All Forum Posts by: Account Closed

@Reed Goossens @Engelo Rumora @Federico Gutierrez @Mark Murphy

Without advice

Picking up our earlier discussion about international taxation, I have spoken to my very good accountant in Australia about the tax treatment of U.S. real estate income for Australian residents. This is an issue which undoubtedly a lot of your investors will face. The accountant has confirmed what I said in my post above about the dangers of Australian residents using an LLC. In short:

- Australian residents are taxed on their worldwide income.  The ATO applies "look-through" treatment to fiscally transparent entities, including LLCs that are taxed on a disregarded entity / partnership basis, and certain trusts: https://www.ato.gov.au/General/International-tax-agreements/In-detail/Tax-treaties/Australia-and-the-United-States-treaty---key-points/

- Where there is an Australian tax liability on LLC income, although there is likely to be a tax credit under the US-Aus Tax Treaty, a lot of familiar U.S. tax benefits would be effectively neutralized.

- Australian tax liability might potentially be avoided by use of an LLC that is taxed as a stand-alone entity or by use of a C-Corporation, which, if done correctly, would only trigger an Australian liability upon a distribution being made to the investor / member. However, this gives rise to a different challenge: how to minimise the amount of double-tax that would be payable (i.e. entity-level then member-level). If you have a good U.S. accountant, he or she should have a few tricks for doing this.

The takeaway point is that international taxation is not a simple matter and requires careful planning with input/advice from good accountants.

Last para - *pay tax to Her Majesty on LLC profits - even if undistributed and kept within the U.S..

Without advice

Hi Reed & Federico

Reed I already know well; Federico, great to be put in touch with you.

As an Aussie in the U.K. investing in the U.S., my interest was piqued by your discussion on international taxation.  In particular I would advise caution with recommending LLCs when it comes to foreign investors.

You guys would probably be fine using LLCs as you have moved from Australia to the U.S. and accordingly the ATO would likely consider you to be non-residents for tax purposes.  If in doubt, the ATO has a calculator addressing this issue: https://www.ato.gov.au/Calculators-and-tools/Resid... .

The situation is likely to be significantly different for Australian-resident taxpayers who, as you would be aware, are taxed by the ATO on their worldwide income. If you distribute LLC profits to investors (as I know Reed does in his deals) presumably electing for a pass-through basis of taxation, this would be likely to give rise to a tax liability in favour of the ATO (worldwide income), as well as the IRS (U.S.-derived income). It may mean double-taxation with a tax credit under the US-Aus Tax Treaty, but a lot of U.S. tax benefits would be effectively neutralized. Long story short, may well be an inappropriate structure.

If you were dealing with U.K. investors as opposed to Australian investors, advising the use of an LLC would normally be bad advice, as a result of the U.K. Supreme Court case of Anson v HMRC in July 2015: https://www.supremecourt.uk/cases/docs/uksc-2013-0... .

I use LLCs because I fall within a tax loophole which prevents Her Majesty from getting her hands on my U.S. profits. However, for the majority of U.K. investors using LLCs, there would be a real risk of being required to pay tax on LLC profits - even if undistributed and kept within the U.S.. There are of course ways around it, if you know what you're doing, which do not involve LLCs... :)

Hope this helps

Alex

Bill,

That's great - thanks.

I assume by "parties" you mean members - in my case, the sole member of LLC 1 is a 49% member of LLC 2. I wonder if that means a quit claim deed is appropriate or a warrant deed / special warrant deed, per paragraph 1 of your post.

As to paragraph 2, yes indeed - I'm talking about assigning all of LLC 1's rights and interests as purchaser under the purchase agreement to LLC 2. I'll look up endorsements of contract assignments - thanks very much for the lead.

Alex

Wayne,

Wonderful - thanks.  Good to know the local terminology.

Yes - the properties are in the U.S., and the purchaser under the purchase contract is LLC 1 "and/or assigns". I assume State legislation would not interfere with the parties' clear intent for the contract to be assignable.

I found the precedents you referred to on File Place.  Thanks !  A+

Alex

James,

This could potentially be a sound strategy.  It depends on what you want to do with the property.  Are you thinking of flipping it, or buying and holding?

To begin with, 72K owing on a property is likely to indicate an owner who is in distress.   This means that you might be able to get the owner to sell it to you below market value.  You would offer to pay out the outstanding loan plus the tax/water debts.  The distressed owner gets to walk away, and you get the property for less than it is worth.  However, this is probably not possible if the owner has no equity in the property.  It would pay for you to do your homework before approaching the owner and ascertaining how much equity is in the property.

So let's say you manage to get the property for below market value.  Then what?  If you want to flip it, how much could you sell it for?  Does the expected profit adequately compensate you for your time and inconvenience?

If you want to hold it for cashflow, does the expected rental yield make the deal worthwhile?  On BP, people talk about the 2% rule - investors should be targeting deals where gross monthly rent is around 2% of their all-in cost.  Rental yields in NYC are generally low - will you realistically be hitting 2%?  Could you achieve a better yield by investing elsewhere in the U.S.?  For example, I am doing a deal now in the south-central region where I'm getting 3%; I know of other investors who are getting 2-3%.

Hope this helps.

Alex

Dear BP wholesaling community,

I have some real estate under contract with LLC 1 as purchaser, and am looking to assign the purchase agreement from LLC 1 to LLC 2 prior to closing.

If anyone has any precedent deeds of assignment which I could take a look at, it would be most helpful.

Many thanks, and season's greetings,

Alex Ottaway

Dear BP Pro community,

I have some real estate under contract with LLC 1 as purchaser, and am looking to assign the purchase agreement from LLC 1 to LLC 2 prior to closing.

If anyone has any precedent deeds of assignment which I could take a look at, it would be most helpful.

Many thanks, and season's greetings,

Alex Ottaway

Caleb, welcome !

Love the field of study you've chosen.  And yes, BP is a rich resource for everything and anything relating to real estate investment.

Let me know if you ever have any RE-related questions.  If I don't know the answer, I can point you in the direction of someone who can !

A

I'll be there.