Duplex owner’s TIC conversion a risky move

DEAR BOB: I own a very desirable duplex that my husband andI bought in the 1970s. One tenant has been there more than 30 years; the otherhas been there 20 years. Both keep their units in tip-top shape. The rents area few hundred dollars below market value, but we have zero vacancy. I want tosell one of the units to the tenant and keep the other one for my old age (I am75). What do you think of a tenant-in-common sale? Converting the two-familyduplex into condominiums would be difficult without a zoning variance becausethe local condo parking regulations require 1.5 spaces per unit and there areonly two parking spaces. Would a life tenancy work for either tenant or me?–Alleen R.

DEAR ALLEEN: Forget the life tenancy idea. That leads tonothing but trouble.

Purchase Bob Bruss reports online.

Selling one of the units to your tenant as atenancy-in-common (TIC) creates potential problems. How will your buyer financethe purchase of the unit? Are you willing to carry the mortgage that will besecured 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 couldbe impossible for the buyer to obtain a new mortgage without the cooperation ofthe other TIC co-owner. Another potential problem is one TIC can force the saleof 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 estateattorney for more details.


DEAR BOB: I own vacant land that I want to sell. With thesales proceeds, I want to buy a rental condo. Can I do that with an InternalRevenue Code 1031 tax-deferred exchange? How much time do I have after the landsells to find a condo to buy? And how long must I rent it before I can moveinto it as my residence? –Arline G.

DEAR ARLINE: Please consult your personal tax adviser forexact details. Internal Revenue Code 1031(a)(3) provides the Starker delayedtax-deferred exchange time limits.

You have up to 45 days after the sale of your vacant land todesignate a qualifying replacement rental property, such as a rental condo, ofequal 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 12months before converting it to your personal residence.


DEAR BOB: Are there any advantages for the buyer to making aleasehold purchase of real estate? Are there any positives, or only negatives?–Don D.

DEAR DON: There are many advantages for the seller of astructure that is located on leased land. But the only advantage for the buyeris you don’t have to pay to buy the land value.

However, the buyer is obligated to pay land lease paymentsto the seller. This creates a great investment for the seller but not such agood deal for the buyer.

When the lease expires, unless it contains an option for thebuyer to purchase the land, the landowner then becomes the owner of thestructure.

As the leasehold approaches its expiration date, unlessthere is an option for the building owner to buy the leased land, the buildingbecomes worth virtually zero. For more details, please consult a local realestate attorney.

The new Robert Bruss special report, “How to Obtain theBest Appraisal of Your House or Condo,” is now available for $5 fromRobert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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