All Forum Posts by: Blake Smith

 Thanks all for the info.  The statement above is a great example and clarifies the situation perfectly.  I got sent down this rabbit hole, interestingly, by a BP blog post:

http://biggerpockets.com/blog/...

Wherein the author stated one of the advantages of a tax strategist was to plan for "how to treat cash flow as return of capital rather than distributions of profit"

It seems I ran in the wrong direction with that.  Anyone have insight as to what this statement above means?  I took it as "make a loan from myself to an llc to buy the property, and then get repaid out of the basis" (not sure if that works/saves taxes/is acceptable, but that was the direction I was looking at researching).

Thanks!

My wife and I are in the process of closing on a third property we use for short-term rentals.  We're in a vacation area, typical high prices / high nightly rates scenario.  Our original two rentals are filed on a schedule E, we are not "real estate professionals" (yet...).

It occurs to me that we're paying for our down payment with after-tax money, and then, as the property generates income and we recoup this investment, we're being taxed again on the profit.  This feels like a double taxation situation, and I'm curious if there are any strategies to avoid it.  The down payment is about $160k total, so that's not an insignificant amount of double taxation.

We generally do not structure our rentals as part of an LLC, but would founding an llc and funding it with the amount of the down payment avoid some of this? It would give us a basis of $160k in the LLC, then...?

I also have access to a relatively substantial amount of HELOC money, we keep it as a safety net, but would it be wiser to draw that down and use that for the down payment? The main issue there is we'll actually be paying more in total interest (deductible, but still net lower profit), and it'll blow up our debt-to-income ratio past the point where we could finance later deals.

We only have a few days until close, which complicates things.  I thought I'd reach out to this community and see if anyone had any suggestions.  Any ideas or even reading suggestions (couldn't come up with anything good through google) would be appreciated.

Thank you both for your responses. The broker I got the liability quote from also recommended getting e&o insurance, then she couldn't clarify the difference, which is why I ended up posting here. Guess I can write off that firm. 

Any insight as to "make sure this is included" items? Things that might be overlooked otherwise? 

First, thanks to all the posters on here for all the knowledge on this forum.  I've been browsing for a few years, it's a great resource.  Hopefully I can add something with this discussion, as I did not see much that was related in a search. 

I've recently started a short-term rental management company.  We've grown quickly and now manage 25 properties, mainly for short-term (airbnb/vrbo/etc) stays but occasionally stretching into 1-3 month rentals.  We market and list the properties, take bookings, and handle all rental aspects.  We also provide some maintenance services for our contracted homeowners, both lining up contractors and occasionally fixing things ourselves.  

We have professional liability insurance, but someone I was speaking to recently recommended carrying E&O (errors and omissions) insurance. I've spoken with two brokers, but unfortunately feel like I'm getting advice from the shark about what's for dinner. Hoping that a non-interested party that's familiar with this landscape can offer some advice. Carry one? Carry both? Which one is better if only carrying one? It looks like about $1200 for professional liability and $1800 for E&O.

My specific concerns are something like a trip & fall in the winter, the renter claims it was the property owner's fault due to improper maintenance and also includes our company in the suit.  Or some sort of deferred maintenance that causes an issue, and again as the management agent we are named in the suit. Or a contractor we hired to fix something at a house we manage causes an issue, and the homeowner sues us for damages/reparations/liability.  Or a homeowner somehow claims we were negligent in our duties and sues us.

These are the specific instances I can think of needing some sort of insurance, I'm sure there are others I haven't considered.  We're relatively new at this and don't want to learn by making the mistake - hopefully we can stay in front of it.  I appreciate any help in delineating the difference between the two types of insurance, recommendations for companies, and considerations on other situations to make sure we are covered.