Flipping In Your Own Name?
I recently spoke with a CPA and he said that if I'm doing quick flips, I can do it in my own name, since I won't be holding the property. He said that the tax write-offs and ramifications will be the same. He also said the only reason to file as an S-corp is when hiring some one. This way he says I can avoid yearly filing fees until I need to create a corp.
He also mentioned using an LLC for this if I had a partner.
Is this true?
Standard for the real estate industry is to set up an LLC - corp's have many disadvantages. (a couple of good books to read on this is Real Estate Loopholes and Own Your Own Corporation - both a part of the Rich Dad's series of books)
Even for flips, I would put each property in its own LLC. You can never protect your assets too much. What if while you are waiting to flip, someone comes onto your property, hurts him/herself then sues you? If the property is set up as an LLC they are limited to the assets of that property. If the property is in your name, they have access to all your personal assets. I'd pay the nominal set up fees to set up an LLC per property (and you don't need a CPA to do this). Also be sure to have the proper insurance on each property to cover ANY possible problems!!
With an LLC, you CAN hire employees - this is not only true for a Corp. I'm not quite sure what your CPA means by this.
Lastly, I am interviewing several CPA firms to see who will be the best advisor for my real estate holdings. I suggest you consider doing the same - at the least to give you a comfort level that your CPA is really best for your situation.
Hope this helps.
Jenny
Quote: I am interviewing several CPA firms to see who will be the best advisor for my real estate holdings.
What are you asking on this CPA interview?
What type questions is what im looking for.
Thanks
Knowing the answers to many of the questions and asking the same questions to all the firms is key to seeing a) how much a firm knows, and b) how different the answers are from one firm to another on questions you may not know the answers to. I will then review the answers and compare results as well as follow up on the answers that differ (if any) and why.
Some questions I am going to ask is what advice they have for (or even against) setting up a business entity? If they have a worksheet for me to refer to about expenses I should keep track of (you'd be surprised what can/cannot be used in property basis adjustments when selling)? Also - questions concerning the firm. Such as, what is chargied for basic consultations (i.e. I call with a question - will I be charged for every minute they are on the phone w me or take time to email me - - I already know some firms ONLY charge for tax prep). I also want to know how knowledgeable a firm is on 1031 Exchanges.
Hope these help some.
Jenny
cpa knows the biz...
keep him!
You need to know that most CPA's will try to talk you our of most real estate deals. They may know how to count money, but if they knew how to make it they would be in real estate.
I found a good CPA and he goes in on some of my deals with me.
My favorite question for an accountant is:
How much is 2 plus 2?
Correct Answer?.........
Could be 4, could be 3, could be 5......
[addsig]
Thanks for all the tips. I did some research and listening to what Bill Bronchick and John Hyre have to say. The say for holding and L/O, use LLC and for flipping use S-corp. The CPAs never seem to have legal/protection ramifications in mind only financial. I want to have the best of both worlds. Any additional thoughts?
You might try finding a good CPA that's married to a Great Real Estate Lawyer! Then talk to their kids!!. Just joking, I think that you're on the right track with Bronchick etc. however, If you only do one deal and stop, don't waste your time with business structure.
Jeff
Someone said there was only a small fee to set up an LLC. How much is that small fee?
The LLC setup fee depends on your state. In Texas it is $200, which is a little higher than average. Find your secretary of state's website, this will have all the info you need for LLCs.
iglooman
I've been told by a CPA / real estate investor and a Corp Attorney/real estate investor, if your S-Corp OWNS property:
"...that transferring property out of an S-Corp is a taxable Event whereas it is not in an LLC or LP"
Maybe this info will be of help in your final decision . . . hope so. Jenny
I recommend the book The Right Way to Hire Financial Help by Charles A. Jaffe. It has a list of questions to ask each advisor when interviewing an accountant, lawyer, etc. I found these lists of questions a good place to start when I did my interviewing for a real estate attorney and accountant.
Beware! It seems most accountants and attorneys are not used to having interviews with people that know the right questions to ask. You may get a unusual reaction. Don't let them take up all of the interview time talking about things that aren't important to you. Even if you found this person through a referral, don't take someone elses word that this advisor is what you're looking for.
The one who asks the questions controls the conversation. Have your questions written down, control the conversation, and they will know they are dealing with a serious real estate investor.
Good luck!
Jamie
[quote]
On 2003-09-17 16:33, realestate411 wrote:
Even for flips, I would put each property in its own LLC.
Setting up each property in an LLC can be pretty expensive in NYC. So, if I were flipping a minimum of 4 properties a month, 1 per week, I should still place each in their own LLC? Once the property has been successfully flipped, do I desolve the LLC created for it? Or, can I just move another property into the existing LLC?
Can't believe it is much more expensive to record in one state vs. another. Once you have the LLC docs, you can reuse them. Your registration fees will be your only add.
Keep in mind, that once the deal is done, you use that LLC to buy the next property, you don't need a new LLC.
Don't make the same mistake that I did, however. I got the bright idea that it would be easier to just number my LLC's and keep the same base name ie: GFous One, GFous Two, etc. Each one has it's own Tax ID number and EIN.
Problem is that either the customer paying the rent, or the government, or me, leaves off the number and things get mixed up.
Use different names for each LLC - and don't make them property specific so you can use them on different properties.
_________________
Gregg Fous
Investor/Developer
"Your path to success will become clearer once you begin your first steps"[ Edited by GFous on Date 10/05/2003 ]