Need Lease

[tinae01]

I need a lease to use for the corporation we set up to lease our rental homes from us. The corporation in turn will rent the houses out to tenants.

We have a great lease for the rental agreement between the corporation and actual tenants living in the houses. I'm not so sure what should go in the lease between ourselves as owners of the houses and our corporation. The lease has to make the corporation responsible for all expenses related to the properties.

Why transfer the expenses to the corporation? Corporations can write off 100% of the expenses this year. If my husband and I pay the expenses we can only write off maybe 15% because of our income bracket. Totally unfair I know - but all you have to do is create your form of business to work with the law - and the law will work in your favor. More work for the small business owner - but of benefit to both sides. Successful small businesses are the largest employers in the U.S.

Anyway, if anyone has a lease, please share!

Thanks!

[Debbie]

I'd love to share my lease to you.

But first, I gotta find Howard cuz it sounds like you're about to have the corporation to own rental property(ies)!

I promise you, this is no offense at all to you but I gotta say this: YIKES!

HOWARD! WHERE ARE YOU!!!!

[tinae01]

No Deb - read again - we own the houses - lease them to corp - corp leases to tenants. I have a lease which is great for tenants. I need one to use for between us and the corporation (we own - LEASE to corporation.)

[Debbie]

No Deb - read again - we own the houses - lease them to corp - corp leases to tenants. I have a lease which is great for tenants. I need one to use for between us and the corporation (we own - LEASE to corporation.)

OHHHH!

Um, Howard---go on back to your room...

Now, that lease we have? I've a feeling I'm the one who will need it from you in the near future! :SM017:

[Burke]

I need a lease to use for the corporation we set up to lease our rental homes from us.
.......
The lease has to make the corporation responsible for all expenses related to the properties........


I have almost no experience with this other than what I have read on the forums but it sounds to me like you are looking for what is referred to as a Triple Net Lease. I tried to find a link to a free one on the internet but was unsuccessful at the first few sites I looked at. Google for Triple Net Lease and you may eventually come to a link that allows free download of one if someone else here doesn't have one they can share. There were several available for a small fee ($20+/-)

Hope that helps.....a little.

Burke

[Aldo]

I have forty quarts of suggestions and advice to share after you tell us why you would want to form an entity to manage your properties while you remain the deeded owners. From my perspective, you have defeated the purpose of forming an entity unless you have an unusual situation.

[tinae01]

Aldo - read my first post! We want to put the money our business makes back into our business. Tax laws favor corporations - so we turned our business into a corporation. You do not have a legal liability to pay any more taxes than you have to by the tax laws.

As far as asset protection goes - we know we have some LLCs and trusts to set up there - but an umberella can cover us for now. We have limited time and need to focus on making some money right now or liability protection won't be much of an issue.


Burke, I will certainly look up the Triple Net Lease. Thank you very much for the tip! Are you still in the desert? My brother is a loadmaster on a C130 and has been three times now. He is back for good now.....we think!

Tina

[Debbie]

Aldo - read my first post! We want to put the money our business makes back into our business. Tax laws favor corporations - so we turned our business into a corporation. You do not have a legal liability to pay any more taxes than you have to by the tax laws.
Tina

Why does that sounds familiar? :biggrin:

[Burke]

Burke, I will certainly look up the Triple Net Lease. Thank you very much for the tip! Are you still in the desert? My brother is a loadmaster on a C130 and has been three times now. He is back for good now.....we think!

Tina

Tina,

Your welcome! I would certainly be interested in hearing how this progresses for you.

Yes....I got back to Hawaii on the 6th of July. Very happy to be home. Hopefully, your brother is home for good. I certainly hope I don't have to return.

Talk to you soon!

Burke

[Aldo]

Several replies here:

Why does that sounds familiar?
It sounds familiar because I've covered this turf before, though from a different area of consideration.

Aldo - read my first post!
I read it thoroughly. If the corporation owns the properties you don't have to "put the money our business makes back into our business" because it's already there by default.

....an umberella can cover us for now.
It's great that you had the foresight to obtain umbrella coverage; however, I doubt there is an insurance policy in the country that will cover lead-based paint or mold lawsuits, for example.

....turned our business into a corporation. You do not have a legal liability to pay any more taxes than you have to by the tax laws.
Please don't tell me that you formed a C Corp which subjects you to double taxation which is one of several downsides to a C Corp. I speak from experience on that issue.

I wish you well and I hope you are proceeding with quality advisors. My purpose was to alert you to some of the pitfalls you may encounter.

[Jim FL]

Tinae01,
I'd suggest you talk to a local real estate attorney who also has knowledge in asset protection and tax strategies.
I'd don't know anyone in your county off hand, but do have someone local to me (same state as you though), that you can call and ask him 'how much to do this?'.
and frankly, if that's not the correct route to go, he'd tell you, and set up a meeting or something to get it going, or maybe make a referal.
Might even be able to do the leases for you, or whatever is needed, remotely, thanks to fedex.

Aside from that, this non-lawyer has a random thought....take it for what it's worth (nothing, its free).

What about simply deeding the properties into a trust, and make the corp. the beneficial interest holder of those trusts.
You can do this, and should even have the docs for it, or at least a good walk thru to get it done.
This can also be done with an attny, but frankly, it's not really needed, if you have the docs and know how to complete them, etc.

This way, the trust owns the house, and the corp owns the trust, and since the trust is a flow thru entity for the irs, the corp, owns the houses, and has tax liabilities etc from that ownership.

Again, mention this to an attny.
I'm sure there are some local, contact another local REI to you, and ask for a referal, or call a title company and ask for a referal.

Good luck, sounds interesting,
Jim FL

[tinae01]

Thanks for looking out for my back Aldo! Please always do!

The biggest thing to note is, the corporation does not own our properties, we do. :)

We formed an S corporation (Workhorse Management, Inc. because Howard said it would be our workhorse) to lease our properties to and the lease will state that the S corp is responsible for all expenses attached to those properties (excluding taxes and insurance only.) All repairs, advertising, updating expenses belong to the corporation and are therefore written off by the S Corporation. Tax wise the s corp can write off 100% of the expenses.

To give you an example - last year we had about $30,000 plus in expenses, plus loads left over from other years. We were allowed to write off $7,000 on our personal tax return. This year the S corp will swallow the expenses and will write them all off. If we use the numbers from last year that is a difference of $23,000 in taxable income! That money is used for the business instead of going to the IRS. An S corp is a flow through tax entity, so the results ends up reducing our personal taxes.

In this early stage of our business, there will not be any profit left at the end of the year on the corporation's books - so no worry of double taxation. We plow it all back into marketing, etc. Any house we find the corp will 'assign' the contract to us personally and the corp will never own any property.

The tax law was designed to support small businesses in this way on purpose - because small businesses keep the U.S. ecomony alive! One day our S Corp will hopefully be VERY profitable and I hope to SERIOUSLY worry about double taxation and electing to change to a C corp! By then I hope to have some of what Uncle Sam is after by offering all this....Employees!

Yes - you are right - our money is already in our company by default. But by paying attention to the form of business the tax laws encourage, we keep more of it in the business.

You are so right about the umberella coverage!

We set up an MMLLC (HouseMiesters) but havent' transferred our properties into trusts yet or set up the single member LLC for each house which the MMLLC will be the single member of for asset protection. The expense and time is making us hold off at the mo....Howard advised that although law suits were a threat, the risk isn't so great that it couldn't wait until we had a bit more cash [we keep buying houses with it! :) ]

My sister in law got sued over a house in Portland that she bought off the courthouse steps. She had basically equity-stripped it. That worked like a CHARM for her! I love it when I have seen something actually work! Howard says no matter how many entities you set up - a lawyer worth his salt will pierce them. So the equity stripping caught my attention! Howard also said that a good lawyer would go after the insurance and not want to waste the money and time going after a debt burdoned property.

See Howard - WE WERE LISTENING!!!!!! All that time you spent with us....it paid off for us - so THANKS!!!!

And Aldo, thank you so much again! It's great having team members willing to speak up to keep us from screwing ourselves up. So THANKS!

[tinae01]

Thanks Jim! It looks like we were posting at the same time. I could probably use some help with the lease from your man.

By the way, we finally put signs out this Sunday and by Monday evening they were already gone. Got one call from some guy that want's to pass out flyers for us. Jeeze.

[SPIVALAW]

ALDO
We need to talk on how to avoid double taxation.
I personally love C corps
C Corps are oldest, safest, best deductions of any entity.
except not to own real estate.
H

Tina
You folks are doing great!!
Get model leases and cut them down to simple if you are leasing to your own entity.
Track leases you use with tenants,

[Aldo]

Howard,
If the truth were told, I'd enjoy a chat about C Corps. I'm sure I'd learn a few things and maybe I could provide the thinking of a smaller RE investor. I'd especially be interested on ways, if any, to avoid double taxation.

Tinae01,
It looks like you have your ducks in a row and I hope things continue to go well for you. Never lose sight of the fact that you probably won't need a C Corp until you have about 2,000 employees (Sorry, Howard). Also, you do want to get those properties out of your name(s) asap. Lawsuits happen and there's no early warning system.

[landtrustwizard]

On the subject of a c corp owning real property, LLC (http://www.thecreativeinvestor.com/residential/Encyclopedia-6.html)'s are great for holding title because they protect your personal assets. They do not protect real property and leave it partitionable and subject to liens and encumbrances. Place the property into a land trust, then take title in your LLC (http://www.thecreativeinvestor.com/residential/Encyclopedia-6.html).

Corporate stock is considered an "investment". Investments are available to satisfy judgment creditors if you are personally sued. So you rear-end someone, get sued, and lose, they get your investments and suddenly they own the corporation and all of its assets.

Member interest in an LLC (http://www.thecreativeinvestor.com/residential/Encyclopedia-6.html) is considered personal property by statute. As such it is not available to satisfy a judgment creditor. You lose the case, but the best they get is a charging order against LLC (http://www.thecreativeinvestor.com/residential/Encyclopedia-6.html) income, which you can frustrate. Meanwhile, you remain owner and in control of the LLC (http://www.thecreativeinvestor.com/residential/Encyclopedia-6.html)'s assets.

Both the S-corp and the LLC (http://www.thecreativeinvestor.com/residential/Encyclopedia-6.html) protect you from liabilities arising from within the company. Only the LLC (http://www.thecreativeinvestor.com/residential/Encyclopedia-6.html) protects the company from your personal liabilities. Just a layman's opinion.

[SPIVALAW]

A C corp should NEVER own Real estate
(except extreme situation where you are doing a quick turn and need funds for business operation or high medical bills)

C corp is Safest entity under the law.

It is easy to avoid double taxation.

It is oldest entity known to man.

It is a "work horse" to run businesses.
Great as lease company, management company, own equiptment...

C corp can split and share income - lowering your tax bracket and exposure.

C corp can have a different year end to shift tax liability.

C corp can provide over 300 tax deductible perks for owners, employees and shareholders - that no other entity can.

C corp can be just 1 person or 10,000

C corp is a great public face- shows- professionalism.

C corp is Great to "manage" assets like real estate or brokerage accounts.

C corp is great to divide assets for safety and protection.

C corp has more deductions than any other entity.
C corp receive special and preferred treatment by govt.
1 person C corp has same rights as IBM, Delta, Bill Gates, etc.

C corp has lowest IRS audit rate.

C corp like any entity is a tool and must be set up and operated correctly.

A C corp works well with Land trust, Living trust, grantor trust, Limited Partnerships, LLLP, LLC (Single Member or Multi member), Charitiable Remainder Trust, Retirement plans, Roths, 401K, S corp and other C corps.

No entity is one size fits all. No entity solves all problems.

Make it a great day!
Howard

[Aldo]

A C corp should NEVER own Real estate
Where were you when I needed you? My ex-CPA advised me to do a C Corp and quit claim my properties to into it. Coulda used you then!!! Methinks he was looking at doing all of my tax filings. Now I can't get the properties out of it (and disolve the corp) without eating the cap gains tax.

[SPIVALAW]

I have seen with cap gains and dep recapture and double taxation go as high as 80%.

But dont give up.
Talk to Dyches Bodiford.
May take some advanced strategies but it can be done.

The fact that C corp wasnt original buyer and was quit claimed may help.
Good luck!
Howard

[SPIVALAW]

A C corp should NEVER own Real estate


Aldo I have always been here for you,
you just need to tap your heels together and ...

P.S. We are not in Kansas anymore :whistling

[optionfl]

We need to talk on how to avoid double taxation.

this is what i understand.

what is a double taxation?

*taxes paid by both the corporation and the individual owner on the same income
*and liquidating dividends.

how to avoid double taxation?

*not to pay dividends
*don't sell off assets

The fact that C corp wasnt original buyer and was quit claimed may help. i don't know about quitclaim thing, but if he going dissolve and liquidating the corporation, he has no option but pay on tax on income.

[SPIVALAW]

this is what i understand.

if he going dissolve and liquidating the corporation, he has no option but pay on tax on income.


There are several advance strategies with CRTs and Land trust that you can get around it but it is complicated and takes the right moves.

[Aldo]

you just need to tap your heels together
I did that and some really ugly broad in a flowing white dress and a tiara sprang up before me who couldn't spell the word howzes.

.....dissolve and liquidating the corporation, he has no option but pay tax.....
That's exactly what my bean counter said.

.....get around it.....
Howard, if you can help with this for less than the cap gains tax, talk to me. I'm looking at about $200K in cap gains plus recapture of about 8 years of depr.

[SPIVALAW]

Aldo

The tax can be avoided or at least softened.

Dyches Bodiford is in Atlanta Ga.
He is not an atty but he is smarter than any I know.
He thrives on problem solutions.
I would either call him and pay for a consult or attend one of his seminars and buy him lunch.
He is a brilliant man who loves to help people and it would be worth your time.

http://www.assets101.com/index.htm

Good luck!
Howard

[Aldo]

Thank you, kind sir! I'll visit his site and, hopefully, find a 'contact us' link if I'm unable to find a workable seminar. Would it be helpful to mention your name?

[SPIVALAW]

I would be honored to introduce you two.
I can also set up a telephone conference.
Dyches is a master teacher.
No hype and sells only education

[Aldo]

Oh, but the reverse is true. I'd be honored by having you make the inroduction. I'm not in a hurry and, frankly, need a little time. As you must know, I recently moved and I'm still prepping the old homestead for sale, though I did list it today. The RE market here is worsening by the hour and I have to devote my energy to unloading it.

While talking to the realtor today, she confirmed by guesstimate of a $200K +/- capital gain plus recapture. I'll need some serious help.

[Sagadi]

Where you get it???