All Forum Posts by: Walt Payne

As many have said here before, it is all about the why. Find the motivator that will help her achieve other goals and convince her that REI is the vehicle to get there and she might become excited.

There are new suggested standards for CDW houses. Remove the drywall. Remove outlets, light fixtures and breakers. Replace all wiring/plumbing for critical systems such as sprinklers and smoke detectors regardless of appearance. Plumbing may or may not need replacement. Pressure check it before replacing drywall. 

There are no EPA disposal requirements, no specific rules in Florida for any of this, just suggestions. Local laws could vary from that though. 

In essence what you end up with is a roughed out shell ready for finishing. How much that costs you to complete can vary a lot just like any other rahab. It depends on who is doing the work, and how high grade you want to/should do in that neighborhood. Pay accordingly, knowing what those costs will be up front, and it can be well worth it. But it is not the kind of job I would suggest for your first few flips. 

A down side of NOT doing them in separate entities is being declared a dealer, and having your depreciation on buy and holds RETROACTIVELY disallowed. Which means your previous years taxes were wrong. So you owe all kinds of taxes and penalties. However you do it, keep the two in separate entities. And in typical IRS fashion, there are no hard and fast rules on being a dealer, just a judgement call. 

BTW you can flip in an LLC, and have it taxed as an S-Corp. I believe that is a one time, irrevocable election if you choose it.

Also, I agree it is hard to know sometimes which is best, but I know most flips will be rehabbed different from fix and hold, so you need to decide by the time you buy anyway. Sure, if you switch to a rental as an alternate exit strategy you would switch entities it, but that should be the exception.

@Account Closed 

I would not do it as a mortgage. Just loan the money to your LLC as an unsecured loan. After all, their credit rating with you should justify that, right? ;) That way you are getting a bank loan using the property as security, and there should be no issue with intended use. Whether you repay the original loan, or invest in a new property is not relevant.

BTW you would have to wait to do the loan, since banks will not loan against a new purchase and include the rehab costs, or loan a percentage of FMV after rehab, they will only lend using the purchase price for 6 months. But that would be true of a refi also.

@Uwe S. I am using Firefox and it is working for me. But it has not worked on my android phone for a long time.

@Larry Turowski None of the above. Why remove it? Shrink the room size by 3/4" by just putting 3/8" drywall right over the wood. Much less work, same result. You don't need 1/2" drywall this way either, since it is backed by the wood. 

You might need electrical box extensions, but they are cheap and easy.

@Angus Pratt Welcome to BP! It is a great resource.

I can see where it could be a good way to do a value add without the hassle. Finding good contractors to do a rehab, and managing the process, can be a real hassle if you are not having a crew of your own. For demo work you could hire unskilled workers, and only need a minimally qualified supervisor to make sure they keep moving.

If you do decide to the full job, or want to investigate the possibility further, get The book on Flipping Houses by J. Scott. 

I would be blunt, though leave out certain details such as the family part. I would tell her that because she has been late numerous times that you do not believe it is in either your best interest or hers to invest additional money in relocation. Tell her you do not want to incur the additional cost of getting two properties ready for rental rather than one. Also tell her that part of your job as a landlord is to assess tenant ability to pay. If she moves, with a past history of being late she is even less likely to be able to pay because even a do-it-yourself move costs money. I would not bring up the cousin, that would create a lot of potential issues.

@Gary McKissick  I will change how I say this, because @Jonathan Twombly has some very valid points. Re using an LLC, either do it right or don't bother. I am not a lawyer, so I don't profit from this. But there is a high probability that if you do the "lawyer in a box" thing, or create an LLC online, that it will be worth something on the order of what that used pile of paper is worth. If you hire a lawyer to create the LLC and instruct you briefly on what you need to do to make it useful, then follow his/her instructions ,,,, you will have a valid asset protection. Yes, it will cost more. But it will be a meaningful step. Otherwise, buy yourself good insurance coverage (which you will need anyway). If you find you need additional LLCs later because you are doing flips, etc, then by all means do it online because you will know the requirements.

All of what you said is consistent with what I have been told. The latter part is what makes treating an LLC as the primary asset protection a serious problem. Too many REI are part time, and in way too many ways treat it more as a hobby than a business. And therein lies the issue. That is especially why I say it is imperative that they not listen to those who tell them to spend $100 to do it online. Yes, it is cheap. Yes it is easy. But spend that $1000 now to get an education about what is necessary in your state. Then do it online for any additiona LLCs you need.