First potential Deal- Need some advice

8 Replies

Hi everyone, 

I'm meeting with a very motivated seller today. We both agreed on the price on the property and we just need to sign the contract. This is my first deal so I feel a bit nervous and excited. I'm using a form from Steve Cook's course. 

Should I sign the contract under my name? or Should I use an LLC? Would this affect the way how my profits would be taxed? What should I do after signing the contract? Any general advice would be greatly appreciated.

Dan

if possible, I suggest that you use an LLC. An LLC has a minimum amount of tax you have to pay each year. In California, the minimum you'd have to pay is $800. If you're making plenty of money anyways then this amount is negligible.

I had an LLC in the past so I suggest when your getting started to just do it in your name. If you get to the point that your doing a ton of deals then yes get an LLC but for now it will only cut into your profits on taxes a little more by not having one. If you have a job then it will likely not show much difference on your return that you would normally get.

The reason I suggest this is b/c I have been there. You have to pay to start an LLC, which can be inexpensive if you do it yourself (mine was like $75) but costly if you pay a lawyer (about $300). Then if you have to pay a yearly tax on that LLC (mine $175), then if you ever decide to close that LLC it can be slightly costly as well. The reason it is costly to close one is because the LLC is filed with federal, state, and county so it cost to dissolve in all the offices, again...been there.

There are also two different ways to use an LLC for property:

1. The property becomes owned by the LLC and you sell that LLC when you sell the property. (could be a positive or a negative when you sell to your buyer)

2. The LLC buys the property and you keep the LLC to do business with but sell the property from your LLC to your buyer.

These are two big differences in the way the LLC operates/conducts business and would be taxed different as well so my advice to you is to consult with a good real estate attorney and a good real estate tax firm prior to making your decision.

Disclaimer: I am not a licensed attorney or licensed tax professional nor do I claim to be. The opinions stated herein is just that, my opinion, based on my own personal experiences in the state in which I live. Laws vary state to state so rely on your own due diligence, judgement, information and opinions from licensed professionals before you make any decisions regarding this matter. 

Sorry, had to throw that in there...lol.

I wouldn't worry about setting up an LLC for your first SFH. Mine is just a pass-through for taxes. Makes no difference for taxes, but adds headaches. I established one for some larger multi's for anonymity and liability reasons only. I would sign the contract under my name 'and/or assigns' or 'or nominee'. Congrats!

@Daniel Moctezuma  did you end up closing this with the seller and wholesaling it? What are the details? Hope you knocked your first one down. 

@Danny Duran  I'm marketing the deal (with the owner's consent) but I decided to not sign the contract. The bank is going to foreclose soon and I thought it was too much responsibility to handle since I don't have a very big buyer's list. I really wouldn't like to sign on a deal and then back out (Especially since the owner is facing foreclosure). 

The property is in West Pullman neighborhood. 3 BD, 2 BA and the loan balance is only 27,000. However, the property needs a lot of repairs (at least 40-50K and I don't think the ARV value is higher than 110-120K. So far I haven't found anyone in the area so I'm trying to co-wholesale the deal as well.

I'll keep you posted and let you know how it goes. 

@Daniel Moctezuma  are you focusing marketing efforts on the southside area, or, do you focus on other areas in Chicago as well?

@Danny Duran  Right now I'm targeting the whole Chicago area. However, after I get my leads from list source and other websites, I make sure they'll all have at least 40 % equity on their properties. 

I haven't focused too much on building a buyer's list. So far I've been using craigslist, linkedin, facebook, backpage and my website. I'm thinking about going to Auctions and network with cash buyers. 

Are there any particular areas you focus on? 

@Daniel Moctezuma add me to your list of investors. 

Regarding how to take title on a deal, just make sure on purchase contracts write the name of the purchaser as following:

"Daniel Moctezuma and or Assignee", and you can figure out if you'll take title in an LLC or if you'll just assign the contract later and make sure you have several exits in the contingencies and the terms written in the contract.

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