Disclaimer: IANYL, nor may I provide tax advice.
If you want to avoid all the craziness of accountants and lawyers (now), form an LLC. They are laughably easy to form. From a legal standpoint, you get the benefit of limited liability. That way, if anything does come up in the future (completely regardless if you have been doing everything correct or not), your personal assets are not at stake or at issue. From a tax standpoint, the IRS has made it as easy as checking a box on your individual 1040. The LLC is a "disregarded entity" in the eyes of the IRS, and its income is reported as your individual income. I do not know what you forego in terms of being able to claim deductions of the business; talk to an accountant.
If you want to avoid all the craziness of accountants and lawyers (now), form an LLC. They are laughably easy to form. From a legal standpoint, you get the benefit of limited liability. That way, if anything does come up in the future (completely regardless if you have been doing everything correct or not), your personal assets are not at stake or at issue. From a tax standpoint, the IRS has made it as easy as checking a box on your individual 1040. The LLC is a "disregarded entity" in the eyes of the IRS, and its income is reported as your individual income. I do not know what you forego in terms of being able to claim deductions of the business; talk to an accountant.
Corporations sound complicated and scary. I always assumed they come with endless paperwork and generally require lawyers or endless research to deal with it. It sounds like I will have to do some research on LLCs to see what it takes, and I'll be pleasantly surprised about how easy it is. I wonder if it also allows me to take certain deductions I otherwise wouldn't be able to (such as passive income losses, which can't offset ordinary income if you make more than $150k/yr, unless you are a real-estate professional -- this is not modeled in the spreadsheet, btw, because the purchase/rent ratio is so favorable, I rarely have to worry about annual cash losses; equity losses are handled entirely separately). i.e. now that it is owned by a corp, I wonder if all losses become deductible, etc. Perhaps, if Romney becomes CEO of the US, he will make conditions more favorable for us small businesses... though I suspect most tax changes would be geared towards benefitting the already-successful multi-multi-millionaire crowd...
Your plan makes sense to me and I doubt it will be much trouble. Opening a business acct and forming an LLC on legalzoom should be a snap if you were nervous about liability plus there are plenty of good boilerplate rental agreements and contracts you can use for your tenants.
In my opinion it is good to protect yourself as much as possible, however many people seem so paranoid of worst case scenarios they miss out on potentially good opportunities.
Hope it works out and doesn't steal too much time away from the good works your doing on Armory of course.
In my opinion it is good to protect yourself as much as possible, however many people seem so paranoid of worst case scenarios they miss out on potentially good opportunities.
Hope it works out and doesn't steal too much time away from the good works your doing on Armory of course.
Thanks. And part of the reason this is attractive is because it seems like it should be very little work on average for 8% return (under reasonable circumstances). If it looks like it's going to be much higher than that, then we just pay for a mgmt company to deal with it. Free time (for things like Armory) has always been high on my priority list.
So go for it... as long as you are not next door neighbors to your renters.
Excellent advice jgarzik. I will have to keep in mind the social aspect of this. Being the nerd that I am, social confrontation is not my favorite activity, but I think I can handle it. I will be sure, if I carry through with this idea, I will get a unit in one of the buildings on the other side of the association
Still walking distance, but don't have to run into the tenant on a daily basis.