Hi! This is my first post, so here goes. I just bought my first 4-plex. It's in Cedar Rapids, IA. The purchase price was 113,000 and I put exactly 20% down. Each unit rents for 495/month... quick math would make one think that that's a decent cash flow each month. However, the taxes are almost outlandish at 5700/year. That's almost an additional 500/month towards my escrow.
I have heard that converting my 4-plex into a "housing/residential co-op" could reduce my taxes by about 60%. So a few questions: 1. what does that mean for ME as owner. I do not plan to live there. 2. I realize up front cost would be about 1200 or so, so would it be worth it? Any experience with Co-ops? 3. would it really reduce my taxes by that much or is that a bit of an embellishment?
Also, I currently have a sole proprietorship for construction. Would it behoove me to convert this to an LLC? I have one other rental (a townhouse) in Virginia and I have a single family home that I reside in.
I'm looking for all the advice I can get! This is my first investment property... I became an "accidental landlord" with the VA townhouse. I do use a property manager for that one, but initially, i do not intend on doing that here in Iowa.
Thank you all in advance and can't wait to dig into these forums! Have a great day!
Co-ops are treated as corporations in most states across the country. Its up to you if you wish to be an LLC Corp or just a S-Corp. You should research here on BP resources, find a licensed broker / salesperson (maybe even an attorney for legal advice) that's well versed in co-ops in the State of Virginia.
Getting shareholders would be your primary objective so to state. Which would be those buying into the co-op. Not a bad way to go as an investor. You really have to be good at marketing as it can be quite time consuming. To who & how you pitch and its popularity in Va are factors also.
Well, this 4-plex is in Iowa. As far as shareholders go, there are already tenants in place. Can I 'make' them become shareholders? i do have an appointment with a real estate attorney on Friday... just thought i'd get some opinions from the industry :).
In Iowa coops require "2" shareholders. Mine each have two shareholders which are LLC's...both owned by me. My lawyer charges roughly $800..but have a friend who was charged $2500 to set up his coop. The savings can but quite a bit but do require additional tax costs due to the corporate return being filed as well as a little additional bookkeeping. Also last year Gov't Brandstad signed into law a commerical tax relief bill. Which in theory over the next 10 years will reduce commerical property taxes to the same level as residential thus converting to a coop would not be needed. I just PM you the lawyer I have used many times. Thanks
Congrats on your purchase Rebecca! I have been investing in SFH in the Cedar Rapids area for a few years now. I have looked into multi family but I just cant justify the absurd taxes on anything larger then a duplex. Plus the landlord usually doing the lawncare/ snow removal and usually water just haven't appealed to me. I recently heard about what Tyler mentioned about taxes slowly being lowered on multi families a little every year until 10 yrs from now they should be to the same level as residential.
Also - here's a couple articles you might enjoy:
Oh - and be sure to set up some Keyword Alerts- especially for "Fairfax" so you'll be notified when people mention it here in the forums.
Thanks again for introducing yourself!
Thanks, Everyone! I do understand the whole "taxes will be lowered over the next ten years," but that doesn't exactly help out my situation for the next 5 years or so. Looks like i'll be able to set up a co-op pretty easily. Had a nice discussion with my lawyer on Friday morning about that and also forming an LLC., which i haven't yet done.
You might consider setting up a condo regime instead of a cooperative. I have 4 plexes in both entities and if it was an option I'd put everything under a condo regime due to less paperwork and tax headaches.
Some cities like Marion put the kibash on condo conversions to try and stop the tax revenue bleeding, but last I heard Cedar Rapids still allows condos. You may want to ask your attorney about that. Shuttleworth and Ingersoll are very knowledgeable in both areas and they will give you a handout with the pros and cons of each.
The cooperative cost me about $2k to set up plus $600 for an architect to produce engineering drawings of the building. Also, instead of using two natural people in the cooperative my attorney told me you could also have yourself as one member and a single member LLC as the other member (you being the sole LLC member) and it would still be legal. That way you would not have to bring anyone else into the ownership if you didn't want to.
Another benefit of cooperative/condo is it seems to raise the value of the building. One of my appraisals added $10k in value to the 4 plex simply because it was in a cooperative.
One more thing Rebecca, if I were you I'd jump on getting this done as soon as possible so you can get it all recorded by the end of this year. If the county assessor doesn't see your building in a cooperative on Jan 1, 2015, you'll be assessed the commercial rate for 2015 and have to wait another whole year before the reduced taxes kick in.
Thanks, Mike! That's some good motivation to get this rolling before the end of the year!
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