All Forum Posts by: Michael Ndjondo makadi

Thanks @Basit Siddiqi for your input. I guess figuring out a way to claim the real estate status is the only way to pass through all losses during a given year.

@Natalie Kolodij. This is so eye opening as I had apparently wrong information. Thx for your contribution.

@Natalie Kolodij, Thanks for your input. Yes, I am aware of the lack of protection under these circumstances, and I am ok with it in the short term. However, I was made aware that RE gains especially loses can be fully passed through even when our household income is above 150K. Another perk that I was told that it is much easier to treat certain trips (for property hunt, etc.) as business trips if you do operate as an LLC. Is this not right? Having an LLC in place now will also help establish our business credential for future needs (biz credits, loans, etc.)

@Justin Jackson Thanks for your input. You are right and I have read multiple forums where many claiming that it is really unusual to see mortgage companies actually call up on the clause as long as one is paying mortgage regularly. But the risk is there although tiny. This is our long term plan eventually.

@Dan H., thanks for your input. First, yes I failed to mention that the losses are just rolled over to subsequent years to be used against future RE income. Second, you are right about the professional RE requirement. Unfortunately, we do use a property manager, but my wife is on her way to acquire a RE license next year and not exactly sure how that'll work for the current property income and the professional RE requirements. I'll dig more into this. That's a good point that you made about the umbrella coverage. It seems like you're using a strategy similar to ours to scale our RE portfolio and would like to pick up your brain one of these days. 

@Kathy Henley, ok it makes sense.

@Christopher Smith, that's an interesting approach you have for investing which I never thought about it. My strategy is to recoup at least 85% of my initial cash investment after refinancing and generate cash flow after all expenses. If after adding depreciation it means that I do not have any tax liability, I consider it as a bonus.

@John Underwood thanks for you input. 

@Christopher Smith, thanks for your reply. What would be a better option to accomplish my tax goal without transferring the title to an LLC if possible?

@Kathy Henley, Thanks for your input. Thow things: How do you protect yourself and are you able in this setup to pass through all rental gain or loss to your personal income tax? 

Several questions to CPA, lawyers or just those who might have better knowledge. For perspective, the property is located in San Diego, CA where I live also. 

1. I was told and read that the property MUST be owned by the LLC to enjoy the liability protection. However, my current priority is not liability protection as we (my spouse and I) only have one rental at the moment and do have an $1M umbrella coverage. We want to take advantage of the tax advantage offered by the LLC though as we were told rental losses (stemming from major rehab and depreciation mainly) can only be claimed if the rental is run as an LLC (for my case) since the W2 household income is above 150K. is this true? In case it is, that's where the need of setting up an LLC arises. But since the refinance will done in a couple of months with a subsequent addition of 2 units later this year, we want to keep the ownership for easier and cheaper refinance and subsequent construction loan. Only after that, we could proceed with the ownership transfer (we are aware of the due on sale clause). So, my question is will it be possible to set up and run the rental as an LLC while we do own the property under name?

2. We do plan on scaling our portfolio by acquiring several properties next year (primarily in San Diego, CA and possible in Dallas, TX as well) and was thinking about what would the better way to structure everything trying to balance cost of borrowing as individual vs liability protection. The first option is to create just one LLC, acquire and keep all properties under our names as long as it is beneficial and increase our umbrella policy coverage with significant equity in each property (25% at least). Not sure what's the max amount yet. The second option is to transfer ownership to separate LLC for each property ASAP and create a master one for "easier" tax filing. For this option, would it be wiser to incorporate in Dallas, TX for those properties purchased there? What about the master LLC (CA vs TX)? So, my question is which option is better and whether there is another option that I might have overlooked.

Thanks in advance for your help.

@Dan H., Thx for your reply. I'm planning on hiring an appraiser to provide more concrete data if that'd be possible. The architect that I'm working with mentioned that city can allow 2 ADU but I have to confirm that information.