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I have a feeling this thread won't go well, but I'll attempt anyway.
Let's say your employer is buying vacant land and abandoned houses in Detroit, and he has offered to give you one of the houses free and clear, you just need to work for the company for five years before the house is signed over to you. Your employer will take care of the renovation of the house, and all maintenance of the house for the five years before it is signed over to you. You are responsible for all living costs, insurance, property taxes, etc. You get to choose which house you want.
I know there are a lot of Detroit haters on here, but the question is, would you take this deal? In this scenario, you already live in Detroit, renting an apartment. The house would be located a half mile off the Detroit river, next to one of the most stable, liveable neighborhoods in Detroit. Your employer is buying this land to tear down all the abandoned houses, clean up the land, etc. As a result, if the project is a success, the area could be one of the most sought after in the city whithin 5-10 years.
Michael: That is the worst idea I've ever heard in my life, Tom.
Samir: Yes. This is horrible, this idea.
I am gravely disappointed. Again you have made me unleash my dogs of war.
If you could, explain why this is a bad idea. Is it because the house is in Detroit? What if the house is in St. Louis, Pittsburgh, or Chicago? Is it a bad idea because you have to work for the company for five years before the house is signed over to you?
in this hypothetical situation, is it possible for my body to be re-animated back to life after my house is repeatedly broken into, robbed and eventually I am killed?
in that case...no, i still would not do it.
It all depends on the neighborhood. Check in to police, fire and EMS response times for the area as well as crime stats. People rag on Detroit, but the entire city isn't THAT bad.
It could be a horrible idea, but it might be a decent idea. Look into lots of things involving the property and the area. Get the employer's promises in writing, etc. Be prepared to have a fairly worthless property in five years.
5 years is a long time. What happens if you want to leave? Do you owe the employer for the house?
Pittsburgh and Chicago aren't flaming piles of dog poo like Detroit and St. Louis. There aren't hundreds of blocks full of crack houses so this scenario wouldn't apply. Detroit is so messed up it's going to take generations to fix if that is even possible.
In this scenario, do you work for Hantz Woodlands and moving to West or English Village? As for the sought after in 5-10 years.. under this hypothetical, you should really be thinking 20 years for a turnaround. Also, property taxes and insurance are going to be higher than the cost of the home, so it's not that good of a deal.
If I leave before five years are up, nothing happens. The house will remain in the employer's name. Essentially, for the first five years, I will be living in the house rent free, just responsible for property taxes, homeowner's insurance, etc. If I stay five years, the house is mine, free and clear. After that, I can sell the house if I choose, or keep it.
For arguement's sake, we'll say this is one of the worst areas of the city for police response time, fire response time, crime, etc. However, in five years, if the beautification project performs as expected, the area will be void of abandoned houses, there will be no trash. Essentially, this area will be taken care of like a park.
It could be a good deal. Don't forget to factor in that the "free rent" and maintenance is considered a taxable benefit by the IRS. Also, when the house is signed over to you, the value of the house will also be considered a taxable benefit. With this, it still might be worth it.
Are you taking a lower salary to get this deal? What if you are terminated 59 months into the arrangement? Are you confident there will be a market for the home 5 years from now?
If you're living in Detroit, happy with the company, your salary and advancement possibilities, and think the neighborhood is or will be desirable...why not.
In this scenario, I do work for Hantz Woodlands. I would be moving into the project area, very near Indian Village. I guess I'm trying to figure out how much the property taxes, homeowner's insurance, etc. would cost. Also, how long would it take for property values to rise?
Let me make sure I understand the deal and ask questions:
1. This "renovation" your employer will do, is it done immediately and you will move in before the five years is up?
2. You will pay from day one "living costs." What do you mean, like what?
3. The insurance you will pay is homeowners insurance. You are not an owner of anything except a contingent right to the "fee" or title to the property. So, I guess you pay for renter's insurance, even though you don't pay rent or have a lease. Who pays for fire, wind, and other calamities? Employer?
4. You will pay real estate taxes on the property? Okay, can you deduct them on the your income tax return as an itemized deduction or is the employer going to deduct the expense?
5. Normally, rent free housing provided by the employer is taxable to you as a "fringe benefit." The only exception is when the employer requires you to live on the business premises, like often times Funeral Homes require an employee to live on the premises. Have your worked this out with your employer?
If this is a good idea, then it's cool the employer lets you choose the lot you want. If it's the area of Detroit I'm thinking about, south of Jefferson Avenue and west of Alter, yea, that's an area with possibilities. But, if the employer is going to "renovate" the home, is it per your specs? Do you know exactly what he intends to build there? Or am I wrong and the employer isn't going to build anything on the property.
So, seems to me, depending on your answer to these questions, if I assume you already live in Detroit, this could be a no brainer. I mean, I would never consider it because the schools suck so bad. Maybe you have no children. But, really, this could be a virtual "gift" from your employer.
Can I assume your employer is an odds on favorite to be around for five years and able to actually fulfill the promise to transfer the property to you and not go into bankruptcy? The employer is retaining title for five years and, if he goes bankrupt or if creditors try to seize is assets, then those would be the Employer's property and creditors could take them.
You would have to think about the tax consequences. When the employer transfers the property to you, will you have a "basis" for tax purposes? That is, can the lease, either actual or implied as a matter of law, be considered to be a lease with option to buy and the imputed rent that the IRS will make you pay tax on as a non-deductible fringe benefit be considered payments or a cost by you and, therefore, contribute to your tax basis?
Maybe tax basis is irrelevant because what's cool is that you could live in the house for another two years after you get the deed from the employer, sell it, and be able to exclude from any tax whatsoever up to $500k if you file a joint return. All you would have had to do is lived in the home as your principal residence and owned it for two years out of the previous five before the sale.
I would look at this pretty hard, but if you already live in Detroit, your employer is solid, and you don't need public school education, it could be a winner.
I was wondering about the tax ramifications. Thanks for pointing that out.
The deal will have no effect on my salary. If I am terminated 59 months in, I don't get the house, it will be like I was just renting for the cost of the property taxes and homeowner's insurance. BTW, right now I am paying $550 per month in rent. I don't know anything about what the property taxes or homeowner's insurance would cost.
The other thing I like is that, with the Emergency Manager coming on board, services, like police, fire, and public lighting are going to get better fast. That's the low haning fruit for the EM to make it look like things are happening. You are also close to Belle Isle which, maybe, it will finally become under the control of the Michigan park service. Over the five years, there could be considerable cosmetic changes sufficient to give the impression the house is worth considerably more than what you will have been deemed to pay for it.
PreMadonna, above, has made excellent points, including that the employer's deeding the home to you is a taxable event as another "fringe benefit." The benefit is the fair market value of the home at that time and it's income to you in the year of the transfer. So, you'll have to come up with money to pay the tax on the phantom value you received. Will the employer agree to bonus you for that tax at the time of the trasnfer? I know that's like looking a gift horse in the mouth a little bit, but, still, I think employer may be "selling" this to you as a freebie, but it's anything but that. It's compensation and that's how the IRS will treat it. So, it's a business deal for you. There has to be a bang for buck better than the yield on 10 year Treasuries, right?
This post was edited by BillOGoods 13 months ago
Sounds too good to be true, what is the employer getting out if this situation? Why not just hire someone to do a job and not throw in a house? How about discount the house instead of just handing over the keys? Why 5 years?
This is good stuff here.
1. The renovation would be done immediately, and I would have input on what is done. I would in fact be helping with a lot of the work. My understanding is my employer would keep track of all the costs, and then decide how long I would have to work for the company before the houses is paid off in "sweat equity".
2. By living costs, I just mean normal costs associated with living somewhere, no different than renting the house.
3. I would have to check into this more. My understanding is my employer is responsible for buying the house, renovating it, and all maintenance costs for the next five years.
4. I'm not sure on that one.
I get to choose which house I want, either the area east of Van Dyke, west of Seminole, north of Kercheval, south of Mack, or the area east of Burns, north of Jefferson, south of Mack, west of St. Jea
The employer does not intend to develop anything in this area, it will be strictly a beauitification project for the foreseeable future. Down the road, there is a possibility of single lots between dwellings being sold off, but the vast majority will stay trees.
I am single with no kids, so schools are not an issue. It is also not an issue with my employer not being around in five years to transfer the property. Let's say he is not in danger of bankruptcy at any time in the future.
If it involves the Hantz Group, then it must be legit.
This post was edited by MSUBeefman 13 months ago
No. I would never live in anything that isn't a high rise in Detroit.
One benefit is that is one house he doesn't have to pay to demolish. That is not an insignificant cost. This is a way to give a "bonus" without a bump in pay. I guess it is a way to keep an employee loyal as well. The five years is just a guess, based on the value of the house, and the amount of work he feels is right to pay the house off in "sweat equity".
I'm thinking I like the deal under your circumstances, but something just knaws at me that you should never bet your money on a Detroit comeback. On the other hand, it sounds like you are a young guy and can take the risk, which, frankly, is minimal. You can walk away and all the while you have had a actual rent free place to live, even though the IRS might impose an imputed rate of rent and you would be taxed on it. Maybe paying the real estate taxes AND being able to take them as an itemized deduction on your return would make that a wash.
Ask your employer about the type of insurance. In effect, you are a tenant for five years, with an "option" to buy. So, maybe the employer expects you will buy full coverage and not just renter's insurance (which is typically limited to contents, not the structure). Then you'll have questions about how the homeowner's policy is worded. If there is a fire and the house burns down, is your name on the insurance check, the employer's name, or both names? This could be problematic in the future should there be a claim and your employer spends the money on business expenses.
Again, depending on the costs for homeowner's, taxes, and a security system for the home, as well as a nasty German Shepherd dog, I'm liking the deal as your risk is minimal.
Run the fuck away. Fast.
Employer needs to sweeten the deal with 5 yrs season tickets in a suite to .
I read the news today, oh boy .. ..
About a lucky man who made the grade
He doesn't have tickets in a "suite", but he does have some pretty "sweet" field level seats. I've used them a couple times.
How many people is he offering this to?
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