Real Estate question for the Brain Trust

[wdfifteen]

My wife has a house she bought 10 years ago (before we were married). She had the usual inspections and title search done at that time. The house needs to be remodeled and sold. We are planning to have my real estate company buy it and flip it. My question is, do I need to have a title search done again? If I don't, will that have repercussions when it's time to sell it? We know nothing has changed in terms of leans or past ownership issues since the last title search, so we know it's clear, but will a future buyer be wary if it changed hands without a title search?

[RANDY P]

no. You will be wasting $$$, and if there was an issue you can work it out on your own. Unless you are using a lender to obtain it they'll require it.

New buyers will have to provide their own title insurance if they are using a bank. if they pay cash, well they don't need to but that would be stupid on their behalf.

[id10t]

On the flip side it may be good to check, at least informally (ie, does she as the owner have a right to do it free/cheap/easy?) just to make sure no shennanigans have been going on with it. Sorta like checking your own credit report every so often...

[jhynesrockmtn]

If you don't think there are title issues, leave it. It will be done during the closing process once you have a PSA signed.

[wdfifteen]

Thanks for the info!

[TheMentat]

Not an expert with how your titling system works, but it seems that the only reason to do a search now would be to protect your real estate company. If a title search today reveals an problem, any associated costs / liability would be borne by your wife (and you) personally. If you wait until the title transfers to your company, those costs / liabilities would be borne by your company.

[Tobra]

If it is a rental property, you might want to look into reinvesting the proceeds to minimize negative tax impact ahead of time.

[wdfifteen]

Originally Posted by TheMentat

Not an expert with how your titling system works, but it seems that the only reason to do a search now would be to protect your real estate company. If a title search today reveals an problem, any associated costs / liability would be borne by your wife (and you) personally. If you wait until the title transfers to your company, those costs / liabilities would be borne by your company.

The whole idea is for the expenses and liabilities to be born by the company. I want to do the rehab under the umbrella of the LLC's legal liability limits, it's insurance, credit, and better tax treatment, and to take advantage of vendor discounts that it gets. I'm not yet sure it's all worth it, the company may just partner with her (by paying off the mortgage) and leave it in her name until it's sold. It will depend on the costs of the title change, filing fees, etc.

[rusnak]

I agree with the above comments. I think Randy P et. al. pretty much nailed it.

A prelim without a new title policy is pretty much useless. But if you have a real estate co, you can get them done for free. A prelim only shows exceptions to the title policy, which ensures your fee simple absolute deed is free of exceptions. There are levels of insurance, with ALTA survey being the most thorough.

I think the issue is transfer tax. If she's basically selling it to herself, then she can be double taxed, and if she partners with you, then she pays double capital gains unless she sells at a loss. She can just deed it to the LLC perhaps. The idea is to defer taxes. To the extent that the LLC has substantial assets, not sure if you are really insulating yourself from potential loss at all unless you form a single asset entity.

[john70t]

Originally Posted by wdfifteen

better tax treatment

If she's lived in it for 2 of the last 5 years..I thought cap gains was wavered..
100% homestead should be lower for local prop tax, and the current rate would look better on the advertisement.

(I probably have misread the scenario.)

[wdfifteen]

Originally Posted by rusnak

I think the issue is transfer tax. If she's basically selling it to herself, then she can be double taxed, and if she partners with you, then she pays double capital gains unless she sells at a loss. She can just deed it to the LLC perhaps. The idea is to defer taxes. To the extent that the LLC has substantial assets, not sure if you are really insulating yourself from potential loss at all unless you form a single asset entity.

I'm still doing research, but the tax implications are one reason we are thinking of this. We're still researching it, but she lived in the house 2 of the last 5 years, so she should be able to sell it without paying tax on any profit. If the house is worth $300k after the $35k rehab, and the LLC pays her $260k for it she should be able to pocket the difference between what she has in it and the $260k tax free. The LLC should make enough profit to make the transactions legitimate and pay minimal tax. In theory, anyway.

[WPOZZZ]

Do you own the real estate company or have any ownership stake in it?

[wdfifteen]

Originally Posted by WPOZZZ

Do you own the real estate company or have any ownership stake in it?

I own 100% of it.

[WPOZZZ]

Originally Posted by wdfifteen

I own 100% of it.

Talk to your attorney or CPA about an "arm's length transaction".

[jhynesrockmtn]

I just re read your first post. Have a tax person review this and as WPOZZZ says, review this for self dealing/arms length issues. Once she sells it to your company, you now have a non principal residence. I would think for tax purposes, if it qualifies as a principal residence, just have her sell it and pay no taxes and have less audit threat but I'm a garden variety auditor CPA, not a tax person.

[wdfifteen]

We have a appointment with an attorney in an hour. I'll let you know what he says.
One possibility I thought of last night is having the LLC be the GC for the job. That way I can use the LLC's insurance, buying power, credit, etc and not have to pay transfer and recording fees. She can sell the house, pay me, and done. If her kids didn't have their eyes on "Mom's assets" we would not be trying to keep things so separate.

[rusnak]

Better hers than yours, I say.

[wdfifteen]

We talked to our attorney about this yesterday. We are going with the LLC buying the house from her. We can base the price on the county auditor's evaluation plus the money she has put in it over the past few years. We can save some tax money, and get it out of her hands. There is a long complicated back story and she wants to get away from it for emotional and family reasons as well as the financial ones. Lawyer says do it.

[wdfifteen]

This damn house is driving me nuts. My wife bought it ten years ago and put her heart and soul (and 10s of thousands of dollars) into fixing it up. She brought it up to decent condition, then we got married and her daughter got divorced. She let the *&%$# kid move in and she trashed it. TRASHED IT and walked out. I mean she trashed it to the point where we're ripping some subflooring out because it's soaked with dog pee.
Wife is heartbroken over what her 35 year old adolescent brat did to her house. I'm buying it from her so she doesn't have to deal with it. She gets near hysterical every time she has to go over there.
I have a contractor friend starting on it soon. Monte is kind of laid back, takes twice as long as anyone else. He knows he's slow and charges accordingly, but is a real craftsman. I threw it up on Craig's list to see if anyone wants to buy it as is while I wait for Monte and I get realtors wanting to sell it for me and some jackshaft with a stick up his butt giving me a hard time about the listing. Here is my listing and his reply. What is so confusing about this listing, and why do his questions matter?

We are selling our nice 1956 ranch style home. Three bedroom, 1 1/2 bath, 3/4 basement, 2 car garage. It rests on a beautiful large lot backing up to a golf course. Brick exterior with aluminum trim, double pane windows throughout. The house has great bones - solid block foundation with no cracks, the high efficiency furnace, water heater, roof, and gutters are all less than 5 years old. It's in a great location with a nice, quiet neighborhood. The house next door sold for $200k last year. Did I mention it backs up to a golf course? We have started rehab on it, but can't finish it. Some landscaping has been done, the interior is gutted (some furniture is stored in it right now), the 1/2 bath is finished. The rest of interior needs to be restored. We are working on it when we get time, so the price goes up the more of it we get finished. We expect it to be a $170k house when finished.


So I get this email.

"We are working on it when we get time," then it’s "we have started rehab on it, but can’t finish it"?? Which is it??? The interior is gutted, but you expect to be a $170,000 when finished???* How you going to do that when you can’t finish it, again??

[john70t]

Originally Posted by wdfifteen

She brought it up to decent condition, then we got married and her daughter got divorced. She let the *&%$# kid move in and she trashed it. TRASHED IT and walked out.

Annnnnd there it is.
That goes well below economic to the purposefully disrespectful level.

Be careful with the bad-cop role..This is not the daughter's first rodeo.
Hopefully it will be the last involving you two.

Personally I would want to take photos of everything: receipts, checkbook, driving in traffic, time in store, cut hands, documented time on phone, lost income on other projects because of this mess, etc. The works. Blow those pics up to poster-size and hang them on the wall.Have the daughter over for lunch. Show her the grief she has caused.
(edit: but as mreid mentions I would be giving very bad advice.)