LLC Startup
My friend and I are having the same problem with starting our LLC. It sounds like the best approach is to personally buy the property to rehab and sell. However, how does this assist the LLC? If you show a history of doing this personally and sucessfully, will a lender take this into consideration when you want to purchase through your LLC? :-D
The problem you're experiencing is due to the fact that your LLC is new. There are limited assets, no employment history, no income, and no credit references. The lenders look at this as not being a credit worthy risk. They would possibly consider this if you agreed to personally guarantee the loan. otherwise you should set about establishing all of the things that lenders look at when making loan decisions.
Jeff
Thanks, that helps point me in the right direction! I'm trying to do as much research as possible so I don't get in over my head. We are currently making our first offer today! (exciting). The other thing I'm looking into is CGT. Can you recommend a book I can read to do some research on this. Should I be deducting CGT from my expected profits to find out how much I plan to make? After reading a lot of the posts, it is beginning to sound like it may be better to rent out the property for a year to try to deflect some of these costs. However, we were really interested primarily in rehab and flip? Is this a profitable route to take when you consider CGT?
I am assuming that when you refer to CGT that you're talking about Capital Gains Tax. My suggestion would be to soak up the information that is available here on TCI on the Taxes/Tax Strategies Forum. There is also a book in the Rich Dad Series that talks about tax strategies.
Good luck,
Jeff
Expect to have to guarantee loans the LLC does untill the LLC becomes profitable, established, and capable of putting down 20% of deals. These guarantees do not show up on your personal credit, at lest the ones I've done through 4 different banks and not so far (a big advantage). Local banks here will drop the personal guarantee after a couple years of payments.
"Flipping" is not passive, so you will have to pay self employment taxes on your any income you recieve. Many investors hold rentals or properties they intend to keep at least a year in a LLC (rental propert is passive). Flipping is a dealer activity, many investors would recommend flipping in an S-Corp, since an S-corp can separate part of the income as "passive".
I have read the tax information available here on this site. It's been very helpful, but still a little confusing. Okay, so the initial capital in the LLC is about 100K cash. What we have decided to do is purchase the first piece of property with our own credit and rehab it with our own money to sell. We should be okay here. However, it does limit our ability to do several at one time until we sell the first few and build up more capital. Now about the cgt (capital gains taxes) I have read a lot on this subject that indicates we will pay 20% flat federal for flipping in less then a year and whatever state fees apply. Is this correct? Are there other taxes as well on top of this? I guess in GA the state is approx. 6-7%. Our impression was that it would be best to flip the property as quickly as possible, but it sounds like from a tax perspective, it is the least attractive. !?!?
Don't get frustrated with me, I know only enough to be dangerous right now, but I'm trying to learn...... eeeek!
The CGT only applies to the profits from your flip. If it weren't for the CGT, the profits would still be subject to tax at your standard income tax rate. I would just consider it a cost of doing business, and move on. Keep your flips in a separate entity from your buy and hold real estate. Let each pay the appropriate taxes.
makes sense to me! Thanks for all of the great advice. I am so glad I found this site. It's nice to find such supportive feedback! Thanks : )
That borrowing from Peter to pay Paul thing might have worked way back in the Stone Age, as espoused by that one guru, but it won't work now. When you borrow, they pull a credit report, and all that borrowing and repaying shows up.
There's a NICE thread here on TCI about building credit up in the name of a LLC that you can do a search for, and what they espouse in that thread would be very effective.
check w/ a CPA about flipping anf gains tax. I think there might be some clarification.
if an asset is held for <=12mo, the investment is subject to short term caps gain, if held >12mo it's long term cap gains. There are table for determining whichrate will apply.
Beyond that there are other techniques for washing out your profit that rather than having 50K subject to tak, you have 15K. good CPA and laywer are GREAT!
as for the aging on small LLC accounts I have done that w/ a c-corp and a LLC. It didn't help since the 2nd or 3rd thing they looked at was avg. balance.