Lawyer vs. Accountant - who first?
Investor · Greensboro, NC · Member since 2020 · 6 posts · 2 votes
Lawyer vs. Accountant - who first?
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Rental Property Investor · Atlanta, GA · Member since 2018 · 41 posts · 29 votes
5y@Carl Kallgren IV
As a tax lawyer myself, I suggest you talk to an accountant first. You'd be surprised how many incompetent/inexperienced lawyers there are our there. An accountant specializing in real estate has industry experience. They can easily handle any questions you have for a first deal.
12 Replies
- 5yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Originally posted by @Carl Kallgren IV:
Hey BP fam!
Newby investor from the NC Triad area - Greensboro, North Carolina. I've got my first property under contract (with a partner), and am looking to talk to a lawyer and an accountant before I get too much further into the process, to make sure I set myself up for success from the very beginning.
Question is - who should I talk to first? I'm sure at the end of the day it's not a huge deal, but I'd like to cut down on the back-and-forth. Knowing myself, I'm sure I'll come up with more questions for the lawyer after I see the accountant, or vice versa.
I plan on discussing:
- JVs and partnerships
- Note investing (seller-financing)
- LLCs and (Land) Trusts
- Purchasing foreclosures
Thanks for your thoughts, even if it's "it doesn't really matter."
Please dont go overboard with the Land Trust unless absolutely necessary. I have a client who has 5 land trusts for 5 properties and some other structuring that is not necessary.
You probably need to talk to the tax advisor first because I have seen an attorney set up entities that need to be scratch because of the unfavorable tax consequences.
INVESTOR FRIENDLY CPA®5242 Reviews - Investor / Principal, · Star, ID · Member since 2016 · 47 posts · 24 votes5y
A good accountant can save you enough in taxes and entity structure to pay for your lawyer. I use my accountant to stay on top of my quarterlies, LLC Payroll taxes and SEP contributions.
Most of the time, your RE agent will use standardized purchase agreements already legally vetted and the Title company / escrow will draw the deeds and vesting documents. These standard practices frequently minimize the need for lawyers in acquistions. I recently closed 3 personal transactions as a Seller in Texas, which requires attorney closings. This is a flat rate charge and a just another transaction cost.
My attorney reviews our LLC transactions, drawing drawing the purchase sale agreements and Private Placement Memorandums for most of our equity LP/GP transactions and we monitor his involvement closely throughout the process to control sunk costs.
There is a place for both in your real estate practice, but drive your nails with the right size hammer. Good fortune.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes5y
Originally posted by @Carl Kallgren IV:
Hey BP fam!
Newby investor from the NC Triad area - Greensboro, North Carolina. I've got my first property under contract (with a partner), and am looking to talk to a lawyer and an accountant before I get too much further into the process, to make sure I set myself up for success from the very beginning.
Question is - who should I talk to first? I'm sure at the end of the day it's not a huge deal, but I'd like to cut down on the back-and-forth. Knowing myself, I'm sure I'll come up with more questions for the lawyer after I see the accountant, or vice versa.
I plan on discussing:
- JVs and partnerships
- Note investing (seller-financing)
- LLCs and (Land) Trusts
- Purchasing foreclosures
Thanks for your thoughts, even if it's "it doesn't really matter."
You need to join a REIA and talk to the guys doing what you want to do in the states you want to invest in. The list looks like you're in 1st year med and trying to decide between obstetrics, pulmonary and kinesiology or maybe doing all three simultaneously. They are very all different and require someone with experience (not an attorney or an accountant) so that first you can select a direction.
- Rental Property Investor · Atlanta, GA · Member since 2018 · 41 posts · 29 votes5y
@Carl Kallgren IV
As a tax lawyer myself, I suggest you talk to an accountant first. You'd be surprised how many incompetent/inexperienced lawyers there are our there. An accountant specializing in real estate has industry experience. They can easily handle any questions you have for a first deal.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes5y
I'm not really sure I understand your question... Perhaps the other respondents understand your post better...
But, since you have a property under contract, none of your topics would seem to apply. Or is the former just background info, and the latter topics your pertinent question?
Assuming its about your topics... Both, perhaps neither, or what is your concern? Not knowing your financial situation (not that I should on a public forum), I really am not sure why you need to talk to an accountant, honestly. Granted, I'm not an accountant, but I do my own taxes and understand the tax implications of what I do. So... if you came to me and asked about how taxes work when you are a landlord but you don't care about the "nuts and bolts," all I could say is just give me the numbers at the end of the year and I'll fill out your tax forms (unofficially, of course, since I'm not an accountant). Without anything specific I'm not sure what the accountant will tell you.
Furthermore, when/if you find a good real estate attorney and or business attorney I suppose you could talk about any of your topics. Unless its different in NC, a joint venture in my layman understanding is just a business term for people or entities working together --- i.e. a partnership of some sort. So, unless you had some sort of specific deal in mind again I'm not sure what there is to talk about. For, real estate investing that an attorney could sell you on LLC's and Land Trusts --- there is plenty to read on BP about them. Lastly, really only the attorney will probably give you useful info on purchasing foreclosures.
While I'm not trying to downplay the role of the accountant, but that function is just to crunch the numbers to file your taxes... So to speak, the numbers are the numbers. You might want to be more educated on how the tax system is laid out so that you can more tax efficient in your dealings. Again, go right ahead if you can find an accountant willing to give you all of Taxation 101 in an hour...
Almost same with the attorney. Maybe because thisis just a forum and you wrote a "short post" (understandable). The attorney isn't going to teach you to run your business. He/she is just going to help draw up any legal documents that maybe necessary for your business. Legal topics are always very circumstancial. Same but slightly different example, if you asked a real estate attorney about how to buy a house, I think they might tell you to go away and talk to a real estate agent...
Sorry, I can't be more helpful. Good luck.
- Investor · Greensboro, NC · Member since 2020 · 6 posts · 2 votes5y
Originally posted by @Ashish Acharya:
You probably need to talk to the tax advisor first because I have seen an attorney set up entities that need to be scratch because of the unfavorable tax consequences.
This is an excellent point, exactly what I was looking for, thank you.
- Investor · Greensboro, NC · Member since 2020 · 6 posts · 2 votes5y
Originally posted by @Account Closed:
You need to join a REIA and talk to the guys doing what you want to do in the states you want to invest in. The list looks like you're in 1st year med and trying to decide between obstetrics, pulmonary and kinesiology or maybe doing all three simultaneously. They are very all different and require someone with experience (not an attorney or an accountant) so that first you can select a direction.
I agree with the REIA suggestion completely, I definitely do need to do that. As far as the different specialites (nice analogy btw), what if I am looking to purchase foreclosures with a partner to then seller finance (i.e. note investing) them to a buyer? Yes they are all different and require various types of expertise, but they're all part of a singular strategy.
To be fair, I'm sure my post came off a bit like I haven't done any research - I have - I was just trying to keep it concise.
I am going to be doing even more before I select someone to talk to, so I can have specific, directed questions to ask. Yes, I will get a lot from talking to other investors, but I also want to talk to a tax professional well before the end of year and I'm pulling my hair out. It's something I've done outside of real estate, and its saved me a tremendous amount of work/stress/heartache, if that makes sense.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes5y
Originally posted by @Carl Kallgren IV:
Originally posted by @Account Closed:
You need to join a REIA and talk to the guys doing what you want to do in the states you want to invest in. The list looks like you're in 1st year med and trying to decide between obstetrics, pulmonary and kinesiology or maybe doing all three simultaneously. They are very all different and require someone with experience (not an attorney or an accountant) so that first you can select a direction.
I agree with the REIA suggestion completely, I definitely do need to do that. As far as the different specialites (nice analogy btw), what if I am looking to purchase foreclosures with a partner to then seller finance (i.e. note investing) them to a buyer? Yes they are all different and require various types of expertise, but they're all part of a singular strategy.
To be fair, I'm sure my post came off a bit like I haven't done any research - I have - I was just trying to keep it concise.
I am going to be doing even more before I select someone to talk to, so I can have specific, directed questions to ask. Yes, I will get a lot from talking to other investors, but I also want to talk to a tax professional well before the end of year and I'm pulling my hair out. It's something I've done outside of real estate, and its saved me a tremendous amount of work/stress/heartache, if that makes sense.
Buying pre-foreclosures is my specialty (when they are available. :-)
If you are doing this with a partner you do the following:
1. You create individual LLCs, one for you and one for your partner. Have an actual real estate attorney create them, not online. (Don't do a partnership, too much liability in a partnership.) Your two LLCs form a Joint Venture in writing. Your attorney writes up the JV Agreement one time and you use a copy for each new property. You have to decide percentages. I don't recommend 50/50 ownership. It's a deadlock if you disagree on something and everything bogs down. You can do a new Joint Venture for each new property but do 51/49 ownership perhaps on an alternating basis. Or if you do 50/50 have a means of a tie breaker (draw straws, flip of the coin). Your LLCs have to be run according to your operating agreements.
2. Identify the state(s) you want to buy pre-foreclosures in. Please don't say Washington State, Oregon or California. It is highly regulated and against the law in Washington State and is a felony. Didn't know that huh? Yeah, it's that serious. Have a 1 hour conversation with an a real estate or foreclosure attorney in the state(s) you want to participate in and ask what can and can't be done. Take really good notes and follow the advice you've paid for. Ask about redemption periods and the S.A.F.E Act and Dodd-Frank and any local laws regarding foreclosures, reinstatements, evictions, Allowing the seller to remain in the property (Not recommended, but some investors want to do that.) Personally, slamming a hammer into my big toe is more satisfying and less pain than keeping a tenant who was an owner. They forget they lost the house and resent you. Make a clean break.
3. Decide if you are keeping the property long term (cash flow, appreciation, great tax write-offs) or flipping and selling (capital gains) or selling and holding a note (how you structure the deal here is important). I use lease options and get 10% down. So, on a $200,000 house I get $20k Option fee non taxable cash, up front. Since a Lease Option isn't a sale there is no capital gains tax until the Optionee exercises the Option and finances out of it. Have the attorney set up both your Lease agreement and Option agreement in compliance with the Dodd-Frank Act.
Go for it tiger, that should get you started.
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes5y
@Carl Kallgren IV
I have seen the opposite where a CPA suggested the wrong structure that had to be scrapped by the real estate attorney.
What you want is team of experts in real estate, tax, asset protection and estate planning who are working together to get a comprehensive plan for you. Often, each of these professionals are working insulated from each other and are excellent in their job but don’t understand the other professionals’ concerns.
So I would look for professionals in these fields who are investors themselves so at least they have experience in that matter, or find a firm that has under the same roof all these expertises.
There are a few companies that cater to real estate investors that are often mentioned in this forum.
- Investor · Greensboro, NC · Member since 2020 · 6 posts · 2 votes5y
Thank you for the solid advice! Lots of nuggets in there. That's absolutely crazy that some Washington state makes it a felony to attempt to buy a preforclosure. I've heard of some of the strict regulations in CA, but that's a whole new level. I definitely will will ask about the local laws and regulations like you suggested, and will actually follow the advice once I have it. I appreciate you taking the time to type out all of your experience!
- 5yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
I think you can do both. They serve different roles when you're starting out. Happy to chat about your topics!
- Member since 2022 · 3 posts · 0 votes4y
\Every self-respecting company should have a lawyer and an accountant, who, on the one hand, provide legal and accounting support for the business as a whole; on the other hand, thanks to the accountant and a lawyer, there may be conflicts related to issues of division of labor in the team. The main reason for most conflicts, according to lawyers Sutherland, is the assignment of the lawyer functions not directly within the scope of his activities, but, according to the head, are part of his competence, such as the calculation of taxes. To avoid conflicts related to the division of labor, it is advisable to develop and approve job descriptions for both the legal counsel and the accountant.
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