All Forum Posts by: David M.

@Christian Smith

While of course you should seek advice from professional attorney and CPA, it all sort of depends...  Lets look at each separately...

For your renovation work, you can't really "just split the profits."  One of you is getting a check written to your name or company name (I assume if you are during pure cash whats the point of asking...).  Only if somehow you had your clients write each of you a check, then the two of you are running individual businesses.  So, if one person receives a check, then the first person would have to pay the other somehow.  Is that a salary?  Or as a independent contractor?  Do you see where this is going?  In case of an audit, you need to have a paper trail.  Also, what is your locality's requirements for contractors for commercial liability and workmen's comp insurances?

So, this leads to a company of some sort, be it LLC taxed as a whatever (partnership, S Corp, C Corp) or perhaps a partnership. I don't know what your local requirements are for costs incurred/required for setting each type of company nor the related costs to maintaining and doing the tax filings (e.g. do you do your own accounting and taxes? Would you really keep wanting to?) Also, what sort of liability are you trying to protect yourself against? i.e. is a potentially more complicated/costly business structure necessary to protect you when, perhaps, you don't have that much to protect.

For flipping, if you search around you can find info about how a LLC taxed as a C-Corp would be a preferred structure for tax and asset protection. Again, how much complexity can you endure, and is it worth it? Remember, for the incorporated entities (and I think even partnerships maybe) you are going to need a separate bank account and operate WITHOUT co-mingling your personnal and business funds. If you do, you have "pierced the corporate veil" and thus negated your asset protection afforded by the business entity (thus, what was the point?)?

In short, for your construction work, figure out your overhead costs and determine what sort of risk you are willing to accept.  Then, determine what business structure you want to mitigate the risk.  Also, you can always create a company or change your company later.  Not necessarily the best idea, but maybe after you get started, get a tax return done, then you can see where and how you want to go. 

For your flipping, you really probably should have some sort of written agreement between the two of you on how you will operate (I hope you've at least thought it all through). That pretty forms a partnership. So, probably best to do a multi-member LLC for the asset protection. Partnerships generate K-1 forms for your tax returns so the reporting of income is set.

I hope this overview helps.  I can't get into too much detail as unless you are in NJ, I don't know anywhere else.  Also, I don't believe there is a "one-size-fits-all" answer for your questions.  Good luck, and feel free to drop me a message if you want to chat.

@Mariah Petzoldt

Oh, I should add that I believe most to all MLS have data interchange agreements with the secondary markets (e.g. Zillow/Trulia, Redfin, Realtor.com--which is a private company and not NAR, movoto, etc.). For me, as soon as I enter a listing in the MLS, I can log into Zillow (or any of the other websites) and see it immediately. Even scheduling of Open Houses works the same way. I don't think people realize how much "data" is marketed around. That's why I think the off-MLS marketing technique is a way for licensed agents to market to the public w/o marketing to other agents, thus cutting off broker cooperation.

@Mariah Petzoldt

First, it doesn't really ban all off-marketing. if you publicly market a property, you need to also put in your MLS. My layman's understanding of NAR's long standing anti-Trust argument is that broker cooperation via the MLS increases competition, and thus good for the consumer. Many agents have been marketing off the MLS, e.g. Zillow, etc. Since the governing MLS in the area (some are owned by the local Realtor associations and some by private parties) don't have the listings, many of the local agents don't see the listings and thus competition is reduced (so the argument goes). I believe it leads the listing agents to having a better chance of double ending the deal.

So, how do I see that affecting investing? Not necessarily a whole lot... In terms of searching for deals to purchase, the better deals are found off-market (i.e. that public market) anyway... Depending on how you sell your properties, it shouldn't change much. If you use FSBO, then this doesn't affect you all. If you use a Realtor, (s)he or they just won't be able to drive traffic to themselves.

Note, my understanding is the policy still allows for agency exclusives and no public marketing. The key issue is publicly marketing a property and leaving it out of the MLS. For licensed agents/brokers to use websites such as Zillow to be their central point for publicly marketing listings defeats the purpose of the MLS.

Make sense?  Any other points of view out there?

@Amanda Westland

If you really can’t decide, take the 30yr loan and pay it off like a 15yr. If any unforeseen circumstances arise, you can back off your payments. Meantime, run the numbers... it doesn’t cost you that much more to get a 30yr and pay it like a 15yr (from the interest rate difference between the products)

@Becca Cross

Look up Anderson Coonts Esq on YouTube. It's the Real Estate Asset Protection Series. He has so many videos. I think It was Proper Use of LLC that talks about asset protection and anonymity and how to use land trusts and LLC together. He is even a CA attorney so even better for you. Look at his other videos that cover these topics

@Seth Firestone

What is the 1098 from?

@Nicholas Bolcon

@Loic Assobmo

Just seeing this discussion. Second comments about the agi limits starting at $100k and phasing out at $150k. Not much you can really do if your w2 income is high. Not going to repeat much of what was said..

But, you should look at different way. Hopefully, you have a “good rental deal” and have positive cash flow. Then, I assume you have a negative reportable tax balance because of the non cash deduction created by depreciation. The point is, if you have a good rental deal, you actually are getting more cash, but that income is being wiped out. Y depreciation. So, you are getting tax free passive income! Furthermore, you should be banking your passive allowed losses (pal, using f8582). So, when/if your expensive are low and rents are high (eg, in the future the rental market goes up), you can continue to offset those gains against your pal. More tax free income!

For those doing future tax planning, be mindful when you sell (assume a straight sale). There is depreciation recapture and the pal becomes available. It’s a bit much to go into here, but each comes into your 1040 through different forms.

Lastly, I believe one poster said had flips coming up and wanted use to offset. To be correct, a flip deal makes you an active dealer and not a passive investor. In which case the profit on your flip actual counts as ordinary income also subject to self employment

Please note I’m not a lawyer or cpa. You really need to talk to a competent professional. Good luck

@Chris Mcmahan

I see...  If you don't mind me asking you (yeah, kinda odd to answer your question with a question):  What is the period of time that you have to get your whole deposit in?  I thought it varies between States/localities and Sheriff sales are different from online auctions.  I tried once and it took a couple of weeks for a recommended Title company to do a search on a property I was interested in.  Basically, maybe you can find one that does it quickly, then between the time you win the auction and have to put in the funds to secure it, can you get the Title search done.  That much I've heard where the winning bidder doesn't get their earnest funds in time, so they go to the next bidder.  I know other investors who have said that they get a call sometimes as much as 2 weeks later from the auction house because the winning bidder backed out.  I'm a little fuzzy on what happens to the initial funds you give to the auction house (at a Sheriff's sale).

Sorry, I don't have an expert opinion, and I hope this helps.

@Chris Mcmahan

Well, is your market that good you have that many prospects you want to do a preliminary title search?  To be upfront, I'm not an expert on foreclosures and auctions.  I've thought and tried to do it, but both don't like the risk and haven't really found a good deal.  The title search is the last thing I would have done before going to an auction.  But, maybe its just my methodology of just finding a one or two good, solid deals.

@Mitch Gilman

You'll read everwhere that each LLC should have its own bank account. It needs it to show that it is a separate operating entity. Furthermore, it sounds like you have, or should have, multi-member LLC's, so its taxed like a partnership and so in my layman's opinion, you should have a partnership agreement. Honestly, you should have a partnership agreement of some sort documenting how you are going to operate (how to split profits, who has decision authority or how its done, etc.). Taking care of these legal/accounting issues (seek advice from a professional) will automatically answer your question on how to keep track of your arrangements.

With the example provided, whether you have separate LLC's or separate standalone partnerships will need some detailed investigation/analysis. Some of it is a matter of your risk tolerance, some is just a legal/accounting issue.

I hope that helps.  Good luck.