All Forum Posts by: Account Closed

The way I've done it is I contribute cash and then buy with the LLC. And I wouldn't consider myself an expert but if you contribute property instead of cash, your contribution is equal to the value of the property not necessarily what you bought it for so it's important to know the value of what you contribute so only the gains are split 50/50 if you thought it could be worth different than what you bought it for. But either way you have lets say $100k equity afterwards and your partner has zero. That is what you get back and therefore a loan is not necessary in my mind. Your partner through ownership in the LLC can still be considered 50/50 owner of the property but not like your partner is $50k richer off the start. Because if you lets say liquidated the partnership the next day and sold the house for $100k you'd have your $100k back and your partner would not get anything. But by contributing to the LLC you are transferring ownership from you to the LLC which you only have 50% ownership so it may seem like your giving $50k away but you're not.

Simple answer would be once you accounted for all income and expenses and determine the net profit, you can distribute that to each partner and then at the end of the year each partner would report their share of profits on their own individual tax return. Just remember not to spend all your profits because you'll likely owe taxes on it when you do file your taxes. I think that answers your question. But knowing how much your taxes will be and how they are calculated is another story (could be investment or could be self employment). And knowing your other potential filing requirements, such as LLC tax return if you set up an LLC, is yet another story.

It is very much more complicated and costly than you might think if you hire them and they are deemed to be "employees." based on IRS guidelines so it would really have to be worth it to do down that road. You likely want to hire them as "independent contractors" but note that the bar is higher than people think to meet that criteria. Research and understand the guidelines anywhere online. Not that its difficult to meet the criteria, but its easy to misclassify someone as a contractor if you're not careful. And even as a contractor, if they are not insured, you might want to pick that up as well. 

With that said, the reason they get paid $10 is maybe they are employees (who pay less taxes than contractors do) or they get paid off the books or whatever. 

@John Thedford I'll add that a 1099 person is NEVER an employee. 1099's are issued to contractors and W-2's are issued to employees. But you must determine if they are a contractor or an employee first before determining if they are a 1099 person or not (and its not black and white but you can find a lot of guidance online about this). So as a landlord, consider who is doing what for you and see if they fall under the category of a contractor or employee and go from there. 

That being said, WC comes into play for all employees as well as in the case of contractors without their own adequate insurance. 

When you're in business like this and you hire someone to provide a service for you, the bar is set high for determining whether they are truly determined to be a contractor. Hiring an individual to do what you want, when you want, how you want, for the price you offer to pay them, etc. is really deemed an employee, in which case workers' comp comes into play (and a lot of tax and other requirements you don't want to deal with). They are not deemed contractors just because you or they say that they are. Best case scenario is you hire reputable contractors, someone who is in business to provide such services to you and others, who you agree to terms with contractually and who carries proof of insurance among other things (and all you need to do is issue them a 1099). Insurance in general is tricky as many people think they are covered for certain things when they are not. And insurance companies look for ways not to pay first. 

I assume you will be set up as an LLC or some form of business entity. You'll need to keep track of every expense (including things like vehicle expenses, interest, lawyers, accountants, permits, tax preparation, LLC organization fees etc.) and if applicable, keep track of expenses relating to different projects separately. Basically every dollar spent will be a business expense and every dollar received will be income and the difference after all the dust settles is your profit to be allocated. But from a tax perspective things get tricky and you'll want to work with an accountant even before you start anything in order to really know what you can expect.

I could never get over 800 because I didn't have installment loans like a mortgage or a car loan. Now I have a car loan that I paid down a bit along with a lot of credit available but very little of it used. In no time I was well over 800. Low utilization, different types of credit accounts open, and a long enough credit history should do the trick. 

@Ray Shum I haven't jumped into rental as a personal investment yet but I see it on another scale at work so I might not have the best answer for your situation. But my quick response is if you think its important enough to have 2 LLC's to protect your assets, then why commingle anything between the two. I might be a little more conservative than others where I too would have 2 LLC's for 2 properties while someone else might have 5 single family homes in 1 LLC. But atleast consider each LLC separate from the others (and yourself) in every way possible.

I'd set up an LLC and in fact, a different LLC for each property. That way each property is protected from potential issues (lawsuits or whatever) that might arise at the other property. Also, by holding the assets in an LLC, you are personally protected as well so its a good idea to keep rental income separate from your 9-5. Just keep records, accounts and activities separate from each other as well as from your personal stuff. LLC's are easy to set up and easy to maintain, they are very flexible and affordable. For the first time you may consult a lawyer or accountant to help. I've used a paid service the first time to see how it works and since have created several on my own in just a few minutes online. Although different states have different rules.