All Forum Posts by: Edward Barrett

As long as you're willing to make sure you have good, quality properties, Section 8 can be a good way to go! The main issues a lot of investors/PM's run into is the inspection period since Section 8 inspections are no walk in the park. But you could always request an inspection checklist from your Section 8 and start getting those things taken care of ahead of time. 

Overall, Section 8 is a good way to get some pretty reliable income to get the property cash-flowing, provide additional experience, as well as with the required annual inspections, make sure your property stays in a good condition! 

Section-8 rentals are great because of that dependable income. Especially in Dayton, where you'll get that high cash-flow. Just make sure you do a diligent job when vetting tenants. I would connect with a local PM who has connections with the HUD programs so you can get the most accurate information and guidance in your market.

We invest in Greene County, Ohio and currently have 24 low income units.  Seven of those units are through Section 8 (Greene Metropolitan Housing).  Greene Met is very reasonable to work with for the most part.  Montgomery Metropolitan Housing has a reputation of being difficult to work with and are slow to pay at times r so I have heard.

One thing to keep in mind is that even with section 8, you still get to set your criteria that tenants need to qualify for your unit.  Critical to that is verifiable income.  In addition to a voucher, we require that the tenant be able to show income at least 1.5 time the monthly rent, as opposed to our regular tenants who must show 3.5 time monthly rent.

@Edward Barrett

If you sell multiple anything in a given year, cars, properties, boats etc the IRS views that as 'dealing' inventory.

They may assign the activity 'dealer' status and tax it at a higher rate.

That's likely why the CPA on this thread, Sean has listed 'S-Corp' as a popular option amongst flippers. In the event that the activity is determined to be dealing inventory by the IRS, the total taxes on the profit are high... I think upwards of 40% depending on variables that a CPA can walk you through.

If you were doing passive investing and just starting out, in most cases an LLC likely isn't needed. Good insurance gets you what you need.

But for what you're talking about.... there is some risk with flips and an LLC isn't a bad idea.. more importantly... if you're flipping a lot there are tax implications with that. This is where an LLC that's taxed as an S-Corp makes sense.

But.... don't get carried away. If you only end up flipping one property in your first year just use a standard LLC. Make sure to get insurance too.

For the registered agent don't use yourself. Pay a service. They're cheap.

Hope this helps. Good luck!

I use a registered agent so my name/address is nowhere to be found on the documents.

Question: what are you hiding from? Remaining anonymous doesn't help much because an attorney will know how to track you down. I only do it because I'm a REALTOR and property manager in a city of 10,000 and I don't want locals to know what I own.

Just remember an LLC (or multiple LLCs) will increase costs, complexity, and workload to your life. If you are concerned about lawsuits, an umbrella policy may be a better choice.

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.