All Forum Posts by: Costin I.

It's called tuition - you pay it one way or another. 

Even if you find a good CPA - and it will take awhile for that and you'll kiss several frogs before the one -  you'll still need to know your stuff and do your part. Most CPA and tax preparers are just a tool you still need to learn to wielded - their answers will be as good as your questions and preparation.

You'll still need to learn how to do your bookkeeping...or pay someone to do it for you. Your CPA will charge you based on how much preparation/processing work you'll give him or you'll cover yourself....to the point all your cashflow will go to him. In other words, you still need to learn for yourself and read the NOLO books.

And read these forums posts about questions to ask a CPA.

You are doing something wrong or use the wrong CPA. If you barely break even with less than $1,000/year, then only less than $1,000/year would be added to your income and taxes (as net income will flow through to you, regardless of LLC or not) and I don't see how that amount makes a difference, in terms of bracket or taxes.

And that if you don't count depreciation, which should put you in negative territory and if your income is under 100-150K it should save from your taxes.

I suggest to read NOLO books on taxes and deductions, particularly the Every Landlord's Tax Deduction Guide (make sure to get the latest edition, updated with the tax reform law). 

LLC or Turnkey are not going to solve your cashflow and/or taxation problem.

Trusts are also used for estate purposes and might/should not trigger a DOS clause. That would be another reason to use them.

If you decide to skip the trust, make sure you transfer title with a warranty deed. With just a quit claim deed you most likely lose title insurance.

All this works in conjunction with insurance, umbrella, property management - I suggest you also read (and implement) Every-Landlords-Property-Protection-Guide (and most of the NOLO landlord books).

"I'm not an attorney and make sure you speak with an attorney first...."

The attorneys didn't really contradicted each other - both supported the idea of Series-LLC as a holding entity. The Land trust gives you an additional layer of anonymity, especially if you are acquiring the properties directly with the land trust (vs. transferring a property to the LT, which leaves a paper trail). And yes, if someone sues you they can find all about you, but the idea is a simple public records title search will not reveal your name on a bunch of properties, thus making you a smaller target of less interest. And that is a big part of the asset protection strategy - to make you a smaller litigation target, unattractive to pursue without big costs (that usually the lawyer has to absorb) and difficult to collect.

The separate property management LLC (PMLLC) is to separate the operations and public interfacing entity from the asset holding entity. The holding Series-LLC doesn't do anything other than hold the properties - all repairs, hiring of contractors, payment, leases and dealing with tenants, etc. are handled by the PMLLC. The PMLLC doesn't own anything, and has minimal cash or capital reserves and is the public face.

Asset protection is a tool in your toolbox - it has to be properly employed and works with the other tools you have - insurance, PUP, proper property management, etc. None will give you full coverage and be the only thing you need.

I can send you my notes on this matter and how it relates to financing, DOS, insurance, management, etc., if interested.

@Scott Smith can speak better about the Series-LLC, but I would say the fact it was not tested in court is more of a FOR testimony than against, given the long duration now they been adopted (born in 1990 with the Delaware Business Trust act, in Texas since 2009).

Also, keep in mind, a lawyer recommending individual LLCs has a direct interest in that recommendation. With a Series LLC, you might have more cost initially, but after that you can create child series with an internal document. That hits directly on the bottom line of a lawyer looking to charge you for each LLC you create for each property.

1. How many assets and properties do you have? How much equity are you trying to protect? Unless you have a lot (and that is a subjective measure), setting up all that might be overkill. I suggest to use the 2% rule - your cost to setup asset protection and maintain it (you'll have initial costs and then additional overhead because of it, in a rough proportion on 75%/25% - e.g. let's say it costs you 3K to get the LLC structures in place, you should count an additional 1K annually in bookkeeping, CPA and lawyer costs to maintain it) should be less than 2% of your equity to protect (and again, using the 4K costs, that means you should have at least 200K in equity). Before that, concentrate on getting your deals and building some wealth, learn about correct insurance and proper management and get that solid in place - none will give you total protection and you need to combine them as resources in your toolbox. I can send you more info on all this.

2. If you decide to proceed with implementing asset protection, you should have an asset holding entity (an LLC or better, since you are in Texas, a Series-LLC) (eventually with a land trust as a layer of anonymity) and an operations entity (an LLC that is the public facing entity that handles the repairs, hiring contractors, dealing with tenants and property management, etc.).

3. It depends on how you structure the deal. Some require a minimum period, and even if you finish sooner, you'll have to pay them (for example, they want 6 months of guaranteed interest - if you finish in 4 you'll still pay them monthly interest times 6 in total). Some requires points (%) at the beginning, some at the end, some both. I can send you a table to use to bring your PML/HML's to an apple-to-apple comparison.

And here is the reasoning behind a few of the questions:

What licenses or designations do you have and how do you maintain them?

• Anyone can hang out a sign claiming to be a tax preparer because there are no licensing requirements. So look for an enrolled agent, accredited tax adviser (ATA), accredited tax preparer (ATP), certified public accountant (CPA) or CPA/PFS. Only a CPA can have the PFS, personal financial specialist, designation. Check your state's licensing board and professional associations (see step 1) to assure that he or she is licensed, is a member in good standing and has had no disciplinary action taken against him or her.

How long have you been in the tax business?

• You want someone who has been preparing returns long enough (i.e. several years) to anticipate problems or IRS challenges.

What are your fees? What is your fee schedule?

• Probably won't get an exact number, but a tax preparer should be able to provide you with an estimate. Find out if he or she charges an hourly rate or flat fee and whether that fee will cover everything or will there be add-ons for planning meetings and calls throughout the year.

Will you represent me before the IRS?

• "Run out the door if the answer is no" . If you are audited, you want someone who will defend your return.

Questions for an experienced, trustworthy tax accountant:

• Are you a Tax Preparer, Accountant, CPA, Enrolled Agent, certified public accountant/personal financial specialist (CPA/PFS) and/or Accredited tax adviser?
• What licenses or designations do you have and how do you maintain them?
• How long have you been in the tax business?
• What tax issues do you specialize in? Do you have any specialties?
• Do you specialize or work with other buy and hold or rehab investors?
• What is your experience working within the confines of SDIRA?
• What is your experience working with Series-LLC?
• Do you have references?
• Do you own real estate?
• Do you have room for a new client? Will you file my return in a timely manner?
• Will you have time to meet with me throughout the year?
• What are your fees? What is your fee schedule?
• Do you outsource any of your work? Do you perform the work personally? If not, what is the review process? Who signs the returns?
• What's your privacy policy? Will you share my tax information with any third-parties?
• Do you think taxes, in general, are a good thing?
• Do you think the American people pay enough in taxes?
• Will you represent me before the IRS?
• Do you have the knowledge and experience to handle my tax situation?
• How long, approximately, will it take to finish my taxes?
• Do you believe I'm paying too much, too little, or just the right amount of tax?
• What is your preferred method of communication?
• What are you doing throughout the year to ensure maximizing my tax deductions?
• Retirement planning?

Selecting an (Asset Protection) Attorney:

• how many RE investors have you worked with? 
• how many were sued and what were the outcomes?
• are you a RE Investor? 
• are you working with a preferred CPA? 
• how many asset protection structures did you setup? 
• how many did you litigat for defense? how many successful? 
• Ever litigated for plaintiffs (against an asset protection structure)? 
• how you ensure my proposed structure is accurate, flexible and relevant, so that aren’t any things that will come down the road and increase my taxation, or possibly hurt overall ability to further engage in business planning?

Ian, your Q1-Q4 are more like Q1-Q20 questions and no good answers will not open another 10 questions each for you. You just entered the Wonderland of asset protection and you need to understand how the LLCs play along with land trusts, insurance, property management, estate planning, etc. to form together a toolbox to use in your investment journey and in the minefield of financing, DOS, leases, tenants, litigation, etc. I went down these rabbit holes and I can send you my notes gathered after many hours of research.

My advice on JV/partnership with a family member is: don't. Get a loan from them and treat it like any other mortgage. Or at least, understand what is involved in a partnership and how to protect yourself/them in a JV. I can send you a checklist for JV.

This being your first rental, I would concentrate on getting the deal done and many more after. The low equity itself should act as deterrent, so you need to worry more about good insurance and proper property management before getting fancy with other asset protection structures. I suggest you read Every Landlord's Property Protection Guide: 10 Ways to Cut Your Risk Now and implement as much as possible first.

Hint: Insurance doesn't cover you in all situations (like fraud and mold). Also, you need to worry about attacks from "inside" (like tenant suing you) and from "outside" (like, you crashed your car into someone).

Once you have more properties and more equity accumulated, then you need to look into more advanced means of asset protection. By then you'll be more familiar with deals, financing, managing, insurance, deed transfers, DOS, etc. I can send you my notes on the whole asset protection subject research I done - it will give some insight in the many concepts involved and the pros/cons.