All Forum Posts by: Davit Gharibyan

Quote from @Michael Smythe:

@Davit Gharibyan whoever advised you to setup an PM LLC, didn't convey the right reason.

It's really NOT for additional protection.

What it does is make your monthly accounting easier!

You can have the PM LLC collect all rents & other income and pay all expenses from an Operating bank account and hold all security deposits in a separate account that meets your state's requirements. The remaining funds can be disbursed to your personal bank account.

Otherwise, you must have separate bank accounts (operating & security deposit) for each LLC that owns a property.

That's exactly why I set up an LLC. However, according to tax pros it's not necessary...

@David M. David, my logic is aligned with yours, but according to the tax guys I'm dealing with it's flawed. 

I better consult with more pros. 

Quote from @Jay Thomas:

The guidance from your tax expert appears to be somewhat accurate, however there are certain details to take into account. There is no separate taxation for the LLC if you are the only owner of the single-member LLC that owns the real estate; instead, the LLC's gains or losses "pass through" to your personal tax return. A distinct LLC for management establishes a record-keeping division between property ownership and management activities, which may be useful for bookkeeping and upcoming audits, even though income still flows through to you. For better limited liability protection, incorporation may be more tempting, particularly if management activities expose you to greater risks, such as litigation involving employees. The important thing to remember is that LLCs can employ staff members and pay payroll taxes in accordance with that.

Hi Jay, I am using a separate LLC for record keeping and management activities. Additionally, the management software provider (Yardi), required to have a management entity and the way the software set up, it's having all rents/expenses going through one account which is tied to the management and not each property's account...
If I run each property separately, it'll create a mess logistically. 
I may take on tax person's advice and convert LLC to incorporation, since I'm thinking to expand the management side of business and manage properties for others. 

Stuart, thanks for the info. 

Let's say I have 10 properties, and they're each in their own LLC, would it not make sense to operate them from one management company, instead of running 10 different LLC's? In that case how would one handle it? Would it be better to create an incorporation for management?

I appreciate it.

Hi, 

I have an LLC that holds the real estate and the other LLC is handling the management (getting rents, sending payments, etc.).

As I was preparing my taxes, my tax professional advised me that management LLC is redundancy and it doesn't make sense to have, it's like moving my money from one pocket to the other. The reason is since I am the owner of the LLC, it's income is reported in my personal taxes.

I was advised that if I want to separate the management from the property, the managing entity should be an incorporated. I was told if I want to have employees I need to operate an incorporation. 

Do LLC's not have employees?

This issue is coming every year, and a few tax pros I have talked to are not doing a good job explaining it.

Can someone shed some light on this?

Hello,

I have a property that is owned by LLC "A" and is managed by LLC "B". I own both entities. I have some tenants and applicants with government/non-profit assistance.

During application and once individuals become tenants, these orgs ask for W-9. 

Rents and rental application fees go to LLC "B".

When providing a W-9, should I provide it for LLC "A" or LLC "B"?

I realize that this is a CPA question, any non-professional suggestions and opinions are appreciated.

@Charles Carillo hi Charles, what you describe is my exact set up. However I have been charging the property a management fee. I think that's the issue/ My CPA said the management fee is is charged at higher rate. 

If I don't charge the property a fee, even though the management llc manages, wouldn't that be an issue? 

Currently I have a holding llc and a management llc. I own both. I was doing my taxes and my and my accountant suggested not to use a separate llc for my pm company. He explained that it is unnecessary and generates extra taxes since the management fee is not a rental income and is taxed more. He suggested to just use the holding company llc for a particular rental. He told that the only time I would want to use a separate llc is if I am going to manage other's properties. And if I have employees, I should have charge their pay as an expense on a particular property and not on management llc.

He makes sense, however time after time I see companies that do self-managing have a separate llc for management. Can anyone answer why not just do the way my accountant suggested. 

There's lots of talking about reduced lending in commercial real estate space and $1.5 trillion CRE debt looming. With this in mind, what are your thoughts on selling a property?

One of the risks is, in my opinion, if the sale involves 1031 exchange, a possibility of not obtaining a loan resulting in capital gains tax. 

What are your thoughts about current environment?

Would you sell now? If so, why? If not, why?

Quote from @Bob Stevens:

Quote from @Davit Gharibyan:

Quote from @Bob Stevens:

Quote from @Davit Gharibyan:

Hi,

An applicant put a Salvation Army shelter as his address. 

I have called and verified that he lives there. According to them he had to take care of some financial responsibilities while there, now he is ready to transition to regular housing. He is not paying them rent, he just has a room/are to live in.

Now, on my rental application I specifically state that I require references from landlords and/or management companies. No relatives, friends etc. references are accepted. There are some exceptions, like person just moving to the USA, young adults, prior homeowners. In these scenarios the rental history requirement may vary. 

How would you go about in his scenario?

I appreciate the responses.

Govt program? If so this is very common. Do they meet the income requirement? ALL my govt tenants have to have income of at least 1.5 of rent, even though govt pays their rent SCREEEN properly. I have worked with 100s and 100s and 100s of gvt tenants. 

good luck  

 Thanks for the reply.

He is not on a government program. That's the concern. Per application criteria I need a 3 years verifiable rental history which shelter is not... 

 Ok what about income and credit history? If all borderline and you do not have anyone else just get 1st last SD and another payment  

 Income and credit are good.