All Forum Posts by: Kevin Schick

Thanks Steven, that is what I was thinking just wanted to get a little confirmation.

Hypothetical scenerio: Lend someone $20K which they use to purchase/rehab/sell property. Deal is I get 20% of their profit. I am not listed on property deed. They clear $10K, so I now have $2,000 income.

If I have a single member LLC, where would this be reported in my 1040?

1. Interest income? Basically saying I made 10% interest on the loan of $20K.

2. Sched D, investment income? But I never bought anything and sold it?? Unless this is implied ownership of property the other person bought.

3. Not Sched E since it is not a rental property ...

And then followup question. I can do this within an S-Corp, or I can do this within the LLC. Any advantage one way or the other, since regardless this is short-term income, taxed at ordinary rate.

Thanks...

I have a couple S-Corp owned properties that I bought as short-term projects but then ended up keeping due to the current market. I also have a number of LLC owned properties that I want to keep for a long time.

I'm thinking it would be much easier just keeping it all in the LLC, but I want to understand tax implications as I am thinking this needs to be an arms-length transaction.

1. Determine fair market value on each property.
2. Sell property from S-Corp to LLC, accounting for depreciation, original price, etc.
3. Close out property in S-Corp.
4. Record property as brand new in LLC, start with FMV as purchase price of property, restart depreciation, etc.

Seems like a lot of hassle, but am thinking this is the way IRS would want it done.

Thoughts ....?

Dave,

It usually comes down to your intent with the properties. If are going to hold them for awhile, then an LLC is best. If you are going to flip them then an S-Corp. I don't remember all the tax reasons behind it, but do a search and you will find many many articles on it. With a single member LLC, the benefit is you can do your taxes pretty easily with TurboTax. It just treats the rentals as an investment within your normal personal tax return. With an S-Corp, you actually have to file and S-Corp tax return, which is way more complicated.

BMR

I went back and looked at my copy of the book, and the general idea was ...

* Buy median price home with 20% down, at 20% under value, so you are starting out with $40K equity.

Anderson to the northeast can be good if you buy smart, and have a strong property manager.

Terre Haute to the South even more so with the same strategy ...

BMR

Self managed or paid management?

I key aspect of this is taking a look at yourself and figuring out how well you work with people. Because owning investment property is very, very, very, very (get the point) relationship intensive. Just about every aspect of it involves interacting with and negotiating with someone. And quite often with the two parties having differing view points.

My skill set leans toward the analytical side of dealing with numbers, technology, etc. The greatest asset I have are property managers that I can relate to and trust. They have the skills and desire to deal with all the differing people out there. The good, bad, and the ugly ...

BMR

Home state of California or out-of-state purchase?

Target property is a duplex in decent condition in a generally decent neighborhood.

San Diego: Price of ~$350K, Rents for ~$2500, down payment required of $70K. Even at 80% LTV does not come close to cash flow. And appreciation is questionable, especially now.

Terre Haute, Indiana: Price of ~$40K, Rents for ~$1000, down payment required $8K. Cash flows, and if purchased right, long term appreciation possible.

I can do this 5-10 times over in Indiana, or put all the eggs in one basket in San Diego. This is why East/West coast investors are coming to the midwest.

BMR

One of those crazy California investors here ...

It works, but just like with anything else, it is not a get rich quick process. And as mentioned over and over, the key issue for sucessful out-of-state ownership is a Grade A+ property manager.

Of course after a month of flooding in the midwest where my properties are, it does make you really think about it ... I may be paying for it, but at least i'm not the one standing in the mud shoveling it ...

BMR

Dorothy, my take on your attorney was based on not being able to get a straight answer out of him, as that is what he is there for.

But it actually sounds like some positive things have been taking place, as your sister is out!! Also with your share of the possible proceeds, I agree that this is too much to walk away from.

BMR