All Forum Posts by: Edward Ruan

@Basit Siddiqi If I buy a property and improve it with an ADU, then should it matter whether I also live there or not given that it's purchased under the LLC and not my personal name? Or is that problematic in terms of the rental/cashflow purposes?

The longterm plan is still to eventually move out and rent everything, so not sure if that makes a difference.

@Basit Siddiqi is that the case from a tax substantiation of substantial improvements viewpoint? I wasn't aware that would be a problem, if you could elaborate that on slightly it would be much appreciated!

@David Song By two person LLC I mean having myself as a 99.9% interest owner and someone else as a 0.01% owner, similar to what Philip wrote about in his insightful blog post. This established it as a partnership, otherwise if you do a single-person LLC you need to designate it be taxed as a corporation to qualify, otherwise it will be a disregarded entity. I'm still learning so I don't really know whether the partnership or corporation taxation would be better for my situation, but it's looking like the partnership.

@Philip Ma Thanks for sharing the blog post, it was really helpful! That's a great point about the cash flow, I didn't think about that potentially being an issue to stay within the 90% asset requirement. I was only planning to do the one OZ property to cash out for retirement and doing all other properties as basic long-term hold, so the single tier QOF would be ideal, but I would definitely need to find a way around that cash flow issue. Would you be willing to share more details about the cash withdrawals issues you ran into because of basis limitations on the deferred gain? I'm having a bit of trouble trying to Google up the resources to understand what happened there. Thanks!


 

Thanks for the responses everyone! I had mistakenly thought that I couldn't change the contract to a QOF since I had already entered escrow so I was trying to work around that, but it looks like I can still make that change so I will be working to establish a QOF asap!

From what I saw the recommendation is to set up an two-person LLC with another person having a minimal share for the QOF (taxed as a corporation), and then set up a QZOB underneath it in the same way and hold the property under that. Does that sound about right? Or does the extra QZOB layer seem unnecessary if it's just a single property that I'm nearly singularly deploying the cash into?

So even though I'm really the one investing in the QOZ property (whether personally or through my own QOF), there doesn't seem a clear and easy way to retroactively change the status of my ongoing purchase so it would qualify for QOZ benefits? I had seen the description about related party transactions, but was hoping via intent of the QOZ that there would be a way to qualify despite making this purchasing error.

Since the deal hasn't closed yet, do you think there's some way to create to quickly create the QOF and sub that in for the buyer then? Or would that change the purchasing contract so completely that it's not even an option? 

Thanks for your insight.

So I'm currently in the process of buying a house hack property that's in an Opportunity Zone (OZ) and am currently buying under my name for the lower interest rate. The intent was to transfer the property after purchase to an LLC, which I cleared with the loan company.

After diving deeper into OZs though, I realized that there are many more requirements to actually take advantage of them rather than just buying an OZ, such as the need to invest through an Qualified Opportunity Zone Fund(QOZF) and the need for substantial improvement. This means I'll be looking to set my LLC up as a two-person LLC and make sure the structure requirements meet all of the QOZF qualifications, such as being taxed as a corporation, etc.

Does anybody know if this will still work if it's technically originally purchased under my name however? Or have I already made an irreversible mistake in not doing the OZ property purchase under the QOZF?

Thanks to anybody who contributes their input, I know it's not a substitute for legal advice but specific info like this on OZs seems to be pretty hard to find. I'll probably be reaching out to a lawyer/taxperson who is knowledgeable in OZs also, I was just hoping the collective BP knowledge might help to give me some insight. Thanks everyone! 

Thanks for your insight @Darius Ogloza, would you say that the emphasis on appreciation is typically greater in the Bay Area than in other areas then? How're you typically estimating for that in your calculations?

@Brian Garlington I've looked into Oakland to some extent, but I'm a bit hesitant to invest there not only because of the crime while living there but because of the tenant friendly laws that prohibit criminal background checks, etc. I've also heard that it may be a more heavily impacted area during economic downturns, as may be happening soon? But clearly you're much more knowledgeable on the area than I am, and I would appreciate if you could share more about your thoughts on the neighborhood. 

So I've been looking at properties all around the Bay Area for a while, and it seems pretty difficult to hit the 1% rule anywhere I would want to actually live for a house hack. The closest option I'm seeing is maybe Richmond.

Is there a better location I might not be thinking of? Should I just lower my metrics so that other properties are also viable? As background, looking to buy and hold. Thanks in advance!

So I'm looking to currently buy a small multifamily property, but was advised but someone of questionable real estate knowledge that rather than trying to purchase a multifamily upfront, it might be better to buy a single family home with excess space in the lot and eventually add a studio or extend the building on my own. What is the truth in that, how hard/expensive is it to build something like that and how does it compare to simply buying the full package? 

For reference, I live in California, in the East Bay.

So I'm completely new to real estate investing and I'm up in the Bay Area. Do you all have any thoughts on what areas might be better or worse for real estate investment right now? Preferably around the east bay. Thanks for your help!