All Forum Posts by: Kyle K.

@Kevin Kaczmarek, why Whole Life vice Universal Life?

So, to the layman... If one's net rental income is zero or negative then they will owe no taxes due to UBIT? If that's the case, it makes using ira funds for leveraged RE investing way more attractive than I previously thought.

Steven,

Those are fantastic points that I think any investor would benefit from hearing. Fortunately, my investment properties are located in Texas so there is no need for me register a foreign entity. My understanding is that, in most cases, it is best to hold properties in an LLC registered in the state the properties are located.

Fortunately it hasn't affected me (with the exception of what I consider to be an ideal real estate investing market, in the positive). But I know many people that either are or have been affected negatively by the recession.

This post is meant to be informative in nature, since I found it a little difficult to find all of the answers I was looking for regarding Texas LLCs and I wanted to share my findings on BiggerPockets. Naturally, I will focus on forming a Texas LLC for the purpose of holding investment properties.

Currently (and this seems to change from time to time), the fee to form an LLC in Texas is $300. (https://direct.sos.state.tx.us/help/help-corp.asp?pg=fee ) Of course, when you factor in legal fees, the formation of company articles and the like, you're looking at spending anywhere from $1000-3000 depending upon your lawyer.

That's the easy info. What's the cost of maintaining a Texas LLC? I'm glad you asked.

There are no additional annual filing fees for maintaining a Texas LLC. They are, however, subject to a franchise tax.

However... it is unlikely you will have to actually pay any sort of franchise tax. Take the following snippet from http://www.window.state.tx.us/taxinfo/franchise/faq_rpt_pay.html#rpt_pay2:

Thus, unless the rental properties held by your LLC are generating revenue in excess of $300,000/year, you aren't going to be paying any fees to maintain your LLC. I don't know how this all works in the event you sell property held by the LLC for capital gains, but I'm sure a competent CPA could explain all of that.

Thus, if you are forming a Texas LLC and you live out of state, your only expense could be that for maintaining a 'Registered Agent', which I have found ranging from $100-$300 per year. Not too bad for the purposes of adding an additional layer of liability protection to your portfolio.

Bryan-- You're absolutely right. There is no 'one size fits all' scheme. That being said, its tough to get 100% agreement from any two experts/advisors for my particular situation. I find myself merging a couple different schools of thought towards my situation. I'm still figuring it out and putting the pieces together. Hopefully I'll have a plan of action soon.

All,

Thanks for the replies thus far. I'm discovering that regarding asset protection, LLCs and associated subjects, EVERYBODY seems to have a different opinion. In the question I'm posing on this thread, one lawyer will tell you to funnel money into your property's checking account. The other will tell you to make it a loan. Some lawyers sing the praises of Series LLCs. Others will tell you they are untested and to use multiple LLCs to hold your properties. Some say deed your encumbered property to the LLC. Others say don't because it will trigger the "Due on Sale" clause; instead, transfer the deed to a trust and assign the LLC as the beneficiary. Of course, some people say banks will never call the loan if you're paying it on time. Some say, screw LLCs, just get a huge umbrella policy! Experts, lawyers, CPAs, average joes and investors all have varying views of what should be a much simpler subject. If only we didn't live in such a litigious nation where I didn't have to worry about the best ways to protect what I've worked so hard to earn.

Say you decided to place one of your mortgaged investment properties into an LLC for asset protection. You're doing what you can to treat your LLC like a business (it has its own checking account, filed separately from other properties, etc.) However, you want to pay down the mortgage balance as fast as possible with some of your own funds outside of your property's rental income. How do you do that while maintaining your LLC as a separate business entity? Transfer your funds into the LLCs checking account and then pay down the mortgage from the LLC checking account? Is this advisable?

Steven,

Early you stated that you're a big proponent of a Series LLC depending on state. Based on your past posts, I know you're high on an Illinois Series LLC. Do you happen to know about/have an opinion about a Texas series LLC?

Also, while its nice that you only have to file one annual report with the series LLC, how do you maintain each cell separate? Separate bank accounts for each?

Hey Steve,

I'm not sure you answered my questions. How does an exchange significantly reduce your annual depreciation vs the same property acquired through 'normal' purchase? I don't think Jeff was describing taking depreciation against one's regular income.

Regarding my second question, one builds up 'excess deprecition' which is depreciation in excess of what is taken against rental income, but that cannot be used to offset your ordinary income (because you earn >$150k, for example). Once again, in the event you have excess depreciation, is there ever a time you HAVE to use it to offset capital gains, or can you use it to offset capital gains whenever you choose?