All Forum Posts by: David Lutz

@Austin Farsai   Hey Austin.  -- this is just the opinion of someone who's done a lot of research and works in a related field.

LLC upsides - the can limit your legal liability if you're sued

LLC Downsides - you have to keep all of the money total segregated, they increase your operating costs and complexity, they increase your costs to borrow, they can be legally challenged and pierced - particularly if you make any miss steps.

Umbrella Policy - it's cheap to get a large commercial umbrella policy, and it keeps your operating model simple (with everything under your name). I'm looking into whether trusts or an LLC makes more sense as I continue to grow my portfolio, but it didn't seem worth the complexity with less than 10 properties.

-- I don't have an opinion on the tax aspect of things. I've been unsuccessfully looking into ways to reduce my active income with a passive business, but it looks like you're on the way to becoming a RE Professional!  (best of luck with that).

-- If any attorneys think my comments on LLC are off base let me know. I talked to a lot of folks at this point and haven't heard a compelling argument for going with an LLC over a large umbrella before you've hit the freddie/fannie ceiling on 10 mortgages.

Best,

David

@Michael Plaks  (and @David M.) I didn't think that wasn't diplomatic :)        I'm aware of some of the challenges.

What makes me crazy is that I am legitimately running a small business and making expenditures. It seems nuts that all of it is considered passive just because it isn't my main occupation. Conversely I could start selling things for Mary Kay or Amway and claim all kinds of things as business expenses to lower my AGI.

I'm not trying to cheat the system, just to be tax efficient. You'd think there was some kind of small business you could set up that would not result in double taxing the rental income and be considered active, even just to get normal business deductions (that didn't require me to leave my wife.... since that would probably increase my tax liability, and I like her).  I seems like that might be a lost cause. If anyone does have a legitimate idea for how to structure a legal business that meets this goal please give a shout.

Anyway, thanks for your prior response - I know people ask similar things but I wasn't able to find a specific post on setting up a general management company as opposed to an umbrella LLC or PM.

@David M. So currently every year I accrue "losses" on the rentals, which carry forward to protect future earnings (whenever the rents get large enough that they aren't defrayed by operating costs and depreciation), but that is only protecting future REI income and it's being devalued every year by inflation. I'd be in a much better place if I could apply an paper REI losses against my earnings from my day job. That would lower my current tax bracket and benefit me now. I would also like to claim a home office and business expenses. All of that requires setting up a small business. Looking for advice on the right way to set that up.

Afternoon all :)    Appreciate everyone's help in advance.  Would like some advice on how to minimize my tax liability by setting up a company.

I own a primary home in CA, and out of state SFRs. Everything is under my name. I decided to carry an umbrella instead of leveraging an LLC (they can be pierced anyway so don't negate the need for an umbrella, they increase operating costs, and I was able to get lower interest rates in my own name). Regardless, I'm not a RE professional in the eyes of the IRS (despite the crazy amount of time I spend on it) and so my out of state REI depreciation doesn't do anything to protect my CA W2 income.

I would like to set up a company to manage the property management companies I use, the one property I manage directly, and provide me incredibly insightful advice..... and shield my W2 income. Is that the best approach for creating a tax shield? Do I need to run my rents through the company? Should I set up a Sol Proprietorship vs an LLC for this? What else am I missing?

Thanks!

David

@Alexandra Garcia  Hey Alexandra,  I have two rentals in Augusta and am pretty familiar with the market. Feel free to ping me if you still have any questions.

Best,

David

Feel free to private message me with any additional questions. I have two rentals in Augusta. Rental market is pretty strong, there are a lot of good economic drivers. You need to be careful about where you're buying and what your expectations are. Anywhere near Evens has gotten very expensive, so cash flow will be tougher. South and South East is less expensive, but you're not going to get the appreciation and my impression is it's not as good a tenant base. I think the areas in Grovetown through Martinez are a good mix. Also hearing good things about Harlem. Your biggest issue is that $50k may not let you get a nice house and have any reserves. I can recommend property management, realtor, vendors, if you need them. Have a proforma for calculating your returns I can share as well.

I'm in California and have property in Greensboro. If you PM me in happy to connect you with some of the folks in using to manage remotely. Agree it's a great place to be, was just out there and I'd be happy to live in some of the neighborhoods.

@Evans Wright I don't think those are safe strategies for someone trying to build up their first rental properties from out of state.

@Andres Ruiz  forgot to mention it. Regarding building up a "team", I've had good luck asking the people I've been having conversations with for recommendations. A realtor/Investor I was talking to recommended a plumber, who recommended a painter and an AC guy, etc. I would make sure that your Property Manager actually has employees in the city your in. Some of the larger PM companies in the area use vendors for all the onsite activities, particularly if you're property isn't at their main hub. Your property inspector is another good person to ask.

I'm in socal and have a rental in Greensboro. Feel free to pm me if you want to discuss details. I agree that the triad is a good place to buy for a bunch of reasons, but you need to do your homework. Prices in Greensboro have gone up a lot, and there are areas in highpoint, Salem and Greensboro that are more affordable but you don't want to own.  In general there's slow positive population growth and there are a few things supporting the local economy.

The house was built in 2020, but I didn't acquire it until this year. Unfortunately I missed the big appreciate lift - I think the value is going to be pretty flat for a while. But the numbers worked based on pretty mild appreciate over the next few years so I'm not worried about it. 

@Michael S.   the zip code is 35613 (Athens) in Limestone county, but not to far out from Madison. The main advantage of being out there is the mill tax rate is way lower than in Madison and the rents are only marginally lower. Plus a lot of development going on in the area.