Rehab through Company or in Persoanl Name?

Rehabbing, Fix and Flip, Rental Properties
1

Hi,

Can someone tell me whether it would be better to do my first rehab in my own name or should i set up a company and do it through that?

Thanks in advance :slight_smile:

2

Put it in your name if you want the risk of a contractor hurting themself and suing you for everything you own. Put it in the company name if that doesn’t sound like a good idea.

3

I do agree with Danny. Also, if you are new, it is good to establish a company anyway in order to build credit for that company. For new investors, maybe those who just left their job, it will be important to have a company in place so that they can qualify for loans in their company name after 2 years of investing. Some banks/lenders have a problem with closing in the name of a company even though you are personally guaranteeing the note. I think it is wise to be well protected. I think builder’s risk insurance is key when doing a large scale rehab project. A personal umbrella insurance policy is also wise. No, I do not sell insurance…even though it may sound like it. Best of success to you.

4

Always put your investment properties in your company name. Many title companies will actually be able to do it for you on same day of the closing so its good to ask, that way you save a trip and if you have a good relationship with the title company it can be cheap. My title company charges me $25 to QCD it to my holding company and its done on the same day I close. Just a couple more signatures…

Also, for rehabs, you want to be able to claim expenses for tax reasons, so you need to put it in your company name as well…

Ever state is alittle different as for the type of company, and what your looking for as for tax savings. However, NV is still the best state to incorp. in. You can keep your name off the records and if someone does a title search your name will not pop up. In fact all my company names have the name John Smith on them as the officer. You do not need to use your real name in NV which gives extra protection…

I use 2 companies for all my investing. One is a holding company to buy sell and hold. Then there is a mgmt company which just manages and gets paid thru billing the holding company management fees equal to its profits. This way my holding co pays no taxes on capital gains. The mgmt company income is for services rendered so its taxed at 15% not 27% for capital gains when less than 1yr. I then W-2 myself the income left in the mgmt co to pay myself so it pays no taxes. I just pay taxes off all my personal income. You can end up saving about 80% in taxes on all real estate investment deals…

5

Thanks for all the info, much appreciated!

6

yrush,

you have no problem with the lender on the rehab letting you QCD the property over to your LLC?

Also, can you explain in more detail about the duties of your 2 LLC’s. I’ve been thinking along these lines but have had problems working out how the 2 will operate at an arms length so as not to show any type of collusion. I’m looking for a good attorney for this but was curious what you have found out.

Thanks

7

Hurrikane

I use to LLC, both taxes as a C-Corp in NV. I live in Fl so both states have a state income tax so it benefits me during tax season as well.

1st I have a Holding Company, its function is to Buy,Sell and Hold the properties and other investments I choose.
2nd company is a Property Management Company. Its job is to maintain the properties in my holding company.

After I purchase a property in my name, i QCD it to my holding company.
The holding co does nothing else till the home is sold, then it makes money called capital gains if sold for profit. To avoid paying taxes on my captial gains (especially on flips) I use my mgmt company to bill out the holding company mgmt fees to equal its yr profits in the holding company. This way at the end of the yr, holding company made no money. (Plenty of people sell for losses or 2 breakeven) Property mgmt fees are nothing new, especially for out of town investors.

Now my property mgmt co, being an LLC is allowed to pay certain expenses for its employees (me). Even though my car payment is in my name, it can still pay it, auto ins, cellphone, internet access, food, trips, entertainment, yrly stockholder meeting (another trip), health ins, SEP IRA contributions, life insurance, etc.

Now when the yr ends, I will deduct from all mgmt fees collected, the expenses incurred.

lets say i collected $100,000 in mgmt fees and I incurred $40,000 in expenses (these are bills I have to pay no matter what), then my mgmt company earned $60,000. I can now let the mgmt co pay the tax at 15% or i can pay myself a salary of $60,000 to myself and have the mgmt co declare no income and pay no tax and I will pay the taxes myself. Since I live in no state income tax state like NV, I only pay federal taxes on the 60K. This method reduces your tax bill considerable alot…

andrew

8

Thanks for the insight y

9

Question for you Yrush. First, is your holding company a C-Corp? Second, do you bill your holding, as projects are sold and you profit, or do you bill at the end of each year? And, how detailed are your records, meaning do you keep track of every bill your management company pays for you personally, and do you keep track of everything your management company bills, the holding for, ect? Also, lets say you let the management company pay the tax on the 60K, and would you then declare no income personally? This is all very interesting, I love tax gurus, you’ve just become my best friend. ;D

10
  1. Both Companies are LLC taxed as a C-Corp.
  2. I bill my holding company monthly, but they does not mean it pays each month, just pays late. But by the end of the yr, it will have no money. Reason I build monthly is to create a normal sense of business. The 2 companies are seperate. A mgmt co will send in its bills monthly and expect to be paid. However, if the holding co has no money, it will not pay till it generates money from a sale.
  3. In todays electronic age, the the bank statements generated are good enough to replace reciepts for almost everything. So each month I write personal notes on my bank statements to keep track of what it pays for. Its obvious a payment to Cingular is for cellphones, State FARM is car insurance, etc. I generally use my checkcard for everything so you have a detail of the business, instead of writing checks really. Dinners and trips I will write with who, or for what.
    As for keeping track of bills to the holding co, yes i do. I do everything on Quickens which makes it easy.
  4. If I let my Mgmt Co keep all the income it earned and pay taxes, then I would not pay personal income taxes on it unless I paid myself something. I always pay myself since my state has no state income tax. I come out ahead overall.

hope this helps

11

your name your company name it doesnt matter you dont own the property anyhow RIGHT??? Your trust owns the property RIGHT???