Real Estate Investing

[S T]

Was contacted by one of my clients today that is very enthusiastic about a new venture!

Real Estate Investing!

Has any one experienced or dealt with a client that has taken the courses and entered into the real estate investing program under the Training of Dean Graziosi, Carleton Sheets, etc?

Is there a reason that they are promoting the investors to set up a S Corp?

I am sure there will be more questions on the horizon as the training continues.

Sandy

[Davc]

I think they'll learn that the way to make money is to find gullible people to buy your training.

[Cuculain]

Carlton Sheets, lol

They are enthusiastic because prices are down now. Good for them on the "buy low" part of it. Almost all novice investors make the mistake of factoring appreciation into their cash bonanza. Seriously, all real estate investment basically breaks down into projected rents against PITI. Unlike most other businesses, you can’t work harder or sell more to increase revenue in rental real estate. So you need to estimate rents low, and estimate all other costs high. Cash flow is the only thing that matters, especially now, when all the speculators are taking a bath.

There is also the aspect where your client needs to be prepared to take calls about the tenant’s kid flushing toys down the toilet on the Sunday of labor day weekend and deciding whether to call a plumber. Also be prepared for complaints about the property while the tenant owes money to the landlord. Plus city code, lead tests, etc. And have an attorney ahead of time to evict about 50% of your tenants when they are behind on the rent and lying to you about how bad their life is...after you evict them you’ll find that the way they live is why their life is so bad—basic cleanliness, door knobs replaced and turned around to lock kids into bedroom closets, Pit Bull in every home, etc.

To answer the basic question: LCC and S-corp both provide limited liability. I can’t imagine why anyone would use an S-corp for real estate (vs. an llc.). Income from RE is “unearned”, so no SE Tax. I would truly like to know if I am in ignorance here.

Having said all that. RE is the get rich slow plan. It does reward people who pay careful attention to their business. Right down to supervising the building materials you allow contractors to use and checking up on that directive.

Jaded Landlord.

Was contacted by one of my clients today that is very enthusiastic about a new venture!

Real Estate Investing!

Has any one experienced or dealt with a client that has taken the courses and entered into the real estate investing program under the Training of Dean Graziosi, Carleton Sheets, etc?

Is there a reason that they are promoting the investors to set up a S Corp?

I am sure there will be more questions on the horizon as the training continues.

Sandy

[erchess]

Llc

The rules for what businesses an LLC can be in vary from state to state so before considering this entity make sure that it is an option for this taxpayer in the state where the rental properties will be located. Beyond that I have heard that corporate ownership of real property is a mistake. If I understood correctly it is because of the tax consequences of selling the appreciated real estate. However, I don't know of another way other than buying a lot of insurance to try to protect your other assets against a claim arising out of your ownership of the property.

One poster is assuming that the client in OP will be renting the property out. My understanding is that the courses such as OP mentioned tell people they can buy houses and relatively quickly sell them at a higher price. I have always been skeptical of that idea. On the other hand, I have had a few dozen clients over the years who owned rental property and I remember only one who showed a profit year after year. Their profit was small enough that the couple was very well satisfied when I helped them find a Realtor who sold their houses and a Broker who invested their proceeds in municipal bonds. Most of my clients came close to breaking even while the rental properties were subject to mortgages but their real profit came when they sold the properties. A typical client might have put 20K down on a house, broken even on rental for fifteen to thirty years and sold the house for 120K. The question for someone who wants to try to do that now, of course, is when or if the real estate market will resume its habit of growth at pleasant rates year after year that it had for so very many decades.

[JohnH]

On thing to keep in mind is that a mutual fund or CD will never require a roof repair, its grass doesn't need to be mowed, and it won't be damaged by uninsured water damage.

[Bees Knees]

Is there a reason that they are promoting the investors to set up a S Corp?

Lack of tax knowledge. Telling a client to put real estate inside a corporation is malpractice. We've had many discussions on this. I'm surprised it is still an issue.

The other lack of tax knowledge these seminar people have is telling potential investors their seminar fee is tax deductible. It's not. IRC Section 274(h)(7).

Expose these two issues to your client and tell him/her to go find a real job.

[Snaggletooth]

Yard Sale Stuff

Callie (my wife) is Tennessee's biggest yard sale buff. She lives and breathes yard sales and has over the years become a smart shopper.

The late-night infomercial hero Carlton Sheets has a package littering many yard sale tables. They sell for practically nothing, and are often given away. My estimation is that he has made more on selling his $39.95 "package" than he has in buying or selling real estate.