it was left to him. He actually gave it to him before he passed. The title has friend's name on it, but the tax rolls don't. Somehow, they never got that synched up.

In any even, thanks for the input!

 

[yveskleinsky]

Setup:

Question:
We have offered to pay the back taxes for him, in exchange for the title, provided we share some of the profits with him when we develop or sell it.
1) Is there a tax accountant out there who can tell me if we would be obligated to pay (gift?) taxes on the full value of the land (~ $100K)?
2) Is there a way for him to quit claim it to an offshore account, in which he owns 10%? (This isn't the case, but it was a consideration) I'm not asking for legal advice here. Just general knowledge!
3) Is this a big enough lot to build a small multi-family property on? As that seems to be the direction the neighborhood is going. I don't see it becoming an "A" or even "B" neighborhood for another 2 years or so. So building an "A" type property, with high rents wouldn't work, I don't think, until the neighborhood is more cleaned up.

Any other creative ideas for him? His objective: he needs some cash, but doesn't want it to show up in his name for fear the IRS would seize it (part of the divorce/bankruptcy deal) Our objective: help a friend, and hopefully make a little coin for all of us in the process

Here's my .02:

1. The fact that you are giving him $25k to pay for back taxes seems fair enough to me. He'd be losing the property anyhow, so I suppose I don't really understand why you are sweetening the deal further- I think it's going above and beyond. I suppose if you want to give him something for it, could you do something to where he isn't a partner, but still receives some sort of royalty? I'm no legal eagle, but it seems like there might be issues with having your names tied to his if he's going thru a bankruptcy.

2. What is your goal with having him quit claim it and still be a partner? (Speak slowly and use small words, 'cause momma's confused.) If the goal of the quit claim is to get him off title, (i.e. hide his asset) then putting him on as a partner would undo all those efforts right? It seems to me like the easiest and fastest thing to do would be to get him off title somehow by having him sell/gift it to you, and then set up some sort of royalty schedule based on performance.

3. As far as the size of the lot, you'll have to check with the city. Different areas have different lot size requirements for building. Get a copy of the CCRs (covenants, codes and restrictions) for that area, as well as the zoning.

Good luck and keep us posted on what you find out!

 

[andviv]

If he's got a $100K offer then I'd suggest him to take it and pay back the taxes and pay back some of the debt he's got.

 

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[yveskleinsky]

I like Andres' Occam's Razor approach to it, lol. If FMV of the land helps him out of the financial quicksand he's in, then everyone wins! Great idea Andres! ...Why didn't I think of that? lol :smx4: ++rep

 

[Jill]

Hey, there. Thanks for the input guys. Your point #2 is essentially what we had in mind, Dana. He can't be an owner at all, per se.

If he's got a $100K offer then I'd suggest him to take it and pay back the taxes and pay back some of the debt he's got.

That's how I'm leaning right now, frankly. I think it will be worth $150 - 200 within a year, tho, which is why I'm still considering other options. Now that I write it out, I guess I'd be better off just buying if from him outright and holding it.

OK, I think I know what my options are. I'll let you know if I do anything with it.

 

[hatterasguy]

My family is all in the business. We work with eachother when its profitable and steal deals from eachother when its profitable to do so.

So in my case blood ain't thick enough to get in the way of a good RE deal. Good friend or not, if the $100k offer is legit and it won't create bad blood go with it. In my case I'd maybe make a few calls and try to get it for $25k. He will get over it, just sit a bit further away from him at the Christmass table.:coffee:

 

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[andviv]

My family is all in the business. We work with eachother when its profitable and steal deals from eachother when its profitable to do so.

So in my case blood ain't thick enough to get in the way of a good RE deal. Good friend or not, if the $100k offer is legit and it won't create bad blood go with it. In my case I'd maybe make a few calls and try to get it for $25k. He will get over it, just sit a bit further away from him at the Christmass table.:coffee:

I pray for the wisdom so I don't get to think about deals this way. I pray for wisdom so I keep my cool head and don't destroy a friendship for just $75,000 in potential profit. I pray for wisdom to find Win-Win situations. I pray for wisdom so I never steal a deal from a family member.

 

[RealOG]

My family is all in the business. We work with eachother when its profitable and steal deals from eachother when its profitable to do so.

So in my case blood ain't thick enough to get in the way of a good RE deal. Good friend or not, if the $100k offer is legit and it won't create bad blood go with it. In my case I'd maybe make a few calls and try to get it for $25k. He will get over it, just sit a bit further away from him at the Christmass table.:coffee:

Brutal...
:greenchainsaw:

 

[EasyMoney_in_NC]

My .002 cents would be....

Give him a percentage stake in the value of the lot after paying the taxes and taking title. He could loose it, yes? So something would be better than nothing. Having said that, if you save him/it, the right thing to do would be to give him......say a 25% of value, or your $25k represents 75% profit split. He'll at least get something out of what would have been a complete loss, and you get paid for taking the risk and saving his hide.

But as for how etc....consult an attorney! Consult your zoning dept before doing anything....its a must!

 

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[hatterasguy]

I pray for the wisdom so I don't get to think about deals this way. I pray for wisdom so I keep my cool head and don't destroy a friendship for just $75,000 in potential profit. I pray for wisdom to find Win-Win situations. I pray for wisdom so I never steal a deal from a family member.

Meh its only business, its not personal. Its rather fun actualy, keeps you sharp.