All Forum Posts by: Mike S.

When you turn a primary residence property into rental, especially if you don't know if you will sell it in less than 3 years, one option is to sell your property to an S-corp to capture the max exclusion under section 121. Then you start depreciating at this new high basis. When you sell later on, you capital gain will be probably lower due to the step up basis that you gained from the 121 exclusion.

@Kenny Dahill

Do a corrective deed to have the property deeded into a land trust where you are the beneficiary. Then later assign the beneficial interest to your LLC. The Garn St Germain act will protect you against the due on sale clause.

@David Tsedaka

I have no idea about the increase rent you can get for central air.

However, have you looked at mini split a/c ?

@Greg S.

It all depend on the value and what will make you sleep better at night.

For me, any property that equity is worth more than $100,000 has its own LLC. But I also carry liability and umbrella insurance. All of them are complementary and one does not replace the other.

The recurring cost of an LLC is only around $200 a year. However the set up may be more, especially for your first one. Also you will need to learn the proper way of using it.

If you expect to buy more property I would then suggest to start your entities structure now. If you won’t expand for a few years, you need to decide the cost/value ratio of setting it up now vs later.

@Luis Martin

If you use an offshore LLC you will pay the same amount of taxes and incur more tax preparation cost and way more cost to maintain the structure. Also you will have a hard time opening a US bank account...

Offshore LLCs are great as asset protection entities for either offshore real estate or offshore brokerage account. However for us based real estate or accounts, a US judge will bypass your offshore asset protection and directly seize the asset under US jurisdiction.

@Michael Tempel

google voice

Cellphone based: on iOS: MySudo app

Sip/IAX based: VoIP.ms

I am using all three solutions for different needs.

@Bryan Clement

It all depend of what will make you both sleep better at night.

For some people having no debt is a freedom that is worth it.

For some it’s a maths equation where you can make better return on your cash than the interest accrued on your debt. Now, as there is no 100% safe investment with high return the question is how can you handle a streak of bad luck when your investment does not produce what you expected? Do you have enough emergency reserve to stay put without having to fire sale your asset and risking an even worst?

In my personal case I believe in having some low interest debt to increase my leverage. It’s a great tool to grow your wealth faster. I have lost money with it but I have made some too. How much is too much? When you start asking the question you are probably already there...

A pass-through LLC does not change anything about your tax rate...

Also, by receiving money in an LLC that does not own the property, your are piercing its veil and basically commingling asset. Your LLC won't offer much asset protection at all...

You could in theory have a contract between you and the LLC and consider the LLC as property manager, but even then, it will only give you a very weak protection against any property management liability. It is more realistic that you will be sue personally anyway as the owner and/or the individual managing the property.

Also, by having the property under your own name, any personal liability that you may have from anything else than the property can also come take the property.

Using LLC is like having boxes. You protect what is in the box from outside, and you protect outside from what is in the box. If you don't put anything in the box, your box is useless...

The setup I am using is as follow:

each property is in its own land trust, each land trust has as beneficiaty, a single member LLC in the same state.

Each single member LLC is owned by a multi member WY holding LLC.

I have a C corp as property management for all my properties.

This structure is probably way too expensive in your case for a single property but let me explain the main reasons of this setup.

land trust: create anonymity and some liability protection (only in FL).

single member LLC: create the inside liability protection for each property, avoiding propagation of liability to the other assets. It is disregarded by the IRS (ie no filing) but some State may need their own filing.

WY holding LLC: owns all the sub LLCs. create the outside liability protection through the WY charging order.

C corp: get all the fringe benefit available from C Corp. The company charge only enough money to cover the costs and make a little profit. I am not taking any money out of it.

In your situation, I don't know in which state you are, but if your state LLC protection are good enough, you could only have one multi-member LLC in the state that does everything (ownership and management). Your LLC will have to file a 1065 informational report each year and distribute K1 to its members, but as a whole it should be tax neutral for you.

I would suggest that you consult a real estate asset protection attorney and CPA that could guide you through the different options so you can make an informed decision.

The basic setup of an LLC varies between states but it is in the $100-$300 range usually. You can file yourself.

The drafting of the operating agreement by a lawyer can cost you between $500 and $2000.

These are averages and your result may vary...