All Forum Posts by: William Reed

Brandon,

Thanks for the advice.  I'll be reaching out to a CPA this week to get the process started.  I anticipate that since I didn't have that much of a taxable income this year (deployed from 15 Nov - 15 Sep), it will probably be in my best interest to wait until 2017 to take the unclaimed depreciation.

I recently found out that I had not been depreciating my rental property in Fayetteville, NC. We originally purchased the house in 2006 and have been renting it out from 2010 - present. We would like to file a change in accounting method from impermissible to permissible via Form 3115 on our 2016 tax return. My question is, how does the IRS refund or credit the depreciation costs back to me as the tax payer? Do we get the full amount of the unclaimed depreciation?

@Stephanie P.

Thank you. I will definitely PM you to get more info about how to get financing for an LLC. My partner is hard-set on using an LLC for our deals, so I'm working to accommodate that. I understand that because we are leveraging, we are not going to be a big target for law suits. However, as we grow, I think this will provide a solid foundation to provide the protection we're looking for long term.

I'll be working with a local business attorney to assist with properly structuring the LLC to our investing objectives. We'll also be opening a business account to handle all of the transactions associated with the property.

@Akhil Kumar,

Thank you. My partner only wants to operate & purchase properties via LLC, so that is the route I must take on this deal. I'm putting all of this up front from now on with the local lending institutions to avoid the run around in the future. I've found at least one that will allow the LLC, but only through a commercial loan. I'll be engaging them further on the details so that my partner doesn't get looked at as a borrower. I believe that if he has less than 20% ownership of the LLC then he isn't considered a co-borrower and I'll be the only one on the loan application.

I'll definitely be meeting with a local business attorney to get the LLC & operating agreement structured properly to fit our investing objectives.

@William Hochstedler,

Thank you. I know I kinda combined two different threads into one - it seemed that the LLC part of the equation was affecting the method of financing. The lender did get back to me and told me that there would be a 45 day seasoning requirement for the funds supplied by my partner, but they wouldn't be able to title the property to the LLC. I figured since it was a credit union that it would be a little more flexible, but I was wrong.

I found a potential lender (a saving & loan) that could do it on the commercial side - working out the details now. I'll also be speaking to some local business attorneys about how we should structure the LLC for this and future purchases.

BP,

I am trying to finance a 4-unit deal using a money partner who will provide the down payment and closing costs for the purchase in return for 50% of the cash flow and 50% of the equity.  I will secure the financing and manage the all of the operations for the property for the other half of the equity & cash flow.  The problem is that I found out, after I  had already filled out the mortgage application (for conventional loan), the bank wants to add my partner as a co-borrower since I don't have the funds, which is going to be a deal-breaker.  My partner already has a large amount of mortgage debt from other investment properties and does not want to incur any more.  He only wants to be a silent partner who infuses the initial purchase capital.

My thoughts were to open a joint account where both of us are required to sign prior to any withdrawals and use that on the new mortgage application. We also want to setup something like a partnership agreement/entity (LP, LLC, or otherwise) so that we can clearly outline the details of how we will operate and conduct business. I know it's difficult to do conventional financing with an LLC, so I was hoping to get the financing in my name and use the LP/LLC to manage the business side of the property.

What is the best course of action to accomplish both?

@Chris Mason,

Thank you for clarifying the technicalities for classifying a rentable unit and what I can do to cover myself on this.  I'm probably going to pass on this deal considering the amount of maneuvering it's going to take to close on this as a 4-unit.  I'd also rather not be involved (even transactionally) with people that intentionally try to mask income.  If they are willing to lie to a mortgage broker, the IRS, tax assessors, appraisers, etc., they are probably not being completely honest with me either.

Michael S.,

Thank you for the advice.  If we decide to move forward, we'll make sure to do it the right way.

I am considering purchasing a multi-family property in Northern New York.  It's listed at $103k as a 4-Unit with an office, however the owners have the office rented as a 5th unit.  They told me that they don't report the 5th unit because the financing and taxes would have been greater because it would be considered a commercial property.  As a new investor, I'm concerned of the ethics of not reporting the 5th unit and assessing it properly but am not sure if I'm making too much of the situation.  I would imagine that a home inspection and appraisal would  uncover the fallacy.  Would it be best for me to finance it as a 5-unit or keep it as-is?  Personally, I would rather have a 5-unit because I can directly force the appreciation as opposed to a 4-unit that is dependent upon comps in the area.  

Would there be any ramifications on the current owners if it is assessed as a 5-unit during an appraisal?  The owners made it clear that their main goal with all of their investment properties was to avoid taxes (they've  informed us of some other practices where they don't report cash rent payments and income from a washer & dryer).  Ultimately, I want to be honest and transparent in all of my business practices - if it causes me to pay more in taxes and financing, so be it.  If anyone has any insight or advice, it would be greatly appreciated.

-Will

Chris,

Is this property still available?