Their Attorney and CPA should be able to structure their LLC to give them the maximum deductibility. Being that they are treating this as a business they will have additional deductibility. They should assign a value to their labor hours and add to that the cost of materials, some of the holding costs, Realtor Fees and such which will give them a new adjusted base value on the property. The difference between that new base and sales price will be their taxable amount. That figure is then reduced more by additional allowable business expenses. If their attorney is smart they will take title in a Land Trust with the beneficial interest in the trust being owned by the LLC. Sound like you landed a potentially great client.
You need to show your true value by making sure you inform them of what improvements and additions will give them the highest return on their investment.
Originally posted by Jim Erickson:
Was referred to a group of three couples who knew exactly what they wanted to do... form an LLC and purchase single family homes for rehab and resale. During my initial meeting with them it was apparant that they had energy were focused and had the rehab skills but were also naive in real estate and business. (I have referred them to a good real estate attorney and a real estate CPA.)
They will be holding & rehabbing properties for 2-3 months and then place on the market (30-60 days)
Here are my thoughts:
It would appear that capital gains will cut deeply into profits (up to 35%)
FHA buyers will be eliminated due to 2003 HUD revisions of not insuring loans for properties owned less than 90 days.
The secondary mortgage market will scrutinize large price increases to be sure justified. 3 year sales history whereas before was 12 months.
Anyone have thoughts to share if you were in this group's shoes?
Previous Topic
Index
