Hello fellow BP members, id like to offer up my business plan for review buy seasoned investors, please take the time and comment with any suggestions and remarks. Thanks for looking
To start I personally have ten years in the construction industry, so my initial plan is to do all the rehabbing in house buy purchasing REO and flipping them with my own laborers, now obviously I would need to speak to a CPA to see how I could structure something like this, weather I keep my GC business and pay out my business as a GC or keep it all together under the flipping side of the business.
After I have weathered the battle of flipping several REO and have built substantial working capitol, id like to move into the buy and hold side of the business, continuing to purchase depressed properties and flip to rent. Again having my guys doing the rehab.
Following, building a steady portfolio of flip and sell and buy and hold properties id like to start moving in to the international market, obviously this area will take years to get to but is an end goal of my company.
I do greatly understand by putting myself into the business side of this and throwing myself into the renovation side of it, i do fully understand the work load I will put my self under, however from all I have read and learned from other people in the industry one of their biggest issues is the contractors. So I would really like to minimize the risk of delays and start with me and my guys doing the renovations. Once im seasoned enough and network with other members then I would be open to hiring GC's but may still keep it in house. Thanks again for looking !!!!!!!!!!
You may want to look into structuring the GS and Fix and Flip businesses as S-corps.
There is potential self-employment tax savings going this route.
Considering the fact that you have laborers assists the fact that you can save on self-employment taxes.
Please be wary that creating an S-corp has initial set up fees and fees associated with its upkeep(annual SOS fees + annual tax returns). You should look to see if the potential savings will outweigh the administrative costs.
I would not put the properties that you intend to buy and hold into the S-corp.
Let me know if you have any additional questions.
Basit Siddiqi, thank you for your response. I figure the safest way for the buy and hold would be to place them under an LLC, if I understand you correctly your recommending I keep the companies separate ? in terms of the flips. The way I look at it is this, if I keep my construction business separate, pay the business as if I was paying a contractor then I would see that expense as a right off, where as, if I combine the two, have the flipping business acting also as the contractor the I would not reap the deductions, as my only expenses would be materiel and labor where as if I separate the two, my construction side would bid the job as a normal contractor. One big down side to keeping the 2 separate, if I Keep the construction side, now I need to maintain all my general contractors licenses, where as If I own the property then I don't need a GC license in certain areas. I may just be over thinking everything, but I do want this to start off on the right track and not screw myself come April. Thank you again
In regards to taxable income/deduction perspective - I am not sure if it makes a difference if you keep the the fix and flip business and contractor business separate or as one entity.
Example 1(combined) -
You purchase a property for $40,000 where you pay $10,000 for supplies and sell for $100,000. Your ordinary income in this case is $50,000
Example 2 (Separate)
You purchase a property for $40,000 and pay your contractor business $20,000 for supplies and labor and sell it for $100,000. The fix and flip business would report $40,000 of ordinary income.
Your contractor business would report $10,000 of ordinary income($20,000 of income less $10,000 for supplies).
Total combined income of $50,000.
you brought up a good point with the licenses. Contractors need licenses and to be properly bonded(depending on state). If you have one company already bonded and licensed...it may be a hassle to get another company licensed and bonded.
I think the important thing is to keep the business that generate ordinary and rental income separate.
@Michael Gessner , what, no ambition to get your business to Mars? [Sorry about my facetiousness. It's just that, I reckon: there's no need to get ahead of yourself].
My guess is, you'll never find a better/easier Real Estate market than right here in the good ol' U.S. of A. How about, after you've had that chat with your CPA, start with one deal? The speed with which you develop each stage of your plan will flow from then, right? All the best...
Basit Siddiqi, thank you very much for all the valuable advise, im defiantly going to search this site for a new CPA, I don't think the one Im using currently has all the answers that I need. Im gonna search this thread to see if anyone can make a good recommendation.
brent Coombs, Thank you as well, I could not agree more, Im gonna start with one deal work it under my LLC, as I grow I will make the necessary adjustments to the business as needed. I guess I was looking more at the end result, rather then getting my feet off the ground and building as I grow.
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