All Forum Posts by: Account Closed

Thought I posted on this thread but was interrupted (twice) - might have got lost.

There are massive advantages of Partnering instead of taking a fee. Which should be done via a Special Entity - I prefer a C Corp to an LLC because of the extra benefits.

First there are the dollars - likely more of them. Then there is the possibility of tax structuring - less tax.

Next is the fact that you will be contracting with sellers in the name of the entity. You and the Buyer can both be directors with powers as defined - which should be to contract under certain provisos. There should be specific clauses that prevent the wholesaler indebting the Corp. etc

A Corp. makes it easy to cash out - with tax at 15% after a year, to bring in new partners or swap places with others. While most small players see an LLC as simpler initially it is more cumbersome adding or changing partners and most profit will flow through to be taxed at marginal income rates. The actual tax management process for a C Corp. is more complex but is much better than even most CPAs appreciate. If yours is in the know they should recommend a C Corp. Otherwise go with a LLC.

There are MASSIVE Advantages of Partnering over taking a Fee. Most of them are DOLLAR$$$.

The contract between the Wholesaler and End Buyer can be real simple. An entity should be formed - LLC or C Corp. in which each has equity - the Operating agreement establishes who gets what, how and when.

I prefer a C Corp. as that makes it easy to take profits as Capital Gains instead of Income, and you position can be sold by exchange of share.

Banks do not like LLCs as borrowers or Guarantors - as the only recourse they have are the asset in the LLC (unless YOU or someone else provides an additional Guarantee)

Thus there is little benefit in terms of financing to ever consider using an LLC.

Note: to avoid charging orders against your LLC in the case of you getting drunk and doing damage, Never have a ONE Member LLC - otherwise your equity in the LLC and all its assets are up for grabs. Having a second member prevents that from happening - even if they have a piddling share i.e. say 1% and you have 99%

A C Corp. is looked on more favorably by banks but still they will ask for Directors Guarantees - in which case tell them to piss off. Once the C Corp has established that it is a viable concern directors guarantees can be eliminate. Which is how Donald Trump avoided Billions of Dollars of debt when 4 times his C Corps. went bankrupt. 

If it is good enough for the President of the USA it is good for everyone in America!

@Stephen Torti  The income approach is worth zilch. It is merely a function of the cap rate used. Where rental income is high it is often a warning sign ... therefore discount the  value. 

Years back there was a ploy in Commercial Real Estate of inflating rents in order to get a higher valuation. The tenants were given appropriate offsets - such as free fitouts and rent free periods, sometimes 12 months or more. Forget the Income Valuation and stick to Comps - which are a truer picture of what a property is worth.

@Gerardo Varela It makes a lot more sense than leaving sterile equity buried in your property. But it really depends where you then invest.

Assume you took $100k out of your Home's Equity to use as a down payment on the house next door. Your home will continue to appreciate at the same rate irrespective of whether you took out equity or not. Now you could have 2 houses appreciating at the same rate - and the new investment being a rental would produce income and depreciation to cover most of the interest expense and other holding cost on the investment loan.

To ensure you can meet any shortfall in holding costs you should leave some undrawn cushion in the HELOC which you can draw on if needed. If there is a shortfall the IRS will make a contribution to help you out as the loan interest and expenses on the investment property will be tax deductible.

If you can drag out say $200k in the HELOC put a $100k deposit on both houses next door ... and over time as all 3 properties continue to appreciate increase your credit line to make additional investments. (Make sure to have investment protection using matched Equity Options - Puts to insure against market down turns)

@Cody L. BHP = Buy Hold Pray (people holding properties long term)

@Albert Bui  I have a fair bit of understanding of tax rules - with 20 years experience as a Corporate Tax Lawyer and Financial Planner - which is why I suggested structuring the loans in such a way as to produce Capital Gains instead of Income for the lenders. 

As you have no idea of how then you need to get educated. Yes ... 

LOL Ouch man tough love. 

@Cody L. 

initially Wyatt did not say he intended to BHP. It was fairly clear he is still a bit green and the way he is going about things it appears that he is looking for his first deal - at least rehabbing. 

Not sure if he knows there is no need to do the rehabbing himself and there was no mention of the economics at all in the first post. Going about things the way he has been is certainly a lot harder than finding a Cash Buyer to flip to.

@Linda Waygant Yes I only recently joined BP - but I am no stranger to the world of finance and real estate.

Sorry for being self opinionated - if I see people doing things I do not approve of I prefer to pipe up and tell it as it is. Somethings just do not occur to people who only look at their own pot.

Of course there are many ways to skin a cat and I am pretty sure the are differences of opinion = and that was all I was doing - giving an opinion. I do not see that is verboten.

@Nghi Le You say they are Family and friends, who should be treated as such. They are not complete strangers! If they have the decency to give you money do the right thing by family - Don't behave like Shylock.

Their participation in profits can be limited to the equivalent you would pay as interest to an external lend - but by being paid as an equity profit then after 12 months it would be at gains tax rate of 15%. If their income is low at present they would appreciate paying little or no tax on what you give them.

In JVs a rule of thumb is MONEY gets half - so apportion the money return accordingly. The other 50% of profits they do not share unless they put in work and brain power.