All Forum Posts by: Amanda Breck

Hi Ryan! Welcome! Spokane is a lovely area, I lived there a few years ago. 

For investors just starting out, I always recommend that you consider the risk you are taking on and how to manage and mitigate it with an asset protection plan. Real estate investing is an inherently risky area to navigate in terms of liability, and you want to make sure that risk is mitigated wherever possible. 

With a small portfolio when you can handle less risk of loss, separating each property owned into an LLC to limit your personal liability and isolate one property from another is a good way to go. That way if a lawsuit due to some kind of accident on a property happens, any judgement is limited just to that LLC and that property rather than putting your personal assets and other properties at risk. As your portfolio and your risk tolerance grow, grouping properties in LLCs becomes more reasonable.

Welcome to Bigger Pockets and good luck with your investing!

Hi Gladys, 

Everyone else here has brought up very good points. As a landlord, putting extra restrictions on how a tenant lives and uses the property can end up making it difficult for you to find and keep good tenants. Requiring renter's insurance in this scenario and in any lease is highly recommended. You can require proof of insurance in your lease agreement, and many times you can request that you are listed as the additional insured on the tenant's policy. If your lease is not clear about what damages the tenant may be responsible for, you should update that for future tenants and see if you can get this tenant to sign an addendum acknowledging their responsibility. 

Hi Ashish, this is a great question! 

Typically an LLC or other business entity needs to foreign file in another state when it is doing business in that state. An LLC will be considered to be doing business in a state if your business has a significant presence or conducts substantial business activities in that state, beyond just occasional sales or isolated transactions.

In both scenarios you describe, the WY LLC is not doing substantial business in another state. It just owns an entity in another state and signs on behalf of it. The HI LLC is the entity actually doing business in either scenario. There is no requirement here to foreign file the WY LLC.

Whenever possible, it is best to keep a WY LLC registered only in WY, as the benefits the state offers often are no longer available if the entity is filed in another state.

One complication you might run into is with the s-corp status. With an s-corp, if you are taking a reasonable salary or any reimbursements, it needs to be registered in the state where you are located. Paying you in these manners would be considered doing business in a state. If you are located in HI, then you would need to register the WY LLC taxed as an s-corp in HI. 

Welcome! Well done with your first investment!

Something you will need to take into account as your portfolio grows is an asset protection plan. Real estate investing is an inherently risky area to navigate in terms of liability, and you want to make sure that risk is mitigated wherever possible. With a small portfolio when you can handle less risk of loss, separating each property owned into an LLC to limit your personal liability and isolate one property from another is a good way to go. That way if a lawsuit due to some kind of accident on a property happens, any judgement is limited just to that LLC and that property rather than putting your personal assets and other properties at risk. As your portfolio and your risk tolerance grow, grouping properties becomes more reasonable.

With house-hacking scenarios where you also live in the property, you may need to get a bit creative as LLCs don't work well for property you are using for personal use. Considering something like your own management company to work with the tenants so you can keep your ownership private is useful.

A 1031 exchange defers the capital gains tax for investment properties. Turning the investment property into a principal residence is possible, but you cannot immediately move into the property without sustaining the capital gains tax liability. There are very specific conditions under which you can live in real property acquired through a 1031 exchange while still deferring capital gains taxes on the sale proceeds. The conditions involve the intent and use of the property. 

Essentially you need to be able to show and prove your intent to treat the property as an investment property. The IRS considers your intent at the time of the exchange. Circumstances change, and that does not necessarily invalidate the exchange, but you will need to have documentation of your investment intent at the time of the exchange and any reasons for the change in use. It is a safer practice to have the property used for investment purposes for two years after the exchange to be safe. This isn't an explicit IRS rule, but two years is the general recommendation and what seems to work for the IRS.

The IRS considers the taxpayer’s intent at the time of the exchange. Circumstances change sometimes and the property originally acquired for investment purposes is later converted for personal use. The conversion does not necessarily invalidate the 1031 exchange. However, it is crucial to document the investment intent at the time of the exchange and any reasons for the change in use.



The IRS considers the taxpayer’s intent at the time of the exchange. Circumstances change sometimes and the property originally acquired for investment purposes is later converted for personal use. The conversion does not necessarily invalidate the 1031 exchange. However, it is crucial to document the investment intent at the time of the exchange and any reasons for the change in use.

Unfortunately the c-corp makes this quite difficult. I never recommend holding real estate long-term in a corporate structure for exactly this reason. When a property is taken out of the corp, whether as part of a sale or for something like a refinance when the lender requires individual ownership, there are going to be significant capital gains tax implications. You are quite correct that if you purchase the corporation you will be taking on this burden yourself. 

She could defer the capital gains by making this sale a part of a 1031 exchange, or she could consider something like an installment sale. 

An important thing to think about when starting out is what your asset protection plan will be. Real estate investing can potentially open you up to a lot of liability and risk of loss. There are lots of ways to plan for and mitigate this risk though! Good insurance is a good starting point, but using tools like LLCs to isolate and limit liability is another strategy you should consider. 

As for landlord tips and tricks, I always tell my clients that the best thing you can do to make sure you attract good tenants and can manage poor tenants with less hassle is to be a good landlord! Make sure you are familiar with your state landlord/tenant laws. A good resource is your state Attorney General website. They will often publish a comprehensive landlord/tenant guide that will help you be aware of what your rights and responsibilities are. 

There are tons of strategies out there for reducing your tax burden, especially in the real estate world. Navigating these strategies can be difficult and overwhelming. You are in a good place to get some good advice. Working with a CPA who knows real estate and the associated strategies is also invaluable. A strategy my clients often use is to set up a corporation as a management company for their real estate portfolio. A management agreement is established between this corporation and the property owner, whether that is you personally or if you use LLCs. The corporation can then take a management fee for the work it does (either the work you would typically think of a property manager doing, or even contracting out the work to a 3rd party manager). This management fee can then be used for reimbursements to you from the corporation for business expenses and even things like medical care. The goal is to break even in the corp at the end of the tax year in terms of income from management fees and reimbursements. Not only does this reduce your personal tax burden, but it allows you to get some money back out of the corp tax-free. 

With a goal like this, something you will need to take into account is an asset protection plan. Real estate investing is an inherently risky area to navigate in terms of liability. Especially when you are just starting out, you want to make sure that risk is mitigated wherever possible. With a small portfolio when you can handle less risk of loss, separating each property owned into an LLC to limit your personal liability and isolate one property from another is a good way to go. That way if a lawsuit due to some kind of accident on a property happens, any judgement is limited just to that LLC and that property rather than putting your personal assets and other properties at risk. As your portfolio and your risk tolerance grow, grouping properties becomes more reasonable.

Hi Ashley! Welcome!

When starting out with real estate investing, it is important to think of asset protection strategies so that all of your hard work stays safe. Real estate investing comes with a lot of risk, including liability for things like accidents on the property. Having good insurance is incredibly important, but not always enough. As you grow your portfolio, I recommend that you consider having an LLC structure to better protect your investments.

Especially with a smaller portfolio, you may want to consider having separate LLCs for each property you acquire. This offers asset protection, but also isolates liability. For example when you own all of your investment properties in your personal name, or multiple in one LLC, if liability occurs with one property, the others are put at risk in a lawsuit. A creditor could come after everything owned by the same person or LLC. With separate LLCs, the liability is cut off before it can approach other assets.

Good luck with your investing!