All Forum Posts by: John-David Herlihy

So I have been thinking about the new tax law and its implications on our fix & flip predominated real estate investment business. Much of the existing information from the pundits will tell you an LLC (taxed either as a disregarded entity or S corp) was the ONLY way to go in real estate. However, with the new tax law it appears to me a C corp may be better suited. We can be taxed on our income at our personal income tax rate and leave any money we want to remain in the company to grow our capital which will only be taxed at the now lower corporate rate, after all business expenses, salaries, benefits, etc. are deducted from the business income.

Please discuss!

@Chris Seveney

Thank you for the information. Great stuff!

Considering the option of selling a condo we are renovating with a seller financed second to an interested buyer. Having never done a seller financed deal, where do I start? Who can write the note - can my real-estate lawyer draft it up? Also, will using an owner financed second have any effect on the ability to secure a first?

I have no experience in this, so speaking from what I read, etc. I thought you could use SDIRAs for private money lending? How would routinely lending to a friend not be compliant? Is it the reciprocity that you think is an issue? I guess I could see that, but not really sure why it would be disallowed.

@Jill Green

As others have written, it sounds like ROBS is the best fit for you. I have started this way myself, and so far so good! One thing to consider are the rules around partnering. I am not an expert in the area, but it is my understanding that any partnership the ROBS C corp is involved in the C Corp needs to be a majority partner. Therefore, if you are partnering with your friend, it may effect how the partnership is structured. There may be more creative ways to set the company and partnerships up, but I would be sure to clarify with the experts and lawyers when you conduct your due diligence. I personally love the ROBS because it has enabled me to start and fund my own company, which promises to bring me the financial and lifestyle independence I desire.

Another scenario to consider, if you are not necessarily tied to working directly with your friend, and you both have retirement funds that could be invested, is to each set up SDIRAs and loan money to each other to conduct for each of you to conduct your own flips. The catch here is you couldn’t work together on the flips, as it is my understanding and stated above, you need to maintain an arms length from your SDIRA funds. In this scenario you would pay the loan back to your friend with interest like any private money loan. The profit from the interest and points would go into their SDIRA; however, you would be able to keep 100% of the profit from the deal. The opposite would be tru for your friend. Therefore, you make a profit and also grow your retirement funds

Hi Ida,

I am not an expert in this area, however, I would continue to look into Solo401K, or a ROBS if you think you will include additional employees. It could be a viable option for you. I don’t believe the rules and regulations stipulate that you can’t have a full-time job, just rather that you have to work full-time in the job where you have your Solo401K. Rather, you need to work at least ~2,000 hours in employment where you have your Solo401K, which in this case I believe would be on your real estate investing. If you realistically could work ~80 hour weeks, or do 2 jobs simultaneously, you can theoretically fulfill the requirements for the Solo401K.

J.D. 

In my experience, having 2 years of earning history is pretty standard requirement. Switching from W2 to contract work can trigger this, however, I have had this issue crop up when switching between a standard income and a income based on higher commissions. I needed a history of the commission payouts in order to qualify for my primary residence mortgage. Once that 2 year history was obtained I experienced no issues using a commission based salary for approval.

My recommendation is to seek out smaller community banks and explain your situation. Be prepared with your previous earning statements and your current contract through year XXXX with your full earning potential. Don’t forget to factor in for health benefits, self-employment tax, etc. the bank will definitely adjust your contract salary to make apples to apples comparison. If you can show that you in fact have a X year history of completing the same job with a steady increase, or at least level of earning, you could have a shot with a smaller bank/portfolio lender. It could also be a help to have a target property in mind as an example. You likely will not be able to include the property earning history without experience as a landlord/property manager, but you may be able to use it as icing on the cake. 

can’t make this date, but look forward to future events.

If I understand correctly you can get an appraisal before construction for the final price after. This appraised price ideally will be the same as the ARV. So according to @Brian Garrett, you can finance at 75% of ARV. So if you buy at 70% or ARV minus repairs, the financedd amount will be enough to cover repairs and an additional 5% additional. As I see it, the issue for BRRRR is that you still have 25% cash in the deal.

Thank you for sharing the Fannie Mae guidelines. Interested to learn you can take advantage of the delayed financing exception even with an LLC!