All Forum Posts by: Basit Siddiqi

If your LLC is in the business of buy and hold where the property will generate rental income/expenses - The income will be portfolio in nature and not subject to self-employment tax.

However,if the LLC is in the business of fix and flip then you are generating ordinary income. you will be subject to self-employment tax on the income the LLC earns during the year. The amount of your payroll tax liability is not dependent on distributions/cash received.

Hey Joel - 

I saw your other post that you are looking into areas in PA. 
I brought my first rental property in PA not too long ago.

I am located in Brooklyn(Bensonhurst) if you ever want to grab a pizza/coffee.
I am also a CPA if you wanted to bother me with some tax questions.

The great thing about partnerships is that it is upto the partners to set the profit and loss ratio's.

Something to take into account is each person's specialty and skillset to the partnership.
If you have experience or a proven track record of delivering a return for investors - you can demand a higher profit percentage.

As Jeff suggested - Please have an Attorney look over the partnership agreement. Also have an exit plan written out in the partnership agreement.

@Jennifer Fernéz - What is the benefit of blanketing the 2 properties under 1 mortgage?
Under my understanding - unless we are talking about a portfolio loan - the 2 properties under 1 mortgage will still fall under 2 mortgaged properties under Fannie Mae/Freddie Mac guidelines.
It will also likely be more administratively burdensome with likely more fees to do it than to just get a separate mortgage.

If you do not have the time and availability - I would go with Alex's approach and reach out to a mortgage broker. However, be mindful that the mortgage broker MAY charge you a fee in exchange for finding you a lender.

I also heard horror stories of mortgage brokers not necessarily steering you into the loan with the best terms and rates because they may get a higher fee to steer you to a different bank.

If you do have the time and availability contact all the lenders in your area or the area that you plan to purchase the property in. call anywhere from credit unions, big banks and small institutions.

Who says you can't do both?

Last year - I contributed the maximum amount into my 401K. 
My employer has a 401K plan provision(based on IRS guidelines) to allow me to take out the lesser of $50,000 or 1/2 my 401K vested amount.

I took out a loan against my 401K to use as a down payment towards my rental property.

@David D'Ambrosio Answering that question may go into a small LLC vs holding in personal name debate.
I'll keep it short
LLC costs include set up costs, annual costs, costs for registered agent etc.
Financing through an LLC requires an extra hurdle of paperwork.

With that said - getting an LLC may benefit you since it sounds like you have assets(4 or 10 financed properties).
A lawyer may be in a better position to answer this question.

David - The only reason I brought it up is because you said you "need" to form an LLC. I just simply mentioned you didn't need to. I also provided my opinion to your other question on where you would need to set up the LLC.

@David D'Ambrosio - When you say you are approaching the maxiumum amount of mortgages under your own name - I assume you mean conventional mortgages written under the guidelines of Freddie Mac/Fannie Mae. 
You are still able to get portfolio loans under your name without the use of an LLC.

However, an LLC can provide some liability protection(a lawyer will tell you what those protections are).

Many will suggest forming the LLC in the state the property is located in. If you form it in NJ and own the proprety elsewhere - you will be required to register as a out of state LLC and pay essentially double the LLC Fees.

There are advantages to setting up an LLC in states like wyoming, Nevada and LLC for their extensive business friendly case law. But this will result in your having to also register as an out of state LLC and pay fees to other states.

@Jared Chipkin

It may be beneficial to set up the property management company to be taxed as a S-Corp to save on payroll Tax. 
However, your savings may be limited because your W-2 income is around $100,000.
The Social Security Wage base in 2017 is $118,500
The Social Security wage base in 2018 is expected to be around $130,000

When your W-2 income + property management company income exceeds the Social security Wage base - you would only be saving on medicare tax.

You would have to weigh the option to get an entity with the cost of tax return compliance and overall paperwork to the savings of the S-corp.