All Forum Posts by: Ebere Okoye

Ask the tenant for some form of verification. If it is court ordered, she should have a legal document and should be registering in her bank account as often as she says it comes in.

For self employed, I usually would ask for two months security deposit because business being good today does not mean it will be good tomorrow. Also want to see their bank account not just tax returns because sometimes tax returns can be very trick with having some tax items that do not affect cashflow.

I agree with everyone except the moving part as that may not be feasible. First talk to a licenses realtor who knows about short sales. They have seen a lot already and should be able to guide you and usually have attorneys they work with already.

Then as Julio suggested, talk to a CPA who can help you see the tax consequences coming down the pike as a result of this decision. Could make a difference in timing. I have a short sale report on the tax effect of doing a short sale in non owner occupied property if you need something to read.

Ok, you get the advantage of hearing from a CPA to Real Estate Investors on this forum. Here are my two cents.

I usually advice my clients to form entities based on three factors - legal protection, tax reduction, compliance. You have already noted the difficulty of finding one that meets all three criteria. Right now, the best one I see out there to use is the[b]. While I cannot exhaust this conversation on this forum, I will highlight the main advantages.

1. LLC's have the least compliance requirements. no minutes, BOD meetings, even no formal agreement but I strongly suggest using a comprehensive operating agreement. I currently use a 121 page one for my clients.

2. Multi-member LLC's can help in asset protection by dealing with bottom up creditors (has a claim and/or gets a judgment against the LLC arising from the acts or omissions of the company rather than from the acts or omissions of a member, manager or employee)
as well as top down creditors (gets a judgment against the member because of the member's acts or omissions, rather than the acts or omissions of the LLC, its managers or employees). With a good operating agreement and an umbrella policy, you can minimize(NOT MITIGATE) your exposure.

3. Multi-member LLC's electing to be taxed as an S corp can help to reduce our exposure to Self Employment tax since your real estate strategy (Flipping) will generative ACTIVE business income. S.E. tax rates are at 15.3% (13.3% for 2011)

So while you may not have all the asset protection you want, A good multi-member LLC with a carefully drafted operating agreement and an umbrella policy, taxed as an S corp is the best shot out there for a rehabber/flipper.

Your Entity structure should always start with your real estate strategy in mind and then drill down to the best structure that will solve all three issues (compliance, asset protection, tax reduction).

I hope this helps

Think about it, you are saying you would rather cut your nose to spite the government. If you have $100 and the tax is $15, you are still left with $85. You are saying, I would rather loose $85 if it means Uncle Sam does not get $15.

If this is really what you want, then I agree with the other posts, do something in the Charitable giving arena, then you are doing it for a just cause.

Yes, this is one way of getting around the issue of not being able to finance in the name of an LLC. Watch out for the due on sale clause although that rarely happens which says that the lender can demand full repayment of the loan because the deem the transfer a sale.

Thanks Steve, May I add not only do investors need a CPA with Tax experience but also one who is well versed in tax laws that relate to Real Estate Investors. In my years of working with Real Estate Investors, this is one of the biggest issues that forced them to switch CPA's. An investor is also a small business owner so there also needs to be proper business strategies as well like entity structuring, retirement planning, business analysis meetings, etc.

Hi Ron, I do not think you need to use a CPA to set up your LLC but sometimes it is adviseable to use a professional to make sure you are doing things right. I have clients who do the set up and I do the review and other clients who want me to offer that service. $1,400. for someone starting out? This seems steep unless it covers all of their services for one year. I usually charge about $399 for the Articles of Organization, EIN letter, 121-page Real Estate operating agreement and 1 hour consult on Entity structuring. Also, it depends on your state and how complicated the filing process is but most states are pretty straight forward.

Whichever way you choose, the most important thing is that you do register. I advise my clients to get their feet wet and if you do have a possible contract, you can just put the contract in as Property LLC(TBF). TBF means "To Be Formed" and for some states, it takes as little as 24 hours to get an LLC up and running. So if you know the expedited filing rules of your state, you can hold off on forming until you have a property under contract. I hope this helps.

Yes indeed, to each his own. Why an investor for whom cash is king would want to give an interest free loan to the IRS is beyond me. Maybe we should start an escrow account for those investors and make some money off their tax refund. Anyone on board?

It's ordinary income if you assigned your right in a contract but short term capital gain if you assigned your LLC interest. LLC interest is considered a capital asset. And with ordinary income comes self employment taxes