All Forum Posts by: Jeff V.

@Moe Salem 

The answer to the question in the headline is simple.  It's a $75 filing fee with the secretary of state and you can file online on the secretary of state website: 

http://www.sos.la.gov/

Now for the questions not asked but implied... Do you need an LLC for your wholesaling business?

The purpose for an LLC is to protect your personal assets from any liabilities initiated from normal operation of your business. IMHO $75 is a cheap insurance to shield your home and savings from anything that may go wrong within your business.

Just my 2 cents on the subject. If your holding real estate there will be more risk for lawsuits than there will be in wholesaling. However, Wholesaling still involves contracts and money changing hands and one of the main reasons that we use contracts is that people make agreements and then change their mind later and then a lawsuit can occur. Therefore a "Wholesaling" business is not free from liability even though you will not be holding on to the property. This would be a good discussion for your Lawyer on whether you should form an LLC or not.

From a tax perspective the LLC is a flow through entity and files no tax return on it's own so it will not help or hurt you on the tax side.

I'm neither a CPA nor an Attorney and both should probably be consulted on this matter.  This is just my opinion based on the information that I have researched in setting up my business.

Thanks,

Jeff V

Does anyone have any experience with the SBA CAPLines program?

Link: https://www.sba.gov/content/caplines

I ran across this and there is a special program which looks like it's dedicated to flippers.  Here are the details I gather from the site:

• The Builders Line Program provides financing for small contractors or developers to construct or rehabilitate residential or commercial property that will be sold to a third party that is not known at the time construction/rehabilitation begins. Loan maturity is generally three years, but can be extended up to five years, if necessary, to facilitate the sale of the property. Proceeds are used solely for direct expenses of acquisition, immediate construction and/or significant rehabilitation of the residential or commercial structures. Land purchase can be included if it does not exceed 20 percent of the loan proceeds. Up to five percent of the proceeds can be used for community improvements that benefit the overall property.

Has anyone been through the process of obtaining a Line of Credit using this program?  

I'm currently going through my first renovation and noticing there will be lots of cash out then alot of cash in over and over...  perfectly suited for a Line of credit situation where I'll only be paying interest on the amount currently borrowed.

Any advice/experience on this topic would be greatly appreciated.

Thanks,

Jeff V

@Robert Leonard @Account Closed 

 If there were a meetup in Lake Charles, I'd be interested in attending from time to time.

Jeff

@Robert Leonard,

I'm curious to know if you guys video these meetings?  I'm not aware of any meetup groups closer than a 3 - 5 hour one way trip for me.  But would be interested in watching any videos of the meetups in Louisiana.

Jeff

@Alex Hamilton 

I second what @Wayne Brooks said about the Portfolio Lender.  Look for small local banks in the area and pay their residential lenders a visit.  Feb 1st is a bit of a time crunch so I'd talk to your current lender in the meantime for a 30 day extension while you research your options.

Jeff

I'm no expert but recently read up on this and you send them 1099-MISC.

See notes below:

1099's: The Ins & Outs

Processing 1099’s can be confusing and frustrating.  Admin Books enjoys passing on important information that will help you find your way through the requirements of 1099’s.  Here are some facts you need to know!

General Rules:  You must file Form 1099 on any of the following:  
• Any independent contractor or partnership whose services you paid $600 or more for in 2014. 
• Any corporation whose legal or medical services you paid $600 or more for in 2014.
• Anyone you paid $600 or more in rent - whether for space or for equipment - unless they're a corporation or real estate agent in 2014.
• Anyone you paid $600 or more in interest in the course of your trade or business in 2014.
• Anyone you paid more than $10 in royalties in 2014. 
• Any attorney you paid $600 or more in the course of your trade or business in 2014.

Note: The 1099 is due January 31st and the required 1096 is due February 28th. Be sure to collect a W-9 at the time of payment so you know if the business is a sole proprietorship, LLC or Corporation. If it is a corporation, then no 1099 is required.

Addressing the 1099:  If the person you paid uses their Social Security number as a tax ID number (which I don’t recommend), then the person’s full name must be on the first line of the 1099.  If you list the business name by mistake, then you will receive a letter from the IRS saying that the name and ID do not match.  Then the IRS may require you to withhold money from future checks. 

Reimbursed Expenses: If you pay a subcontractor for expenses incurred, do NOT include that amount in box 7.  If you receive a 1099 from someone with reimbursed expenses, like travel or postage, don’t worry.  Show the full amount of income on your tax return and then show the full amount of expenses and it will net out the same.  If you lower the 1099 amount on your return to “correct” it, that will trigger an audit. 

Strict Classification Rules: If you hire a subcontractor, be sure that thestate won’t deem the person as an employee.  A few indications to strengthen your case are:

• You have a contract agreement between parties.
• The subcontractor invoices the business.
• The subcontractor has a business license.  The business does not tell the contractor WHEN to perform the work or HOW to do their job.  The subcontractor uses their own equipment and materials.
• The subcontractor is available to be hired by other companies.  Governor Brown signed a bill that starting 01-01-12 if any employer is found to willfully misclassify a worker as an independent contractor, they penalties will increase to $10,000-$25,000 per violation. 

1099-K Rules:  There has been a lot of confusion regarding the new 1099-K rules.  All merchant companies that process credit card payments are required to issue 1099-K’s to the seller.  It can be for 1 transaction for any amount.  The main reason for this new law is to capture payments going through eBay, PayPal and Amazon.  However, now the common business owner will get a 1099-K as well if their clients/customers pay them with a credit card.  Here is the confusing part: businesses will provide a 1099-MISC for payments made with a check/cash and the merchant company will process 1099-K’s made with a credit card.  Let’s give some examples to clarify:

Example 1 – You pay a subcontractor $700 for services.  If you paid them with a check, you issue them a 1099-MISC. 

Example 2 – You pay a subcontractor $700 with a check and $800 with a credit card.  You will issue them a 1099-MISC for $700 and the subcontractor’s merchant company will give them a 1099-K for the $800. 

Example 3 – You pay a subcontractor $300 with a check and $800 with a credit card.  We recommend that you still issue a 1099-MISC for $300 because the combine total payment to the subcontractor (check and credit card) was over the $600 amount – this is the safe answer. 

 Oddball Clarifications:  If the contractor is NOT a US citizen and lives in another country, have them fill out a W-8 and keep this on file.  Prepare a 1099, but there will be no tax ID number on the form.  If questioned by the IRS, show them a copy of the W-8. 

If the 1099 comes back to you undelivered, keep a copy for your records to show the attempt. 

If the contractor has already performed their services and you cannot get the contractor to fill out the W-9, keep a log of the attempts to contact them by phone, email or letter.  The IRS has penalties for not sending the 1099 and if you show intent, hopefully there will be grace in the penalties. 

If you find you made a mistake on the amount or tax ID number, you can always correct the form and re-send it by checking the “Corrected” box. 

Corporations do NOT get 1099's, but some people are confused if they should send a 1099 to LLC's. Send a 1099 to single-member LLC's and multi-member LLC's (partnerships.)

1099’s are required to ALL attorneys regardless of their entity!

Thanks 

Jeff

If I were approaching this deal I would take note of what the seller is telling you that is your gold.  

She wants to get rid of the expenses of maintaining the property, taxes and providing a roof over her sons head.  She is on a fixed income so that is her WHY.  She does not have spare income and will need to return to the workforce to get it.  Those are some pretty powerful motivators. 

I'd say your strongest offer is one that will both pay off the existing $18k in debt or get rid of her obligation to pay it by doing a "subject to" or Lease Option.  The other factor is she is really motivated by "INCOME".  So if you offered to pay her a note with interest for the remainder of your purchase price that would really motivate her to accept your offer.

So the offer would depend on your ability to pay the 18k in my opinion. 

Option 1:

Lets say you do have the ability to pay the 18k and run with that scenario based on the above mentioned assumptions.  

Value = 135k

Lets say you negotiate a 40% discount for a quick sale.

Purchase price = $81,000

Down Payment = $18,000

Seller Financing = $63,000

Term - 30 yr

Rate = 4% (Negotiable)

Payments to Seller = $300.77 / Month or $3609.24 / Yr

That would be a decent increase to a fixed income.  She would collect $108,277.20 over the life of the note.

Option 2:

Lets say you do not have the 18k on hand to do the deal.  

Value = 135k

Negotiate 40% discount. Purchase with a "subject to" strategy.

Purchase price $81,000

Down Payment = $0

Seller Financing $81,000

Term - 30 yr

Rate - 4%

Payments to seller = $386.70 / Month or $4640.40 / Yr

You pay the note on the 18k Mortgage out of your cashflow.  Seller would be in a second position with her note.  You will also run the risk of the "due on sale" clause being triggered.

She would collect $139,212 over the life of the note. NOTE this is more than the $135k the property is worth but she would be collecting every penny and more over the term of the note.

With that being said those are 2 valid options and they can be played with or tweaked to provide the perfect deal.

For Example:

If she comes back and says the 18k has to be paid off and is not willing to risk her credit being damaged and trust you to pay the mortgage on time go with Option 1.

If she says she wants to increase her income by $500 per month and that $300 and change will not cut it.  Adjust your financing a bit like so.  We'll use Option 2 math its a big easier to explain.

Use a financial calculator to solve for the missing variable.  Adjust either Term or Interest.  We know:

Value - $81k

Term - ??

PMT - $500

Rate - 4%

Calculated Term now = 19.44 Years

We round this to 18 Years for good even time frame and recalculate for payment. 

PMT = $526.66 

More than what she is asking...  It's good to over deliver, it makes your offer that much stronger.

New Terms:

Sales Price $81,000

Term 18 years

PMT  $526.66 / Month or $6319.92 / Yr.

She would collect $113,758.56 over the life of the loan.

There are all sorts of ways you can cut this deal.  You have to keep in mind that if your going to be holding the property then obviously whatever you can rent it for will dictate how much you can afford to pay her monthly out of that rent just as if it was a traditional mortgage.

Cheers,

Hopefully this will give you some creative ideas to try.  I really thing the main motivating factor that will get you the deal is how much "INCOME" you can provide for her.

Another option may be Interest only payments.

Another option may be straight principal no interest.

Endless options.

Real Estate Loopholes 

By Diane Kennedy, CPA and Garret Sutton, ESQ. Foreword by Robert Kiyosaki 

This is an excellent real estate tax primer but does not replace the need for a good CPA.

Jeff

I read the following article and called around asking the lenders the questions listed in the post:

http://investfourmore.com/2013/05/12/how-to-find-a...

This will basically be small banks with 10 branches probably in 1 or 2 states.

Good Luck

Jeff

Yes, you can do a loan through an entity but if the entity does not have a credit history or significant cash flow or assets then it will need to be personally guaranteed by the entity's owner(s).  That decision will be up to the bank or financial institution that you decide to use.

@Will M is correct that it's part of the Financial Institutions lending requirements on whether they will require seasoning. 

For example we use a Portfolio Lender that does not require seasoning due to them servicing their own loans. Ultimately they make the decision on whether they will lend or not. They also have no issue taking ownership to a property in an LLC. On a side note there is also no due on sell clause with my Financial Institution.

Again this is specific to my lender, your lender may have different rules.