Why hello there...

[Matt Ward]

Hi guys,

I am new to real estate investing but have been devouring info and have cash to invest from current ecommerce business successes. Looking to connect with a real estate professionals specialized in South Atlanta, primarily Fayette, Coweta, Henry, Clayton, Spalding and Fulton counties.

Planning on investing business profits (~$30k+ a month) and interested in acquiring multi-family properties under 200k, approximately one a month.

I've analyzed all the deals on MLS I could find with sites like Zillow, Realtor.com, Homes.com etc and think I found a few winners but not sure. Would love to connect with others focused on the area and hopefully learn a thing or two. Real estate isn't my background but would love to add value on the ecommerce, marketing and sales side of things from my current/past business experience.

Cheers,

Matt

[Thomas Franklin]

@Matt Ward From a Real Estate Investing Perspective, the following is true that any Investor Friendly CPA would advise.

Flipping Properties

If the primary objective of your real estate business, or one of your real estate businesses, is to buy, potentially fix up an existing property and resell it within one year, the Internal Revenue Service can consider that to be an active trade or business. Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a "social security and medicare" by working folks). If your goal is to reduce that self-employment tax to a minimum, an S Corporation is the best entity to use. Why?

It is the only entity structure whose rules allow the business owner to take a "reasonable salary" (subject to social security and medicare) and then take the remaining profit (often as much as 50% of the remaining income) out as distributions not subject to self-employment taxes. Correspondingly, all business income taken from an LLC under similar circumstances is subject to self-employment taxes. For a business owner with $100,000 taxable annual income, the net tax savings for using an S Corporation instead of an LLC in taxes paid every year can be as high as $7,500.

Holding Properties

When holding properties as a cash flow investor, the LLC (or LP) is generally the better choice because an LLC has more liberal distribution rules. The key here is flexibility. If you purchase a large piece of property and later decide to sub-divide it, you could distribute out a piece from an LLC without incurring a taxable event. LLC distributions come out of the LLC at cost basis. The members of an LLC are issued K-1 Form and have to pay taxes on all profits as though it were income, which could expose the owners to high employment taxes. Also, an LLC can elect to be taxed like an S Corporation.

While there is never only one answer that is correct for all circumstances, there is a general rule that is almost always the correct choice. So remember, for legal and tax planning, a good CPA will recommend that clients hold their properties in an LLC or Limited Partnership and run their businesses as S Corporations to avoid self-employment taxes.

In terms of loans/ mortgages, your FICO Score demonstrates you level of risk, in the eyes of a lender, regarding your ability to repay debt. The only possibility, in your situation, is to seek properties that owners will consider Seller Financing. This is where the seller acts as the bank and a Promissory Note is created similar to what a lender will create, but without all of pre qualifications and document submissions. With that said, an owner that will entertain the idea of Seller Financing may or may not want to pull your credit.