Start with CPA or Attorney??

Question

Ive been researching entity formation (interested in SFR and MF buy and hold) and I'm a 'little' confused (to say the least).

Would it be best to consult a CPA first to determine the best structure from a tax standpoint and THEN get with an attorney get their liability/asset protection opinion and to set it all up??

OR

Get with the attorney first and set everything up based on their recommendations and then let the CPA just do their thing and be done with it?

Anxious to get started, but i want to definitely get these particular ducks lined up first.  Hopefull this is too broad a question.

Thanks,

Logan Allec · Answer

Preferably both at the same time.  However, if that is not possible, consider this: you set up entities first and foremost for asset protection and secondarily for tax purposes.  Therefore, talk to an attorney first and a CPA second.  And I'm saying this as a CPA.

Also, don't trust a CPA who tries to give you asset protection advice in any authoritative manner whatsoever.  We may very well know the basics through experience and from what our clients' attorneys have told them, but we do not keep up to date on the latest asset protection laws in a given state like we keep up to date with the tax laws.

Jay Helms · Answer

@Miles Stanley - "Anxious to get started", so I'm assuming you're a newbie. I have 6 units (most acquired this year) and still consider myself in my rookie season. Here's what I found out:

• In FL (not sure how it is in TX), but in FL, if there is a mortgage on the property, the title of the property has to be put in the entity holding the mortgage. 
• Most banks (in my area) will only lend commercially to business entities (no traditional mortgages to LLCs) and require at least 20% down and want to see the LLC or business entity has been established for a while. 
• If you're holding the property in your personal name or single member LLC, taxes will flow through your normal tax return.

So for example, if I buy a property in my personal name, to take advantage of a better rate through a traditional mortgage, taxes flow through my normal tax return. I have an umbrella policy with GEICO that helps cover me personally from a liability standpoint.

However, if I buy a property using a LLC, taxes still flow through my normal tax return and asset personal protection layer is with the LLC.

With that said/assumptions made, legal first. I met with a CPA firm (actual recommendation from my lawyer) after I acquired my first property. Mr. CPA told me he was of no use to me until I had at least 8 units or multiple LLCs. Now Mr. CPA did give me some write off advice and I'll probably circle back to him when there is a need, but my advice for you is legal first.

Best of luck!

Miles Stanley · Answer

Logan Allec, Great advice and good points!  i will definitely keep this in mind moving forward.

Is it safe to assume you also recommend getting these things set up before investing at all?

Andrew Hargreave · Answer

I've started reading these books from Mark Kohler.  Maybe check them out:

https://www.amazon.com/s/ref=nb_sb_noss_2?url=sear...

The first one "Tax & Legal Playbook" offers really good advice.

https://www.amazon.com/s/ref=nb_sb_noss_2?url=search-alias%3Daps&field-keywords=mark+kohler

Logan Allec · Answer

@Miles Stanley, I can speak to this as a fellow investor and not as a professional (I'm not an attorney so am not qualified to speak regarding asset protection).  I agree with @Tom Spaeth regarding not necessarily needing to set up entities before getting your feet wet.  Don't want to put cart before the horse.  However, an attorney may tell you otherwise after reviewing your specific situation.

Tom Spaeth · Answer

Don't get to lost in the weeds. Entity setup can always happen at a later time. Just start getting a deal together. If you are new I assume you are not sitting on a boatload of assets. And if you have assets; get a real nice big Umbrella policy. That is your real protection against anything. Unless you are getting a commercial loan or are buying for cash most other mortgages and therefore the house deed also will be in your name. So the asset protection in this case is the fact that the bank has a lien and you have good insurance.

Now if you have tons of money that someone can sue you for; get a good asset protection lawyer first.

Otherwise Attorneys are expensive, start with the CPA but don't set anything up until you talk to both. The three of you need to agree.

Start with CPA or Attorney??

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