DEAR BOB: I own a very desirable duplex that my husband and I bought in the 1970s. One tenant has been there more than 30 years; the other has been there 20 years. Both keep their units in tip-top shape. The rents are a few hundred dollars below market value, but we have zero vacancy. I want to sell one of the units to the tenant and keep the other one for my old age (I am 75). What do you think of a tenant-in-common sale? Converting the two-family duplex into condominiums would be difficult without a zoning variance because the local condo parking regulations require 1.5 spaces per unit and there are only two parking spaces. Would a life tenancy work for either tenant or me? –Alleen R.
DEAR ALLEEN: Forget the life tenancy idea. That leads to nothing but trouble.
Purchase Bob Bruss reports online.
Selling one of the units to your tenant as a tenancy-in-common (TIC) creates potential problems. How will your buyer finance the purchase of the unit? Are you willing to carry the mortgage that will be secured by the entire property? If you think about it, it’s not a great idea.
If you or your buyer later wants to sell your TIC, it could be impossible for the buyer to obtain a new mortgage without the cooperation of the other TIC co-owner. Another potential problem is one TIC can force the sale of the TIC building by bringing a partition lawsuit. I hate to be so negative, but all I see are problems with your TIC plan. Please consult local real estate attorney for more details.
CAN VACANT LAND BE TRADED FOR A RENTAL CONDO?
DEAR BOB: I own vacant land that I want to sell. With the sales proceeds, I want to buy a rental condo. Can I do that with an Internal Revenue Code 1031 tax-deferred exchange? How much time do I have after the land sells to find a condo to buy? And how long must I rent it before I can move into it as my residence? –Arline G.
DEAR ARLINE: Please consult your personal tax adviser for exact details. Internal Revenue Code 1031(a)(3) provides the Starker delayed tax-deferred exchange time limits.
You have up to 45 days after the sale of your vacant land to designate a qualifying replacement rental property, such as a rental condo, of equal or greater cost and equity.
Then you have up to 180 days to complete the acquisition. Most tax advisers suggest renting the acquired property at least six to 12 months before converting it to your personal residence.
FEW ADVANTAGES TO BUYER OF A LEASEHOLD PROPERTY
DEAR BOB: Are there any advantages for the buyer to making a leasehold purchase of real estate? Are there any positives, or only negatives? –Don D.
DEAR DON: There are many advantages for the seller of a structure that is located on leased land. But the only advantage for the buyer is you don’t have to pay to buy the land value.
However, the buyer is obligated to pay land lease payments to the seller. This creates a great investment for the seller but not such a good deal for the buyer.
When the lease expires, unless it contains an option for the buyer to purchase the land, the landowner then becomes the owner of the structure.
As the leasehold approaches its expiration date, unless there is an option for the building owner to buy the leased land, the building becomes worth virtually zero. For more details, please consult a local real estate attorney.
The new Robert Bruss special report, “How to Obtain the Best Appraisal of Your House or Condo,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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