All Forum Posts by: Gene Liang

@Nicholas Aiola We are about to close on a flip next week. My partner and I didn't intend to flip the property but the prices is so good, decide to sell it after rehabbing it. The property is titled under our personal names. Since we are getting a good short term gain, is there a way we can set up a company structure (or another other method) to shelter some of the gains at this stage? Such as a corporation or LLC. I live in VA and the flip is in CA. I operate a sole prop company and I own a LLC holding a MD property. My W2 salary is over the SS limit, so I don't have to worry about self employment taxes.

Thank you for great comments! The land is zoned as MFR. We can build as many as regulation allows but because of the land size (8500 sqft) and parking rules, we can probably can do 3 unit max. We figure it might be easier just add one more house and then do an ADU. If we apply to add two more unit, the city is likely to ask us to tear down or significantly change the original house since it has a set-back issue, i.e. not enough set-back, from the street. We might still have that issue even if we just ask to build one building.

How do I get started in adding another house to my property? My investment partner and I own a SF rental in Los Angeles county and we want to add another house to the property to rent out. My question is how to structure the setup to build this house. Currently the house is titled in our own names. Should we setup an LLC to do the development? Should we deed the property to the LLC? Do we sell the property to the LLC? How do we get started?

We have talked to an architect and my partner’s brother is a GC. The architect will work with the city to get the second house approved. We have the money to build the house. So, building the house is not an issue.

My investment partner and I purchased, under personal names, a SF property. Now we want to flip the property. I want to shelter as much of the gain as possible. Is it too late to put the property under an LLC before selling it? We can elect the LLC to be taxed as a S-corp to avoid paying some of the gains via 401K or SEP IRA contribution. I understand that Self Employment tax is mostly on income less than Social Security Tax limit of $147,000, any income above that it's only the Medicare tax. So, if each partner's salary/wage income is above that limit, then only the ~2% Medicare portion needs to be paid. Since the holding is short term hold, we can't do 1031 Exchange. Any other ideas? Maybe Opportunity Zone Fund investment to avoid the tax for a few years?

@Sean Yan
I think the article is accurate. Although current law allows much easier permitting and building an ADU, ADU is still not very common. This makes valuating them difficult. An expansion is much more clear cut to valuate. When deciding if you want to build an ADU or do an expansion, I think you should consult a local real estate agent and maybe even a mortgage loan officer.

If this is house is anywhere desirable in the Bay Area, it's an entry level house. That means the person who is buying will be getting a loan. To qualify for a loan, the buyer need: 1) the house appraised significantly higher with the ADU/expansion and 2) income level is sufficiently high enough to qualify for the loan. The questions I would ask is 1) how much would an ADU add to the value of the house? Compare this to an expansion of the house. 2) Will the extra income coming from the ADU help that person qualify for the loan?

On the other hand, if the house is not entry level, the buyer is a wealthy, he will not need a loan and an expansion might make it more desirable.

One additional point which you alluded to. Yes, I believe an ADU doesn't have to be a stand alone. You can build it attached to the house and open it up when you want to sell it. Showing potential buyers that it can be used either way, allows you to capture both types of buyers.

@Sean Yan

There is no reason why an ADU doesn't add value to the property. If dine correctly, an ADU is completely legal and adds additional living space to the property. Giving the cost of Bay Area real estate, it might be worth $1000+ per square feet. Since ADU can be it's own structure, sqft per sqft it might be worth more than an addition (expansion) to the house.