All Forum Posts by: E. James Jackson

For me, I have leaned into flipping. We sold off our rentals so we could put more funds towards flipping right now. We found that finding deals where the numbers make sense, at least in the area I invest in, is really hard. This will depend a lot on where you are investing. We work in Alabama, mostly the Birmingham metro area. I also feel like it is easier to get alternative financing for flip projects because they are shorter term and do not have to rely on refinancing or anything, which makes the numbers more attractive. The projected IRR on our prospective rental deals has been lower than the return on flips. The only downside with flipping is that there is no depreciation, and it is active income with taxable profit. This required us to look into additional tax savings strategies, but there are many opportunities out there to overcome the tax hit.

Let me know if you want more details on how this works for us and if it is applicable to you. 

Hey Everyone,

I wanted to share a story from my work as an accountant that highlights a critical lesson a client of mine learned.

I've advised many real estate investors, and a group of flippers I work with ran into some significant challenges. They relied exclusively on one contractor. They claimed the contractor did great work, was fast, and never had change orders. However, over time project quality dipped, and timelines stretched. From my perspective, this meant increased holding costs and squeezed profit margins, creating tangible impacts on their projected income, not to mention the opportunity cost. This reliance exposed them to serious concentration risk.

I did not advise much on this at the time, but they went on to find a new "rockstar" contractor where this pattern repeated. They would rely on the contractor for so much, and not consult other GCs because he was doing so well. Trust led to lax oversight, and on a major project minimal progress was made over six entire months (the original construction timeline). The financial hole was substantial, turning a potential profit into a severe loss. After getting a handle on the situation, it took an additional six months to get the construction completed. This project was bigger, but the original six-month timeline turned into an entire year. 

These tough experiences led my client and I to dive deep into risk factors and overhaul their operations. Now, they always secure at least two competitive bids for every project, ensuring alternatives and financial security. They never assign more than three projects at a time to one contractor. They assign a single project manager to each deal, rather than everyone working on all projects (this avoids bystander apathy). We also set up a system of internal controls to monitor timelines and milestone schedules, catching issues within a few days, not months later when the damage is compounded. These changes have led to a far more stable and predictable financial outcomes for their business. If you are interested in more specifics on all of the internal controls and business processes I developed with the client, I am happy to share more details. 

This story is a crucial reminder: don't expose your business and investors to undue relational concentration risk. Over-reliance on a single external party can lead to significant financial vulnerabilities and unpredictable tax implications. It's rewarding to see their operations shift, and I hope this can help others avoid a similar loss. 

Hey Luke, This depends heavily on where you are located. Where are you doing or planning to do this? How far into the deal are you for something like this? Any context helps. 

I think this is a really cool concept and I work with a developer who specializes in this sort of thing in Tennessee. I may be able to connect you two, or at least help you with understanding risks and demand. 

We can hop on a call to discuss but it may be better to share here since I find this is not talked about as much as some other strategies. 

Thanks Zach! That was my second line of defense if I cannot find anyone that comes recommended. 

Hey everyone, 

I have a couple of contractors in the area, but I am looking to expand my network and work with more investor-friendly GCs as I FLIP and BRRRR properties in the Huntsville, AL metro area. If you know of anyone you trust that has experience with investors, please let me know! Most of my connections do not work with investors as much, are not GCs, or are in Birmingham, AL. I do primarily sub $150K budget projects, but want someone who can manage the whole project start to finish and can COMMUNICATE!

Hey Kyle,

As with most things, this can be a complex question. FYI, I am a CPA specializing in the real estate space with a lot of experience with STR investors/businesses. I am also an investor myself. In my practice, and experience working with other accountants, the cost can vary a lot depending on the services provided. What all is included in that price? Is he or she doing all of the bookkeeping, tax strategy, or investment planning? What are your goals with the relationship? What deliverables and expectations do you have? All of these things, and more, can factor into how these services can be priced out.

I am also happy to sit down in a consultation to review your situation and provide an estimate for my services for you to compare and potentially serve your business if it seems like a good fit!

Hey Jennifer,

This can be a complex issue, so I want to run through generally recommended actions and the reasoning behind them. I would love to sit down in a virtual meeting to go more in-depth on your goals, your needs, and figure out a more personalized action plan for you. I think engaging an attorney who specializes in this area is a must.

With all that being said, I think it would be good to take her off title so you can fully depreciate the property, simplify the reporting, and you can get more benefit from ownership in the property than she can (in most cases). In most cases, moving it all to the LLC is best from a liability standpoint as well, and since it is a single-member LLC, it will not complicate the tax reporting. Taking the carryforward losses will not necessarily be affected by taking your daughter off title, but the income and losses going forward would be.

When we get into the estate planning side of this, it is important to understand the consequences of adding her to title. If she is on title and you and your husband pass, she will not receive a full stepped-up basis, which is a huge benefit of passing real estate down (this can also vary depending on the type of tenancy and tenancy rights on the deed). For estate planning, you typically want to not gift the property to the beneficiary until you pass, unless your estate is high and you have to plan around estate taxes. You can also look into doing something like a revocable living trust (ask your attorney about this and other estate planning strategies). If you want to gift the property to her, the best way to handle that (from a tax standpoint) is to transfer that, file the gift tax return, and utilize part of your lifetime exclusion to avoid the gift tax. A trust can also help avoid/defer taxes depending on the goals and the other pieces of your estate plan. 

All this can vary widely depending on all of the other parts of your situation like your current estate plan, business situation, other properties, life insurance considerations, long-term goals, your net worth, your risk tolerance, and more. 

I am a CPA and would be happy to chat and assist where I can. However, an attorney will be a key person to loop in as well as a lot of this will fall in their scope of practice. 

Hey Scott, welcome!

I think that is a great goal but can always be a little scary. As you have probably heard, building your team and learning from those around you will be key in this journey. I would have probably never started my real estate journey or my CPA practice  if I did not have a team of professionals and mentors around me to fill in the gaps of expertise. Specifically, a real estate agent(who is an investor and works with investors), an accountant or CPA who preferably specializes in real estate (like myself and many others on Bigger Pockets), a good lender who can provide investment loan products, contractors, and a real estate attorney. All of these professions can be found here on Bigger Pockets and will be an important part in helping build your real estate portfolio. Your strategy and goals will affect the impact your "dream team" needs, but generally, that is a good place to start networking. 

I wish you the best of luck, and I think you have a great path ahead. 

Of course! Shoot me an email or schedule a meeting on my website anytime if you have any specific questions or need assistance. I am happy to share my experience working deals with private investors, JV's, and partnerships.

Hey Harry,

I am in a similar position when it comes to investing. When I see posts like this, my first thought is always how complex things can get when you bring in partners. As a CPA, REALTOR, and investor myself, I have seen a lot of different financing structures and helped clients properly execute deals of all shapes and sizes. My funds are tied up in my own real estate business with other partners, but I can still be a partner to your business, as a CPA and real estate finance expert. Let me know if you think this could add value to your real estate business journey! I think you have a great path ahead of you.