All Forum Posts by: Jenna Y.

Wow! Thank you Kristine! Very helpful. Ok - sounds like if it goes the intestate probate route then this deal is a no-go. Good to know.

I just sent you an email with relevant info.

To answer your questions:

1. The family contact is the grandson. He thinks he's the only one listed on the trust, but he's not sure.

2. The property was put into a trust after it was initially purchased. Prelim title report contains a quitclaim deed transferring ownership from the descendant to a revocable living trust under his name, with the descendant listing himself as the trustee. Recording was requested by the descendant, not by an attorney. 

Hello - Trying to purchase an abandoned home - the house is owned by a trust, the owner passed away 15 years ago. We are working with the family to acquire the property. Our escrow company needs a Trust Certification for escrow.  The family contact doesn't remember where the trust document is located anymore. We did a prelim title report and there is no recorded trust. We will continue to dig of course, but what is the recourse if the document is in fact lost? 

Estate planning/probate attorney referrals also very welcome (if that's the appropriate thing). This is a very small deal (especially for California standards), but hopefully more down the pipeline. 

Thank you!

@Rick H. - Ah! Perhaps I should re-state my question! :) Could you recommend an attorney that might be able to help with such a transaction? This is my first deal, so am building all my connections as we speak. 

@Account Closed AirBNB currently has a valuation of over 10 billion dollars. Whether the valuation is over-inflated or not, their market penetration into the hospitality industry is now undisputed. 

However, there are some issues around the legalities around residential properties operating as short-term hotels in certain metro areas (especially where hotels are seeing their bottom line being threatened). AirBNB is proactively trying to resolve these issues, but anyone thinking about purchasing properties solely to list on the site should be aware of the associated risks of operating in this market.

@Brandon Laughridge - NP! As mentioned above, please be aware of potential future issues, and plan accordingly for contingencies (sound like you already are though!).

@Account Closed - Thanks much! I gave myself a crash course on taxes and flip numbers this weekend, thus the knowledge, but you are correct, I have zero knowledge of conveyances and liens yet. Trying to learn as quickly as I can, give me a few days to get up to speed. :)

Your advice is tremendously helpful in pointing me in the right direction. Do you have a RE attorney that you could recommend? 

I am purchasing outside of LA/Orange County, there are still some sub-50k properties in the outskirts. :) We drove around looking for abandoned properties we liked for a buy/hold, culled the list to 12-15 properties meeting specific criteria,  then I located the owner's phone number (or family members) and we called them.

I run a fairly successful vacation listing. A few things about AirBNB specifically

1. Decor is a HUGE part of AirBNB success. Tired/sparse decor will not cut it, even though technically you might have superior "amenities" than other listings. This is a premium hospitality business, even more so than VRBO or standard vacation rentals - so you'll have to wear a different hat to understand your market. If you don't think you can be realistic judge of how well you can deliver on this - please ask someone to help with this.

2. You can research comps on AirBNB directly. Don't just look at similar amenities and location, but also quality of decor. Search comparable listings at a given time frame and see what their overall availability is in their calendar, say for a rolling three month period. Listings that appear to be 100% booked for months on end are likely inactive, so don't factor that into your comps, or it will vastly scew your numbers.  If you are talking about a four-plex, then you're going to be your own competition, so factor that into your occupancy rate too.

3. This is a hand-on active hospitality business - which can be fine. If you want good ratings/reviews, be prepared for being available at all times via text/ phone calls about bus lines, transportation logistics, where the best brunch places are etc. Your response time is reflected on your profile. Plus time/cost for maintenance of your listings - linens, full kitchen, toiletries, cleaning supplies, etc. Sure, you can eventually train someone to do this all - but you'll be needing to do this initially for sure to ensure good reviews.

I've just seen multiple people burned with underestimating how popular their listing will be on AirBNB and not understanding the market, and then confused on why they get no bookings month over month. But if done right, it can be a very great experience (as long as you are happy playing concierge!)

@Account Closed - Thank you - modeling with those numbers, looks like the s-corp tax benefit would be $1,335.01 - perhaps not worth the tax-time hassle. 

Still an open question regarding how to reflect my parents on a deed of trust. What is the relationship between the deed of trust with my parents and the current escrow process transferring ownership from current owner to me? Should this deed of trust be somehow reflected in the escrow closing papers? 

@Rick H.  Thanks much - I'll check out Title Holding Trusts. 

The purpose of this property is to provide a foundation (learning, building relationships, etc) for future deals and secondly, to maximize profit. So I realize that perhaps an s-corp isn't worth setting up for to maximize profit for one property, but if it comes out as slightly beneficial in terms of cost, then it will be worth it for me that I'm setting up an infrastructure for the long-view. Of course, if it is onerous to set up and maintain, and cost-neutral or worse, then it might not be worth it to set up. 

The primary reason for the s-corp is for tax savings. On the Bigger Pockets forums, S-Corp appears to be a popular (but not universal) choice for flipping, as an s-corp would help with avoid profits all being taxed as ordinary income (Federal, State, and then an additional 15.3% for both sides of FICA).

In my case, tax rate something as follows:

INCOME TAX

• - Federal (up to 36.9k): 15.0%
• - CA State (up to 39.3k): 8.0%
• - FICA - both sides of medicare and social security: 15.3%
• --------
• - Total Ordinary Income Tax Rate (Fed+State+FICA): 38.3%
• - Total Dividend Tax Rate (Fed+State): 23.0%

I could be calculating this wrong, but for the flip scenario, I'm estimating the numbers as follows (just updated them to reflect new financing terms and flat-fee MLS):

• - Purchase Price: $14,000.00
• - ARV: $60,000.00
• - COST Rehab: $18,000
• - COST 5 months of holding costs (flip insurance, debt, utilities): $1,727.50
• - COST Closing costs (flat-fee MLS and marketing/ 3% buyers realtor fees/ county transfer tax/ 2% closing costs): $3,465.00

PRE-TAX PROFIT: $21,707.50

Applying the above tax table, the post-tax profits appears to be as follows: 

• - No S-Corp total taxes (100% taxed at 38.3%): $8,313.97
• - With S-Corp total taxes ($1,500 taxed at 38.3%, remaining taxed at 23%): $5,222.23

So, assuming my numbers are correct, with an S-Corp, it's a tax-savings of around $3,000. Not a huge savings perhaps after subtracting cost to set it up, but if I'm saving some money AND its a structure I'll need for future deals, then it seems worth it to me. 

Really open to correct or feedback from all - I'm trying to learn as much as I possibly can on this deal. 

Ned - We haven't formed the S-Corp yet. Flipping was not the original intent - we originally were going to hold the property, then this weekend, after running the numbers and getting to know the neighborhood more, decided on flipping it instead (actually, specifically, we're going to try to sell as-is, and it doesn't sell, we'll fix it up and flip it then). 

Joe - After running the numbers on the self-employment tax implications of flipping, based on what I've been reading on biggerpockets, it seems that an s-corp is the way to go in order for some of the profits to be taxed as dividends instead of ordinary income. 

Hello - I just acquired an abandoned property (absentee owner), the current plan is to flip it. The longer-term plan is for my fiance and I to buy-and-hold with flips to build working capital. We have no corporate structures set up yet. A few questions regarding corporate structures, transfer of title etc.

 This is a sub-50k house, estimated pre-tax flip profit is around $20k ($19,747 to be exact). Margin are clearly tight but I am using this more as a case-study and to learn the process. 

We are currently in escrow as a FSBO deal. This is the plan for the current property acquisition:

1. Close escrow with title in my and my fiance's name (a single man /a single woman). 

2. Concurrently, form an S-Corp, fiance and I will be 50/50 shareholders (S-Corp to minimize SET and limit personal liability) - to be used for this property and future flips.

3. Transfer property to S-Corp via a Warranty Deed or Quit Claim Deed.

4. All expenses and profits from the flip to be handled within the S-Corp. 

So questions: 

1. Am I on track with the above plan? Any feedback/suggestions? 

2. My parents are loaning us the bulk of the money for acquisition/rehab and have asked this so reflected on a Deed of Trust. How does this fit in the above scenario and transfer of ownership (step 3)?

Apologies if this is convoluted - I've been giving myself a 24 hour crash course, so trying to get up to speed and still gaps in my knowledge. 

Thank you!