All Forum Posts by: Jordan P.

Hi all,

I assume this a question for you CPAs out there:

If I'm utilizing hard money loans to purchase properties, should I be receiving a Form 1098 Mortgage Interest Statement from that hard money lender? I'm not sure if hard money loans constitute "mortgages," but there is a lien on the property and I am paying interest, so theoretically shouldn't I be able to write off that interest using Form 1098?

Thanks!

Jordan

@David M., David, so glad to hear from you again. I always appreciate your thorough responses to my constant questions!

I am definitely going to need to do some research on the logic test and alter-ego requirements for protecting our corporate veil. As I asked above, I'm curious if securing private lending (where the lender holds first lien) in the acquisitions and rehab phase would hinder our ability to quitclaim into a separate LLC through which we would secure commercial financing. Or, because the lien is tied to the property and not the LLC, does it not matter?

This is a very interesting idea, and I assume has positive tax benefits since, like you said there are no "profits," so you have no tax liability, right?:

"One idea that comes to mind is to form a Remodeling LLC. Let your "Property LLC" take Title, but have the Property LLC, the owner, contract with the Remodeling LLC to do the rehab."

Or would you be potentially be required to pay the "Remodeling LLC" for their services (probably based on state law)?

Re: taxed as a disregarded entity

Wisco is a martial property state, so my husband and I are both members of the LLC.

I'll direct message you about all this, because .... it's crazy.

Thank you so much!

@Marcus Auerbach, thanks so much for the insight, much appreciated. If we're seeking private lending to fund the acquisition and rehab of properties, then holding them in an LLC would be necessary, correct? And, if we're using private lending, are there issues that arise, or even make it impossible, to quitclaim into a holding LLC through which we would refinance?

@Scott Schultz, thank you for bringing that point up - I appreciate it!

@Kamil Baldyga, thanks for your input! You had me up until the holding LLC. I have a loose understanding of this concept, but it's still hazy for me. So, could an initial set up for us potentially be:

Holding LLC [taxed as ......?] in which we have:

Acquisitions & Rehab LLC [taxed as an S Corp]

and then quitclaim to either:

1) Long-term rental LLC [taxed as a disregarded entity]

2) Short-term rental LLC [taxed as an S Corp]

The world of LLCs is certainly a complex one!

Hi BP members,

My husband and I are BRRRR investors in central Wisconsin (marital property state). We currently have one LLC, taxed as a disregarded entity, through which we purchase properties, rehab them, and then rent them out. Our current property (in the rehab phase) we will be renting out on a short term basis through Airbnb. Other properties will be used as long-term rentals. We will be moving into using private lending to fund the acquisition and rehab of properties.

In a recent meeting with our attorney, he recommended that for liability purposes we have two separate businesses: one for acquisitions and rehabs and one for holding the properties as rentals. His reasoning was that if something goes south in the acquisition or rehab phase, lenders (or other harmed parties) would not have access to our rental property portfolio. In this case, the "acquisitions & rehab" business would be an LLC taxed as an S Corp and the rental business an LLC taxed as a disregarded entity (though I understand that short and long term rentals are taxed differently, so I wonder if those would be separate as well?).

On the other hand, our CPA recommended that we keep everything in one LLC, taxed as a disregarded entity, in order to avoid the necessary "reasonable compensation" requirement that comes with S Corps.

I would truly appreciate anyone's advice that has formed an LLC to complete BRRRR deals. Especially advice on how to move forward by renting on both a short and long term basis.

I know that many of you out there don't use LLCs at all, and I'm happy to hear your advice as well, but to be clear we will be using an LLC to conduct our business.

Thanks so much!

@Reginald Levy, please do and best of luck!

@Dan Bass Thanks for sharing, Dan!

@Shannon McGrath Thanks for sharing, Shannon!

@David M. Thanks, David!