Skip,

1. There are some good mailing lists or websites that have a more
focused community for your RE questions. I can dig up the URLs if you
are interested. Let me know.

2. The LLC vs. some other way of holding title is not simple.

You do want to use an entity to reduce the liability. Some would say to
wait until you have a few more properties. Others think you should set
things up correctly from the start as you never know when something
will happen and you get sued.

You want to use the right entity based on if we are talking short term
or long term hold (buy, fix, sell or buy and flip implies LLC for the
pass through tax treatment).

There is a good book (cheap and easy to read) by William Bronchick on
this topic. He is an attorney and RE investor. Look for "Wealth
Protection Secrets of a Millionaire Real Estate Investor" on Amazon or
a local bookstore. It will cost $20 or less. The book is to educate you
to be a better customer when dealing with a lawyer or CPA. If you want
the step by step process and forms then you can get a more detailed
course by Bronchick.

Also consider the issues of estate planning, what happens if a divorce
happens, etc. Hence the reason for an entity to hold title goes beyond
just liability from an accident.

General rule of thumb. C corp or similar for short term holds. You get
to provide company benefits with pre-tax dollars to the employees (you
and your brother). The income would be ordinary income so no advantages
for capital gains. Depending on the details the Corp can have a lower
tax rate than an individual.

LLC for long term hold as the tax treatment can be set up to be the
same as a partnership or as if the LLC was not there for tax purposes
(sole member LLC). You can set up a pension plan and build that up so
you can use it to fund your deals. using a Roth (Keogh or IRA) you
could end up doing very well on the short term flips.

Somewhat at odds to the above is the ability to get financing. Most
lenders will not lend to an entity until it is well established. One
reason to start now. You may find that you have to take out the loan in
your own name and then move the property into the entity after the loan
closes. People will bring up 'Due On Sale' (DOS) issues. This is
largely not an issue for what you want to do. You could have a transfer
tax to when you move the property from your name to the entity.

Also look into umbrella insurance to help deal with the liability
exposure. Lots of coverage for little money.

3. Use a CPA to file your taxes. They need to educate you on the key
points so you make smart decisions through the year. I can recommend my
firm and it happens to be in SC even though I live mostly outside the
US or on the west coast. Not all firms are focused on RE so some CPAs
will miss out on items that are in your favor.

You can use a book keeper to organize the paperwork each month. You
would pay by the hour and it might be best if they set you up on
Quicken (or similar) so you have monthly reports. By not keeping on top
of the receipts you are not really aware of what is going on. It will
also save time and money at year end when it comes time for tax filing.

4. Focus on making large sums of money on your deals. The deals will
pay for the outside advisers. Go for quality and do not be that
concerned about the hourly rate, etc. The deals will make enough to
fund all that you need. Mistakes, bad tax decisions and other such
things will generally cost more than what good advice costs.

If the deals are not making large sums compared to what the advice
costs then you need better deals and not less expensive adviser's.

I have been investing fin RE or over 20 years (multiple states and
countries). Run your investments as a business. You can do very well
part time or full time. Stay with the part time option until you have
ample reserves as what you are doing does not provide a steady check.
Rentals can help reduce the amount you pay in taxes on the day job
income.

John B. Corey Jr.
Chelsea Private Equity, LLC
+1 (503) 906 7840 x1108
+1 (503) 210 0227 (efax)
john.corey[at]ChelseaPrivateEquity.com

Looking for hard money for you latest real estate deal?
Visit www.ChelseaPrivateEquity.com

TB <borekfm[at]pacbell.net> writes:

- quote -

Well, the OP did say buy, *fix*, and flip. Here in the Boston area,
there is still a lot of that going on in older neighborhoods
undergoing yuppification. E.g., the 3-decker behind my house was
bought, fixed up, and condo-ized within the past year, and there's
another one down the block getting the treatment now. These are
usually gut rehab projects, though, not just throwing on a coat of
fresh paint to brighten them up. For someone who has the experience
and time to act as their own contractor and/or do much of the work
themselves, it seems possible to make some money at it.

-Sandra the cynic

HW "Skip" Weldon wrote:
- quote -

Neil, I think you need a couple people involved. I'd suggest getting an
accountant who is familiar with rental property accounting. And it's
better to pay that person for ongoing advice instead of just seeing what
the situation is at tax time. For example a simple thing like running an
ad for your rental actually has significance and it's better to find
that out early rather than at tax time.

You mentioned "financial consultants" and I think you'd be barking up
the wrong tree, you'd probably end up talking to stockbrokers who know
squat about rental real property. Start with a CPA, see if you can find
one that knows enough about rental properties that the legal work is
minimized (lawyers' bill rates are usually higher than CPAs). Your
realtor or mortgage broker would be a good start for a referral. If not
a CPA then a very good tax preparer or bookkeeper (eg an EA, enrolled
agent) who knows rental property accounting.

You probably will need a laywer in the mix to answer your LLC vs
partnership vs ??? question and get you set up if you need an LLC.

I think it's important to do this stuff early so you can actually do
some tax planning with your rentals. If you just do it at tax time
you're just having the CPA fill out forms instead of telling you how to
do it in your favor.

One thing I'd suggest, that will minimize the $$ you spend on the above,
is getting a copy of the book from Nolo Press, "Every Landlord's Tax
Deduction Guide" - see www.nolo.com or any big bookstore. If you go to
the web site you'll read a bunch of glowing reviews and I'll say this -
the book is as good as it sounds.

This is the part where I'd put in the comment about also seeing a shrink
if you're thinking of buying & flipping. I don't know where you are but
those days may be over.

-Tad

For unkown reasons the following post was incorrectly returned. With
apologies to the poster, it is copied below.

Begin copy.............................................. ..............

Subject: Need Financial Direction
From: biggunsofaugust[at]yahoo.com
Newsgroups: misc.invest.financial-plan

Hi,

I have a few questions of who exactly I should be looking for.

My brother and I have 2 homes we own jointly. We are interested in
taking the equity out and buying more homes to fix and flip. We were
pondering if we should start up an LLC to protect us from liability so
that if something awry occurs, we don't lose our shirts. Is this a
smart move? If so, how do we get it done. If not, why not?

We are both not that meticiculus in receipt/ record keeping? Should I
get a bookkeeper or an accountant? And if so, on what basis should I
hire one on? Monthly? See him only at tax season?

The tax situation is also a little confusing for me. At the moment,
both my brother and I are employed. If we start flipping homes, will
we
have to pay a "self-employment" tax on the profit?

I've also researched a liitle bit about "financial consultants." Can
they help someone like me which will make no more than 100K a year?

ANY DIRECTION IS VERY APPRECIATED.

-Neil Rez


End copy.............................................. ...







-HW "Skip" Weldon
Columbia, SC