Listen in as Greg White discusses a few steps you need before you start investing so that you don’t run into problems when selling a property.
Greg goes over the pros and cons of investing as an LLC versus investing under your name.
Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Greg: Hi, I’m Greg White from Imagine Home Realty in Detroit. I’ll be your host on the REI Classroom today. And our topic will be Preparing Yourself to Invest.
Mike: This show is sponsored by PassiveRental.com.
Greg: Preparing yourself for investments requires a handful of things that should be done beforehand rather than getting in late. For instance, one of the common mistakes that we run into here in Detroit is just about anyone can buy a property no matter what country they’re from, where they’ve obtained the property from they can buy it anywhere.
However, when it comes time to sell, if they do not have a Social Security number or an EIN number and they own it in their individual name, they’ll need an ITTN number which is an International Tax Payer’s number. And they actually can’t even sell the property until they’ve obtained that.
So often times I have clients that come to me and have had investments that they have purchased in their own personal name and have went awry and they decide that they’re going to sell. Their hands are tied. The title company can’t do anything with it until they receive their tax payer number because of course Uncle Sam would like to get his portion of the sales price in tax. So at that point they have to stop. They have to apply for the identification number and it puts the entire transaction on hold. This is one thing.
Other things surrounding this is LLC setup. That is one of the biggest and most questioned things that surround investments whether you’re buying to hold or you’re fixing and flipping. Mitigating your risk is what LLCs are used for. They don’t necessarily mitigate the tax liability whenever it comes to a single person because a single person LLC is still a flow-through to a personal tax return. However, it’s considered a limited liability corporation.
So if anything were to happen, a company or individual is harmed by this or the coming after assets, they’re only able to sue the liability corporation, so it’s a shield. This is something that I feel every investor needs to have set up. So usually whenever I get a client that comes to us and says “I’m ready to start investing, I’ve done my due diligence, I’ve decided that Detroit’s the place to be.” I’ll say, “Do you have an LLC?” And they generally say no. So what we do is help them set up an LLC and then also get an EIN number or a tax identification number.
These allow the properties to be purchased in the name of the LLC and they’re held in that company. Then it comes time to sell them, or for funds coming in, if it’s managed so the property manager’s life is much easier whenever it comes tax time, the funds are going to the LLC with the tax identification number so 1099’s can be handled at the end of the year.
So when you’re coming into the market, the first and most important thing is do your due diligence on where you want to invest. Understand everything surrounding that. Look at crime statistics, look at areas, look at school districts, follow all of these things. But once you’ve made the commitment to begin investing, you definitely want to look into LLCs, tax identification numbers, or if you are going to buy in your individual name, make sure that you have a game plan to sell.
Mike: PassiveRental.com is your source for turnkey, done for you rental properties. If you’d like to be an investor and not a landlord, please visit PassiveRental.com to learn how to purchase cash-flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting PassiveRental.com.
Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
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