All Forum Posts by: Jenifer Levini

Hi @Ben C., I'm a lawyer. I do corporate formations. In fact I have done a lot of them for the investors from Bigger Pockets who live in California.

The explanation @Linda Weygant gave is the best, for understanding the tax differences, and some of the formality differences.

I think, maybe, youre asking a different question, that I'm asked frequently. That question is "when is it better to form an LLC or when an S-corp, if the purpose of the company is real estate investing?"

The answer really depends on how many people are involved in the company and their level of involvement. The reason this is important is the way that the company's equity is held. If the company is an LLC, the members (owners) each get a percentage of the membership, that is basically non-transferable. For example, if 3 members each have 33.3% ownership and one member wants out, its not easy for her to leave (the details are written into the operating agreement). it may not be possible to transfer the membership, and even transferable memberships generally dont allow the new member to have management or voting rights.

This is contrasted with a c-corp or s-corp which issues shares of stock as certificates of ownership. These can be sold. When there are external investors (people who do not have any day-to-day management control), they insist on stock so they have a way to re-coop their investment, and get out, by selling their stock.

The management and rules are completely different for corps and LLCs. The election of officers, and their responsibilities, are different. How decisions are made and how they are documented can be very different.

There are about 10-20 other differences between the entities. As a lawyer, I listen to my clients goals, their tolerance for having to follow formalities, what is the source of $$, how they want to file taxes, the number of people involved, if they want to be able to get out easily, how the company is going to function daily, as well as over the long haul... and a bunch of other factors, then we discuss which entity makes the most sense for their situation. As things change in their business, I am always here to answer their questions. As responsibilities change we rewrite operating agreements or their bylaws, depending on which type of entity they form.

If you really want help, it's worthwhile to have a lawyer who knows the intricacies of your company. As much as people mean well on this website, their advice is worth exactly what you pay for it.

This is a great question. I have been looking at some of the mobile homes along the beach in Encinitas, and condos in Mission Beach area, wondering if I could use them as VRs. 

Where I live, in wine country, Sonoma County, in Northern Calif, there are neighborhoods who have complained so much that the planning commission made them vacation rental exclusion zones. Any thing like this going on in San Diego county?

Hello @Erin K. I'm an attorney in California who has helped several of my landlord clients fix problems related to mold. It's really important that you solve the problem because its regulated by your state board of public health and U.S. Environmental Protection Agency, U.S. Centers for Disease Control and Prevention, Federal Emergency Management Agency, SB 732 (Ortiz) Toxic Mold Protection Act of 2001 (April, 2005) 

Mold is always caused by moisture. So you need to do as much as possible to try to find the source of the moisture. If it was something your tenant did, such as putting a plant, a damp carpet, wet laundry in that area, you might not find the original source. If you can find it, you must stop the original leak. Then you must dry any other materials as safely as possible before they get moldy. Open wall cavities, remove baseboards, or pry open wall paneling, if necessary, to allow the area to dry thoroughly. You must clean or remove all moldy materials. It's important that you dont use central heat because that could spread mold throughout the home.

It’s important to clean immediately because the presence of mold can make a house legally uninhabitable. However once the mold is cleaned up then its fine to rent the house. As long as the mold has been cleaned, Landlords are not required to disclose mold issues to new prospective tenants.

You might want to talk to a real estate attorney in your state, to make sure that you're following your state's laws.

Wow @Ori Skloot! Thank you for sharing these details. This deal worked so well because of your knowledge and experience. People who want to start out in the real estate business contact me all the time asking for help with their contracts, and hand holding through this BRRRRR... process. That you are a real estate broker and can do the paperwork for the deal, that you are a general contractor who can personally do the construction work, up to code, is what made this deal cash flow immediately. How much more would it cost if you had to hire a GC and pay a higher price to the sub-contractors? How much more if you paid real estate commission?

Did the City of Oakland allow you to do that garage conversion, did you have to create another parking place/garage/carport?

Thanks also to @Chris Mason for explaining the guidelines to the financing. It really points out why decisions that are made prior to putting a penny into the process have implications for the long-term cash flow.

I have resisted using my home as the collateral for my investments. Based on this success, I'm going to (try to) get over that fear.

Hi @Jason,

In California, housing is regulated by the State of California in a Department called Housing and Community Development. They are responsible for setting the minimum standards for allowable housing. Then each county and city writes their own standards in their General Plan, rules and regulations.

I dont know how its done in Texas. If they use the California model, there would be a Housing Department in the State government. 

In California,  one might call them 4 times, to get different answers, and then see which answer they got the most times, and follow up. 

I was fortunate to receive a copy of the California State's memo where they specifically enumerated the requirements. I dont know if Texas has even written State standards for tiny homes.

Check out Spur, Texas. This website has a very general definition of tiny house, that seems to work for their Texas town.

http://www.spurfreedom.org/

There is only one house on this block that has sold in the last few months. It sold for $590K. The zestimate on the other houses is high $600s- high $700s for houses that are twice the square footage of this one, arent total fixers.

There is only one house on this block that has sold in the last few months. It sold for $590K. The zestimate on the other houses is high $600s- high $700s for houses that are twice the square footage of this one, arent total fixers.

Hi @Travis Stafford

disclaimer - I'm biased because I am an attorney. 

Here's what I think you should do. First, keep track of how much the delay is costing you. If you were planning on renting and that rental income is delayed for 2-3 months, youve lost that money, those are your damages. 

Second, in California, an HOA has to pay the attorney fees for the HOA member, if the member is forced to make the HOA follow the CC&Rs. So if the CC&Rs say the HOA is supposed to make external repairs, and they are not doing it, and you hire an attorney to make them do it, they will have to pay your attorney fees.

Also, in California, HOAs have to mediate with members. So dont worry too much about the cost of a lawsuit. Its unlikely to ever happen. A mean letter should be enough to shake them into action. if that fails mediation will follow. The lawsuit, which would be very expensive is only a distant, and unlikely possibility, if all else fails. 

I'm pointing out that these regulations that we have in California may be similar to Texas. Then again they might be completely different. Its worth talking to a lawyer to get her advice.

Hi @Matthew B.

Your attorney is correct.

I think that people get confused about single-member LLCs because they are defined as "disregarded entities" for tax purposes. People believe this means that the entity is somehow more fragile. This is not correct. The entity has the same legal stature and protection whether its single- or multi-member. However the process of filing taxes is different. If it's single the member does not have to file a corporate tax return in addition to his/her personal tax return.

The actions that could make a corporate veil pierce-able, such as committing fraud, intermingling personal and corporate money, and underfunding the company apply equally whether it is single- or multi-member.

Do yourself a favor and get legal advice from a lawyer If you dont believe one lawyer, ask another lawyer. While lawyers are not perfect, and certainly can make mistakes, the advice in this stream from the non-lawyers could get you in hot water (and not the good kind that you have in Florida).

Hi Tom Harvey I'm a Real Estate Attorney who is an investor and works with investors in California. Generally, the time to form an LLC is when you have assets that you want to protect from potential liability. For example, if you own a home or have stock or retirement accounts that you want to protect from lawsuits that could happen at your rental property, then you isolate liabilities by placing them in separate entities. Forming entities also creates favorable tax advantages too. For example spending pre-tax dollars. If you have any legal questions, feel free to connect with me via private message. I'm currently in So Cal working with clients.