All Forum Posts by: Josh Edelson

Quote from @James Hamling:

@Josh Edelson I am confused, by your confusion.... 

Interestingly, that’s my photo of the burning bridge. I’m a photojournalist as well as an investor. www.edelsonphotography.com

GENERAL DISCUSSION:

California has fires. Florida and South Carolina have hurricanes. All these insurance companies are jacking up the rates 2x-6x or cancelling policies altogether in these and many other areas. If you have a house in any of these places and have a mortgage, you're required to have insurance. What happens if you can't get it? What happens when hundreds or thousands of homes burn or are flooded or destroyed and have no insurance? Are we seeing the beginning of the next big real estate crash - insurance pullouts leading to uninhabitable areas? If someone loses a $400k house to a fire with no insurance, they're just screwed now?

What will the long-term trends be because of this?

Is it still safe to invest?

Do we just need to factor in insurance costs of 2x-6x higher rates now?

Super frustrated, especially considering the already exorbitant rates, high costs of everything else and unaffordability all across the board. Are higher powers trying to keep people from being able to own homes?

- Josh

I had a fire at one of my houses. Insurance paid me $30k and it will cost $30k in repairs. Do I need to claim $30k in income AND $30k expenses? Can I JUST claim the expenses? Can I just not claim either since it's a wash?

Thanks!

- Josh

Quote from @Ryan Zweng:

my thought would be: 

1) Wyoming LLC's as holding companies for each property. ie. 123 Main St LLC; 234 2nd St LLC; etc etc

3) All LLC's held in a real estate investment trust; most likely this is a CA trust. Nevada if you can (look into NING Trusts)

4) Umbrella Policy to cover the trust

5) remember that the LLC fee is a tax write off; so who cares if you pay a fee. If you are cash flowing, its money you were going to give uncle Sam anyway.

On #5, it would be money I would have to pay taxes on, not money I would have to hand over to uncle sam. 

Also, according to the internet, it costs about $100 for each Wyoming LLC to setup ($1100 for 11 properties) + $50/year for each ($550/year) totaling $1550. After that, also according to the internet, setting up a California Trust would cost about $1k or so and then an additional 1-2% of asset value ($3m) per year ($30k-$60k/yr).

Am I missing something? Seems extraordinarily expensive.

Quote from @Leslie Pappas:

Quote from @Josh Edelson:

Thanks Megan and Kevin - 

Megan - Very interesting! Does the DST only provide risk mitigation/protection or are there tax benefits/savings also?

Hi Josh, please check out this blog for more on DSTs. Basically theyy are hands-off, institutional grade real estate investments, and they allow you the option to diversify. You can buy into institutional grade $50-125M projects with as little as $100,000. Professionals with decades of experience do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse.

https://www.biggerpockets.com/...

 Hi Leslie - This blog seems to be geared towards 1031 investments. I'm specifically inquiring about the best entity to organize in for both tax benefits and risk mitigation. All my properties are currently in my name. Thanks...

Thanks Megan and Kevin - 

Kevin - Everything I'm hearing (including from you) is indicating that an S-Corp is a bad idea at this point. Def holding on that front for now. 

Megan - Very interesting! Does the DST only provide risk mitigation/protection or are there tax benefits/savings also?

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So far, I'm leaning towards just upping my umbrella insurance policy to $5m and keeping everything in my name, but still open to all of these suggestions. Really appreciating all of your knowledge!

Thx John - 

I’ll give them a call Monday. Appreciate your time!

Quote from @Darius Ogloza:

I would definitely up my umbrella policy limits.  Keep in mind that several prominent umbrella carriers will not insure more than 10 properties (RLI is one that comes to mind).  Check with your carrier to make sure all 11 of your rentals are in fact covered under the terms of the policy.  

California has a relatively lenient piercing the corporate veil rule so using LLC's as a liability limiting device has limited value and, in any event, absolutely strict compliance with corporate formalities is necessary. The cost of compliance is pretty high in terms of time. Multi-person LLC's allow you to get around the FTB's tax withholding rules on sales, though, which can make the device worthwhile if you are a flipper.

 Thanks Darius - 

My current umbrella insurance holder is maxed out at $2m/occurrence. 

1. How much umbrella insurance do you recommend I have per occurrence? $3m? $4m? Does it matter if it's per occurrence?

2. Do you have recommendations for umbrella insurance carriers that will carry higher than $2m policies?

Quote from @Jake Wiley:

@Josh Edelson - California is a beast when it comes to LLCs and the $800 fee per entity.   

You don't see many folks using an S Corp with Real Estate, possibly with a management company where a salary would be paid, but not at the property level.    

In terms of mitigating costs, a well-strategized insurance policy and aggregation of several properties per LLC that have similar risk characteristics and equity is likely the best way strategy in California.

Other states can utilize a Series LLC structure, but it appears that California would still consider each series LLC another entity and thus charge the $800 for it.

Thanks Jake. Being that I live in California, is there a way to establish an LLC that is based out of state? Grouping properties would seem to only mildly mitigate risk and even that doesn’t seem worth it. Do I need to either move out of California or establish an S corp with a salary? 

thanks so much for your help on this complicated decision!

Hello - 

I have 11 properties in my own name and a $2m umbrella insurance policy. I’m looking to eventually get to 20-30 units and want to be prepared. 

Annoyingly, in the state of California, you have to pay $800/year on each LLC and have to file a separate tax return for each LLC bringing the annual cost to like $1200 or so. Kind of kills the cash flow if you have to do a separate LLC on each property.

What’s the best entity to have, and is there a way to set one up where the tax savings outweigh the costs?

- Josh