Help! I need somebody...Contractor conundrum
I am new to the real estate investing game with a little under a year under my belt. Currently, we have three properties (1 finished, 2 under renovation) and another one under contract waiting to close.
I have learned so much from the podcast and am challenged in creating systems with my contractors/teams as we renovate these properties. What is the best method to scale your team/business to be able to handle a bigger load as you acquire more properties?
My tax strategist is encouraging me to start another LLC that is a management company in which I can have all "subcontractors" hired in that specific company to then go and bid the work through my house projects.
Is this smart? Is anyone doing this?
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@Eric Northrup
First question I would ask is why do that (from a tax perspective)
From a legal side (not an attorney), your company hiring contractors is no longer the owner of the property and a 3rd party general contractor. That firm would now need to get insurance, bonds, a license and meet other requirements.
Is that worth what the benefits would be by doing this?
Thanks for the reply Chris.
I have been told from a tax perspective, 1. It keeps the liability off my companies and into its own separate LLC. 2. Allows me to use these contractors with the other businesses I own while still possessing an overall umbrella policy. and 3. Helps with payroll taxes as it keeps all of them in one entity.
We have another company solely for buying/selling real estate. This would create another company to separate the two.
Not sure about the benefits, which is why I reached out to get some information.
Thanks for your time.
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Quote from @Chris Seveney:
That firm would now need to get insurance, bonds, a license and meet other requirements.
Is that worth what the benefits would be by doing this?
No way is that worth it.....
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#3 All Forums Contributor
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Quote from @Eric Northrup:
Thanks for the reply Chris.
I have been told from a tax perspective, 1. It keeps the liability off my companies and into its own separate LLC. 2. Allows me to use these contractors with the other businesses I own while still possessing an overall umbrella policy. and 3. Helps with payroll taxes as it keeps all of them in one entity.
We have another company solely for buying/selling real estate. This would create another company to separate the two.
Not sure about the benefits, which is why I reached out to get some information.
Thanks for your time.
Nope. You're getting way too complicated. Not dissing your tax strategist, but he's full of crap. Is he doing this exact strategy? No. I got advice from so many lawyers and CPAs that had never done anything, no experience, no skin in the game.
Pass.
Thanks Bruce for the candid response. From my understanding, he is doing this strategy which is why he recommended it to me. I will do some more research into all of this. Ultimately, the goal is to set up the businesses to scale.
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@Eric Northrup
LLC is a pass through entity unless your filing taxes as an s corp so the statement from for taxes it's a liability thing is BS.
Using an unlicensed company to do the work that is your own will give you zero asset protection because who is the owner of the LLC that was doing the work - you, so guess who is also sued - you personally. Sounds like your tax specialist is also trying to play lawyer (and maybe they are one), but based on what was written this seems like a huge waste of time and money and puts you at greater risk.
Nope! Keep it KISS -- "Keep It Simple Stupid" Too many moving parts. Don't get me wrong, I love the interactive world of real estate, but you should have a pulse on your business goals and objectives. You should be guiding the boat or you should connect with a mentor who can get you to the shallow and deep water until you ae able to swim on your own. Best Success!
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@Eric Northrup I don’t see any advantage, and see a couple of issues…
-a separate llc, contracting with the subs/contractors, doesn’t keep any liability away from the llc that owns the properties…subs can still file liens against the property owner for payment disputes
-there is certainly no tax advantage
-accounting for each property just gets more complicated
Hi Eric:
Are you looking to streamline the remodel/construction process? If, so, are you flipping the properties or brrr?
I have templates and checklists I’m happy to share. If you want to give me some specifics with anything on the rehab side (managing subs, schedules, job costing estimating etc) , feel free to ask!
Thank you Chris! I appreciate your wisdom. I have been told any business that is making over 30k a year should go to a "S Crop"
Do you have thoughts on that?
Quote from @Chris Seveney:
@Eric Northrup
LLC is a pass through entity unless your filing taxes as an s corp so the statement from for taxes it's a liability thing is BS.
Using an unlicensed company to do the work that is your own will give you zero asset protection because who is the owner of the LLC that was doing the work - you, so guess who is also sued - you personally. Sounds like your tax specialist is also trying to play lawyer (and maybe they are one), but based on what was written this seems like a huge waste of time and money and puts you at greater risk.
I am doing both. Basically, acquiring/renovating houses are the main gig but we are getting requests for outside work as people are made aware of what we are doing. I would be interested in your templates and checklists. Thank you
Quote from @Kelly Creamer:
Hi Eric:
Are you looking to streamline the remodel/construction process? If, so, are you flipping the properties or brrr?
I have templates and checklists I’m happy to share. If you want to give me some specifics with anything on the rehab side (managing subs, schedules, job costing estimating etc) , feel free to ask!
Quote from @Orkeem Davis:
Nope! Keep it KISS -- "Keep It Simple Stupid" Too many moving parts. Don't get me wrong, I love the interactive world of real estate, but you should have a pulse on your business goals and objectives. You should be guiding the boat or you should connect with a mentor who can get you to the shallow and deep water until you ae able to swim on your own. Best Success!
Thanks man! I appreciate the response.