Structuring for tax//legal/asset protection...and life control

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Structuring for tax//legal/asset protection...and life control

Matthew Klegon
New York, NY · Member since 2018 · 8 posts · 0 votes

Hi BP - I currently live (rent) and work in NYC but want to (i) house hack, and maybe down the road invest further, in New Jersey, (ii) invest with 2 people in multifamily properties in Massachusetts, one of which has a family connection to a property manger and contractor we will use, and (iii) have my own consulting business on the side, not related to real estate (but, in addition to active income, to use for a home office tax credit and other business expense write-offs, etc). I have a good but demanding job now but want to begin the transition into a more entrepreneurial lifestyle where I have more control over my life, time and finances. 

What is the best way to structure this from a taxation/estate planning/legal/asset protection viewpoint? Entities, states...whatever information or resources is appreciated. I have seen many different answers to this questions (e.g. Cook Islands trusts!) so I am curious if any trends in advice emerge. 

Thank you all in advance!

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  • Matthew BrillPro Member
    Investor · Boca Raton, FL · Member since 2015 · 234 posts · 103 votes
    5y

    It depends on what you are actually trying to structure and what you are trying to optimize/accomplish. There is also how efficient you want to be. Adding more entities and structures will add complexity and cost. Can you be more specific?

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  • Matthew Klegon
    OP
    New York, NY · Member since 2018 · 8 posts · 0 votes
    5y

    Thanks Matthew. I am looking for optimum tax efficiency together with asset protection to have a real estate "business" (house hacking and future investment) and a non-real estate consulting business. I see in many places that Nevada is a good state to house entities but I do realize that having many entities can create too much unnecessary cost. I am basically looking for a nimble but secure structure to build these two businesses. If that makes sense. 

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  • Matthew BrillPro Member
    Investor · Boca Raton, FL · Member since 2015 · 234 posts · 103 votes
    5y

    Well your RE investments would be positioned separately from your active business. The RE would be a flow through entire and the active business likely a S-corp or C-corp (I am far from being an attorney). Your house hack wouldn't need an entity (and probably more negative than positive). You'll want separate entities for the properties you own on your own, and each partnership will probably get its own entity. 

    From the estate planning aspect, the system I like is having a revocable trust (irrevocable if you have high net worth and need additional asset protection) and Family limited partnership, these would then house your other assets and entities. This can be pretty complex stuff and is state and individual specific. Ultimate you would want to get on a call with a CPA, asset protection attorney, and estate planning attorney and come up with the plan that best suits you and what you're trying to accomplish. Hope that helps!

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  • Matthew Klegon
    OP
    New York, NY · Member since 2018 · 8 posts · 0 votes
    5y

    @Matthew Brill thank you! Very helpful. You are right a convo with a cpa/attorney seems inevitable here. Thanks again

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  • Matthew BrillPro Member
    Investor · Boca Raton, FL · Member since 2015 · 234 posts · 103 votes
    5y

    @Matthew Klegon No problem, happy to help! This sort of planning has actually been a pretty significant aspect of my success in house hacking down in South Florida.

    While things like the laws may differ from state-to-state, and I certainly am not an attorney as I mentioned, I'd be happy to talk with you sometime in more detail on the type of things you may want to at least look into as a possibility. 

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5y

    @Matthew Klegon

    Having many entities can be an administrative burden. Each entity will require a separate bank account number, checkbook etc.

    Opening an LLC in one of the states that you mention can be great if you operate a large business as they normally have large case law to support their them.
    However, as a real estate investor, the cost may out-weigh the benefits. 
    Be mindful that you normally need to pay a fee to each state that the LLC is registered in. In addition, you will need to pay for a registered agent in each state besides the one you live in.

    While Nevada does not have a state income tax, this does not mean your income will be exempt from state taxation.

    You likely want to work with an accountant who understands the business of real estate and understands the expenses that you are entitled to take in addition to knowing the unique tax laws to real estate investors(1031, 121, etc)

    [email protected]917-280-8544
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