I had originally posted this in the Newbie thread but after two days, and no response, I figured maybe the question was a bit more specialized then that area. So I am reposting it here. This is an area in which I do not know much about and I am mainly looking for two things, help with locations of good information and broad answers to my specific questions so I can go researching further from there. "A family friend just purchased a house that he intends to rent. As far as I know, everything is done and he already has title to the property in his and his childs's name. The person is not google friendly, and wants me to find out information on how to best protect himself and the property. From what I have found so far, the best way seems to be a LLC, but I have come across having both a LLC and a trust with a different name. Details:
This is in New York City.
The house is a two family house. (Would it make sense to separate the house into two LLCs?)
The value of the house for tax purposes is a lot higher then he paid for it. As much as 35% higher. I suggested that he requests for an appraisal so his property will go down, but he thinks that having the high appraisal will help when or if he has to sell it later.
The house is in a very nice neighborhood, so he will not be renting to section 8 or low income indivuals.
Question 1)
Where can I find a good resource for real estate protection? I've googled various things and have not found anything constructive outside of basic explanations of the separation between his personal assets and the house via an LLC. I have not found anything as detailed as I am looking for as far as all of the benefits of a S-corp vs an LLC vs a Trust.
Q2)
Does the state of registration matter? I understand that if a corp is registered out of state, it will need additional permits and might have court obsticles. Is there a benefit of this? Q3)
The person already has an LLC for his business and I understand that he would need to create another one. Can he do this himself, or would he need the services of either a lawyer or a tax person? Q4)
Once he sets up the chosen entity, would he have any problems transfering the house to it and did he really hurt himself by not buying it in the name of the LLC? Q5)
I urge him to get some kind of umbrella insurance policy for the house. Is there any reason not to get it? He is fairly handy, but also not in the best shape and works full time. Q6) There is no mortgage on the house. Is there any way he can find to deduct interest tax wise? Q7) Are there any potential pitfallls that he is not seeing or prepared to deal with? Please do not discuss if the purchase was a good idea or not, and yes he has a small cash reserve left. I've looked at the Investment forum, but not in full detail.
Please do not hesitate to point me in the general direction of prior posts or good resources for real estate (via reply or PM). Much of what I've come across seems to be shady places charging $ for courses. I am on my way to the library to find real estate books. Because he will probably request my help for finding tenants etc, and I'll have a minor role as a property manager. Yes, he helped me with other things so this would be a good way for me to pay him back." Since the time of the post, I have read a (relevant parts) of a slightly outdated book on buying and renting property and landlording and have learned about LLLP, but they are inferior from LLCs, so that was not helpful. The book itself was not very good, and just described what an LLC, LP etc... is and just mentioned forming them for partners, but not for the benefit of protection.
Will also read a different NOLO Real Estate book. Thank you very much in advance,
-GreyRabbit | 