All Forum Posts by: Will Kenner

@Wayne Marques Great step towards maximizing your RE investing as having a competent CPA is crucial. If you haven't already, check out the BP Real Estate podcast #569 with Tom Wheelright. Tom also has several great books that help break-down what a CPA should be doing for you. I highly recommend starting with his book "Tax-free Wealth". 

Some of the broad questions I would ask a potential CPAs may include 1) their experience with rental real estate as a whole, 2) are they a tax-planner or just a tax preparer - huge difference, 3) how often they will update your books (monthly, quarterly, or at the end of the year), 4) their strategies for depreciation, 5) how they would handle deductions/depreciation on a rental unit re-hab, 6) their recommendations for cost-segregations, and 7) how they approach the addition of more rental properties. There will be more specific questions based on your individual needs that will come up, but by starting with these higher-level questions, you can flush out if they are fluent in maximizing real estate tax strategies and if they will be pro-active in tax planning vs. reactive, after the fact, and simply prepare your taxes. Once you've determined they will be pro-active and a tax-planner, then you can dive into the finer details of your specific situation.  

@Kaylee Sheppeck, as @Malcomb Stapel said regarding taxes, an LLC will be a pass-through entity which basically means it will not show a profit or loss itself, rather it will be passed through to your personal taxes. This can get a bit more complicated so I would strongly recommend finding an accountant well versed in real estate investing. There are significant differences between accountants; some simply prepare taxes, and others do tax planning. The former usually takes a short term approach to taxes and simply deals with the taxes owed at the time and manages decisions that have already been made. A tax planning accountant takes a more long term approach and will help you make decisions ahead of time that will have beneficial tax consequences come tax time.

As @Bryan Martin mentioned, it's best to have specific accounts for each property to make tracking expenses and transactions a lot cleaner on the books. Of course, working with a good tax planning accountant may allow you operate with one dedicated account as they will help track expenses for you, but in general individual accounts would be a best practice. 

Lastly, as @Brandon Rush stated, typically an investor would purchase a property in their name and later quit claim it into an LLC. This is usually an easy process however a few things to anticipate:

1. Talk to your bank doing the financing when you start the process for initial purchase, and let them know your intentions of moving it to an LLC after close. This way steps can be taken to make sure there will not be issues with the loan after the fact.

2. Doing the quit claim may require help from a real estate attorney to make sure it's done correctly and to avoid accidental excise or transfer tax. This is definitely worth the cost of the attorney's help. 

3. If the property is in your name only, and you want to quit claim the property into an LLC that has investment partners as other members, this can complicate the matter with regards to the loan and possible fractional "sale", hence items 1 and 2 are even more important.

4. If you are planning on expanding your portfolio with more properties over time, a good practice would be to have each property in their own LLC, and each of those LLCs own solely by a parent LLC that will act as a holding company. You would be the sole member of that parent holding company and then indirectly own your properties through the tiers of LLCs. This adds more layers of protection (again not 100%, but better than holding a property in your own name) and would be worth structuring early on in your investing process.

This is definitely not a one-size-fits-all and there are many nuances for one's specific case and state you operate in, so again working with both a real estate accountant and attorney is important.  

@Nathan Gesner thanks for those recommendations. I'll check them out. 

I know this topic has been discussed frequently in the forums, however I'm still finding a lack of solutions for a small/intermediate mixed portfolio. There seems to be a gap between the free solutions for handling a couple residential units (Apartments.com, Avail, Stessa) and paid solutions (Buildium, Appfolio) that are structured for large portfolios, and not much in between. 

With a portfolio of 4 properties and 13 tenants (mix of commercial and residential), I'm using a combination of Avail and Stessa. This is starting to show weaknesses in their capabilities and proving to be a hassle with the growing complexity of managing this property mix; Avail being configured for residential and weak at handling rent escalations and charge-backs, and Stessa having unreliable bank connections. I'm hoping to find a solution that can be a standalone accounting and tracking option that does not require Quickbooks like Stessa, provides online rent collection, maintenance requests, and e-signing for leases like Avail, and can handle expense segregation for NNN leases and nested entities like Buildium or Appfolio.

The closest solution I have found is Stratafolio. It appears to handle the needs of that intermediate portfolio situation where it's too complicated for the free solutions but Buildium and Appfolio are over-kill. Stratafolio seems to be able to handle residential as well as NNN commercial leases, has a tenant portal for online payments and maintenance, and can be configured for nested entities under parent companies. It isn't clear however if it also offers e-signing for leases. I have a consultation scheduled with them this week so I'll be able to find this out, but was curious to hear from other investors with mixed portfolios if there are any other solutions they are using.

@Account Closed McKinstry was one of the companies I had contacted early on who said they weren't taking on new customers. It seems the larger companies are have all the business they can handle. I assume labor shortages and parts supply are driving factors. The search continues!

@Khaled El Dorry So you already own the property as a second home, and now want to start using it as an STR? If this is the case, then I would highly recommend getting the right protections in place before operating it as an STR. I disagree that since you have a mortgage on it, that you don't need protection. That's not sound advice. Start by talking with your mortgage holder about your intents and they can guide you on how to make the move to an LLC without triggering any due-on sale clause.

@Khaled El Dorry There are more details need about your situation to really reach a definitive answer, however in general you should be able to simply quit-claim your property into an LLC regardless it it's an STR or LTR. (Assuming it is in your personal name currently) Getting the property into an LLC is a good idea, especially since you are operating it as an STR an having a high volume of people moving through the property. Of course an LLC is not bullet-proof protection on its own, but every layer helps to insulate your personal assets. You'll want to operate that STR within your LLC as a strict business and avoid co-mingling personal funds to ensure maximum protection.

@Angelleena Arevalo Has the property in Spanaway been fairly "hands off"? If so then that could justify the lower cash flow amount and the argument to hold on to it. Otherwise, with the amount of appreciation you have, selling and putting those funds into a multi-family in FL may be a better option to start scaling. 

@Richard L Truitt From my experience and guidance I've received over the years, it's best to keep each property in it's own LLC and not have multiple properties in the same LLC. Ideally, you'll want to form one parent LLC (XYZ Holdings, LLC) which will act as a holding entity, then each property you acquire will be in a separate LLC (Property 1 LLC, Property 2 LLC, etc) each of which will be owned by XYZ Holding LLC as their only "member".

In your case, you'll want to purchase your new multi-tenant property either in your personal name then transfer to a new LLC, or do as you did with the condo and setup an entity from the beginning and complete the purchase using that entity. In the former option, make sure your contract has your name and "and or assigns" as listed buyers. That way, once you have completed your due diligence and are ready to close, you can form the new LLC and assign the contract to that LLC for closing. Otherwise, you can complete the transaction in your name, then quit-claim the property into the new LLC.

If you are not planning on living in one of the units of the new multi-family and therefore not getting an FHA loan, then it won't matter if buy it with the LLC or under your name as it will be an investment purchase.

To answer the latter part of your question (and I am not a tax advisor or accountant) you won't want to split the operations between your personal name and an LLC. You'll need to go either one way or the other. Hope this helps.

@Peter Tverdov You highlight a great point. Although finding a Tax Planner fluent in the areas of tax where you conduct business is important, what's equally important is finding someone to add to your Team who you trust and feel comfortable with. Not everyone will be a good fit so one will need to vet several CPAs before hiring them.