All Forum Posts by: Tony Wu

Fran,

If a LLC is formed with more than one members, it defaults into a partnership for tax purposes, unless you make an affirmative check the box election (using a form 8832) to treat the LLC as a C corporation. It may not be advisable to "mix" US and foreign investors in the same LLC, because as a US taxpayer, one might prefer flow through treatment, however, as a foreign taxpayer, flow through may give rise to much complexities such as partnership withholding, etc. If the deal is material, highly suggest reaching out to a qualified tax CPA or attorney.

Cameron, 

For Canadian taxpayers, there is a potential risk of foreign tax credit being denied on the CA tax return, if a flow through entity (such as US LLCs) are used.  If operate via flow through in the US, you will then be required to report effectively connected income on your US income tax return, while the denial of foreign tax credit adds to your overall tax cost.  

Please refer to FTB's instruction related to general LLC info https://www.ftb.ca.gov/forms/misc/3556.pdf - example 1 on page 4 is on point.

Liz,

There may be a way out if you are only a passive member of these LLCs, which assumes that you are only a "money" partner but if if you are the single member of these LLCs,  the $800 franchise tax would most likely be due if the foreign LLCs (considered "foreign" since they are not established in CA) are "doing business in California."

Unfortunately, the threshold of "doing business" in California is pretty low. The mere management of the LLC affairs such as having the authority to hire and fire the property manager and occasionally interacts with the property manager to discuss management of the real property would be considered as doing business in California.

opening escrow today, wish me luck!

Hello BP,   

I have just received a counter offer - which to my surprise, is from a Chapter 7 Trustee.   Apparently the seller of the property has claimed bankruptcy.  The property will be sold as is but allows me 21 days to perform inspection.  

I have never purchased a bankruptcy sale property and my broker is not experienced either. 

I believe I am getting a 8-10% discount ($50-60K off) from the FMV on this property and now not sure if it worth the pain to go through the process.

Anyone has purchased a home from bankruptcy chapter 7 sale?  

If so, what was the process like and, how long it took to close?

I also read that the chapter 7 trustee sale is not final until the court hearing and that the judge can "auction" the property at a higher price at the court date.  This gives me biggest pause because the offer is not binding and the trustee can accept offers up to the court date (which could be a few weeks later).  If you were me, would you go through these trouble for a property like this one?  

Great advice, thank you Norm, John, and Dave!

My partner and I are interested in entering into a partnership finding below market real estate, improve, and then rent out or flip for a profit.  Assuming that we each split the up front cash needed 50/50, my partner has recently retired from his full time job and able to act as a general contractor role dealing with all aspects of on the ground work, however, I am the one who is still employed with a decent income from W-2  (my partner also has maxed out his credit due to his other real estate endeavors) and therefore, the plan is for me to obtain finance if the deal is financeable or, if not financeable, we will each contribute equal amount of cash, and then cash out refi using only my credit.  

My question is - how to fairly partner up considering our situation? I would think 50/50 make sense but on the flip side I am a bit concerned that only myself is on the hook for the loan, assuming LTV of 70%, I am thinking I would have 85% of skin in the game as my partner would only risk his 15%. Anyone can chime in to shed some light to help me come up with a fair split?

Hello BP friends,

I've been looking for cash flowing MFRs in Phoenix and Las Vegas area and noticed that the properties with good cap rate are located in less desirable areas, i.e., poor schools, high crime rates, etc.  While cap rate may be enticing, would you recommend investing in these areas?  I'm investing outside of my home state of California.  Thank you in advance for reading!

Ouch! 15% FIRPTA withholding on the amount REALIZED! Not ideal, but a potential fix could be forming an LLC treated as a blocker "C" corporation, obtain the EIN, contribute the real property into the C corp, then sell using the C corp. However, the downside is the double taxation on the C corp, once at corporate level and again as dividend at shareholder level. Could potentially rely on liquidating distribution to avoid the withholding taxes on dividend. Also depending on which country you and your husband file as tax residents, tax residents of certain country, i.e., Canada, UK, Germany, etc. could enjoy a reduced rate on withholding tax.