All Forum Posts by: Bob Norton

@Travis Bailey If you did not place your rental in service during 2020, then you cannot deduct any of your rehab expenses during 2020.  Those costs will be capitalized into the cost of the property and depreciated when you place the rental in service in 2021.

@Blaine Chapman Unfortunately, you will have to "sell" the property to your new entity at its fair market value and pay capital gains taxes on the sale, if you want to get the property out of an S-Corp.  

You could put the property in an LLC that is owned by the S-Corp, if you want to separate the property out for liability reasons. This would be considered a contribution by the S-Corp to a subsidiary and not taxable.

You will have to weigh the benefits of future appreciation of the property outside of the S-Corp with the cost of paying capital gains taxes now.  With proper planning, you may be able to mitigate those gains by offsetting with other losses.

@Mike Rios The bank will require insurance.  Talk to an insurance agent about what coverage you will need for living in the house and renting part of it.  Most likely homeowners insurance with a rider for tenants will probably do.  

I usually recommend making sure that you get replacement coverage on your insurance.  It will cost more.  However, if the house burns down the insurance company will replace it.  Otherwise, you will be overpaying for cheap insurance just to keep your bank happy.

@Ben Morrow You can get an EIN as a sole proprietor.  That way you don't have to use your SSN.

@Taarik Rahaman You need to research the numbers on each of your options.  What are the local comps for land, houses and rents?  You'll need these to start your analysis.  Since the property is 3 hours away from you, you will have to manage a build and rentals from a distance.  So, you will need a good contractor and a good property manager.

I'm all for building and renting - if the numbers work.  Cash flow is king.  However, if you cannot build a rental that provides good cash flow now, then when the crash comes, you also will not be able to sell the property for what you have invested in it.  

Generally, if you find that building and renting provides you with good cash flow then it will also provide cash flow during the crash.

@Alea Burke You have to be careful if you don't want your flipping venture to be considered a developer.  It sounds like that is the path that you are on.  As a developer, your properties are considered inventory and you cannot have long-term capital gains, or defer taxes with installment sales or 1031 exchanges.  You will pay ordinary income taxes on the profits and also self-employment taxes. As @Joe Homs suggested you could consider setting up this venture in an S-Corp so that you can manage your self-employment taxes.

@Mark M. Generally, you should form an LLC holding rental property in the state where the property is located. This LLC can then be owned by another LLC setup outside of that state, if you wish.

You have to have a registered agent in the state in which you register your LLC. This person or company has to have a physical address in the state. You may be able to use your registered agent's address as your company's mailing address. Discuss this with your registered agent. You can have a mailing address for your company outside the state. That's what I do.

Since you are a resident of CA, you will have the downside of having to pay CA $800 per year for each LLC you manage from CA, whether or not it has an investment in CA.

As to a series LLC, these are not legally recognized in every state. TX allows them. However, I would discuss them with an attorney before setting up one to find out if the sub LLCs have the liability protection afforded separate LLCs. I have not found anything on this myself and I am not an attorney. So, I'm personally leery of using series LLCs for real estate investing.

@Farheen Naveed The repeat aspect of BRRRR comes from buying a rental with cash, then refinancing it once you get a tenant, and using the cash out of the refi to purchase another one.

Since you have a house free and clear, your repeat would be in using the cash out refi of your primary residence turned rental to purchase another rental property.

You could consider refinancing your first home, setting the cash aside for future investment, then purchasing a new home with new financing. Then, move into the new home, rent out the former home, and then use the cash to buy another rental to get your BRRRR strategy started.

As to your question about your rental being a good deal, that depends upon the condition of the property.  Since you have been living there, I assume that you have been keeping up the maintenance on the property.  If you are generating a couple hundred dollars in cash flow each month, then the tenant is paying off your mortgage for you.  Also, you should set aside these funds as a reserve until you have a reasonable amount set aside for vacancy, maintenance, and capex.

@Account Closed  You are correct.

@Charity Johns You should be able to use the LREC contract for your subject-to.  Just add an addendum to the contract if you want to change any of the standard language in the contract.  That's what I do.