All Forum Posts by: Saika Maeda

Thank you all for your comments. I will for sure get the ADU permitted. When doing this, what's the best way? Should I go with this architect person to handle it? Or is it better to go directly to the city to get the permit process? Thanks!

Hi all, 
I'm almost in escrow with this single family home in LA with an un-permitted large ADU with a Certificate of occupancy. An architect told me that even though ADUs should not be bigger than 50% of the main house, I should be able to permit this one with SB09 if I pay a fee (about $8k according to my agent). Given there is a decent fee, I'm also considering the option of not getting the ADU permitted and just rent it as is for "roommates". I'm trying to weigh my options, and could use help to decide the best path forward.

With permit, benefits are 1) get depreciation and other tax write off benefits since it's a permitted investment purpose ADU, 2) probably better for resell value, 3) have a separate address and don't have to bother sorting out mails for our legal tenant, etc.

without permit; benefits are 1) no hassle to get the permit, 2) no permit fees, 3) no tax on rental income (as it is more like a “roommate”)

Has anyone gone through a similar situation before? Please let me know what’s the best option, or if I’m missing anything. Please let me know the financial implications. 

Thanks! 
Saika 

Hi all, 

I'm about to place an offer on a property with an ADU, which we plan to rent it out.

I understand that if I rent this ADU out, then I can have a tax write off on the mortgage payment and insurance payment for the the ADU's sqft portion. Does that same logic apply to "buyer agent commission"? My question is; is it better to not ask the seller to pay for the buyer agent's commission (not include it in the offer letter) so that I pay it by myself and get a tax write off on this commission expense for the ADU's sqft portion? I have a choice to ask the seller to pay for my buyer agent's commission or not include it in the offer letter (pay by myself), so I wanted to know before I submit the offer.

Thank you! 

Quote from @Katie Balatbat:

@Saika Maeda

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs.

You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a fairly new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify. There's also a separate pass-through CA credit that might be available for true pass-through entities.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Thank you, Katie! Very helpful.  
I'll definitely look into 20% pass-through deduction and CA credit.
Sorry - goes back to my first question. Will I be subject to pay $800/yr LLC tax in CA even if I don't create LLC and just own different properties under my name (basically, not forming any LLC but sole proprietary with umbrella policy)?  

Hi all, 

I know this topic has been around in many posts but I'm still not sure about a few points. 

I'm a CA resident investing out-of-state. I'm about to buy my first property in OH and plan to buy many more in OH and maybe other states. 

I'm trying to decide whether to A) go the route of LLC in OH or B) just own properties under my name with an umbrella policy. From what I gathered, LLC route seems more costly and creates more paperwork but to decide, I have a few questions;

1) Would I still need to pay $800/yr in CA with option B? 

2) Would there be a tax benefit difference in option A vs. in option B? Any reason I would get less tax benefit in option B? There was a mention of the tax rate (corporate tax rate vs. income tax rate) and also it seems LLCs can write off more business expenses, but even in option B, it is still a business with rental income so won't it be the same? Let me know if I'm missing something. FYI - I'm a full-time real estate investor who is trying to get REPS. 

3) Any cons in option B compared to option A (other than, tenants can know your name, you cannot co-own properties with a partner, etc.)? 

4) Tax filing is easier in option A than B, correct? 

I know I would need to get a CPA and a lawyer when it gets more serious but just wanted to run by everyone first.

Thank you for your help in advance.  

Hi all, 

Wanted to pick your brain if you have an experience on this. 

I'm looking at a SF home (4+2 on 1500sqft living space) on a MF zoning to convert into a Duplex (2+1 and 2+1). When doing that, what are the considerations I should watch out for? Do I need to get a permit? The house looks pretty updated, so if the rehab budget is solely for "converting into duplex" (like putting walls), will there be special or extra costs associated with such activity? Just wanted to see if this is something a first-timer can take on. 

Thank you very much for your help in advance! 

Hi all, 

First timer here. Would appreciate sharing your knowledge. 

I've been analyzing many properties and came across a struggle. When you do a BRRR, you want to get ARV as high as you can so that you can get most (if not all) of the money you invested. However, if your ARV comes out too high (at the appraisal for cashout refi), then you also need to pay higher mortgage that compresses your CF. It seems to me that fighting for higher ARV (to get as much as money out of the property) when getting appraised for post-rehab property is a double-edged sword. Am I missing something? Will the lender for cashout refi be using some other appraisal value when coming up with the loan amount vs. down payment, instead of ARV?

Thank you for your help in advance!