Setting up a husband and wife entity-tax advice needed!

4 Replies

I am beginning to develop a business plan for a real estate investing business in Iowa and I would like advice about how I should structure our business entity.

I'm meeting with an attorney soon to discuss the business start-up (and then a CPA). I have a much better understanding of entity formation from a liability point of view, but taxation risk/benefits are beyond my realm of expertise.  I would love to get some great feedback so I can go into that conversation more educated from the tax point of view. 

This is a challenging topic to Google... There is so much information that may or may not relate to our specific situation-it's difficult to separate the wheat from the chaff!


Key information:
This will be my full-time occupation.  My wife works for the state full time and has a modest salary and great benefits.  We have limited expenses and can live off of her salary alone. She will help wherever she can and is contributing with start-up costs.  Although we call each other husband and wife, we haven't 'officially' been married but we've lived together for 10 years.  She has a ring though, LOL. I've spent the last few years researching real estate investing but worked too much to do it. We recently relocated for her job and it has given me the opportunity to go 'all in'!

The focus of our business will be on marketing to find great deals in the Des Moines metro area.  We will do rehabs as financing allows and occasionally wholesale. Eventually, we will reinvest funds into long term rentals (probably sfr's, at least initially).  I plan on doing some construction aspects myself and will manage our rentals.

We will likely self finance or go through a commercial lender for our first deals. Eventually we will roll over profits into other deals (maybe through 10-31 exchanges?) and begin to pursue private funding.  My hope is that by maximizing early reinvestment (and living lean) I will be able to jumpstart our equity.

Some Questions:

Does our marital status matter?

Will doing work on rehabs and/or rentals affect how I should structure an entity?

Would it be beneficial to be a licensed contractor (which is fairly easy in Iowa)?

Are there any key points I should be considering re: how we finance deals?

What should we be thinking about in case of dissolution?  I hope that's not the case, but we need to cover our bases!

What am I missing?  I don't know the right questions to ask!

Thanks in advance! 
Matt Fisher

Hi Matt,

I also am from (and currently live in) Des Moines. I'm in a similar position as I have been researching real estate for years (my Dad has been a realtor in DSM for over two decades), and am new to investing. Working on closing a 4 plex right now. 

My suggestion would be to follow through with getting an attorney and a CPA's advice, separately. I did this and ended up starting an LLC with my Wife, mainly for liability protection purposes. Tax wise I am a 1099 in sales for a local IT company so it was "easy" for my CPA to point me towards starting an LLC for our Real Estate Investments. I certainly wouldn't think your marital status would matter in structuring your new entity but I'm not a CPA, just my $.02

Also, I would recommend you separate out your research on future blog posts to help maximize effective responses (ie. research and/or create a separate post about becoming Licensed contractor). BP is a plethora of information and chances are you're not the first to post a question about particular topics, so searching the site is a great exercise.

Best of luck on the new venture and chapter!

***Your marital status would NOT matter

Proper structuring of entities is rather important for your Real Estate entities.

I have numerous real estate investors as clients and this is what I do.

Please feel free to contact me to discuss further.

Hey Matt

I'm a fellow Iowan investing in the Iowa City area.  My wife and I own an investment company (2 actually) and a general contracting/remodel company.  We hold 50/50 interest in all companies. 

I'll give you some of what I know although obviously consult your attorney and CPA.

First, as far as ownership, my attorney suggests using a LLC to hold real estate. He also suggests not holding all your properties in one LLC but rather only put 1 or 2 in a LLC and have multiple LLC's (assuming you're investing in residential).

My CPA suggests using a S-corp to rehab/sell properties and not to hold property long term in that corporation. (I assume you know the difference between corporation and LLC taxation?)

I think the point they are stressing is not to put all your eggs in one basket. Putting assets in several companies makes it difficult for people to access your assets if you are sued however, it also comes with more paperwork and associated costs.

Regarding becoming a contractor, if you are going to be doing much of the work and you have the skills, I would highly suggest it. There is no test in Iowa, only a $50 fee which can be waived if you do not have employees. You'll want liability insurance.  What I do is have my investment company pay my contracting company to do the work on my properties.  That way my contracting company is liable for the work.  And it serves as my primary income. 

Because my wife and I own the company together I thought about making her a majority owner in order to consider minority/women owned business grants etc but I really don't know if there is any advantage to that.

Although we never want to assume a partnership will end badly, it is very important to have a well written agreement in place spelling out details of what will happen in such case. (even with your wife or other family) Your attorney will help with that.

Marital status should not matter as you are simply creating a partnership.

Regarding financing, I use a commercial banker at Great Western Bank.  They underwrite most of their loans in-house and are very flexible.  If you purchase the right properties low enough, I've used bank financing and received a check at closing to do the repairs etc....

Otherwise get creative...

Good luck and ...

I AM NOT AN ATTORNEY OR CPA, NOR DO I PLAY ONE ON TV.