# Appreciated Assets



## BossPlow2010 (Sep 29, 2010)

Hoping to get some sage advice for those of you that don't frequent lawnsite
https://www.lawnsite.com/threads/appreciated-assets.498561/#post-6276776


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## cwren2472 (Aug 15, 2014)

BossPlow2010 said:


> Hoping to get some sage advice for those of you that don't frequent lawnsite
> https://www.lawnsite.com/threads/appreciated-assets.498561/#post-6276776


What that guy on there already said. You form a second LLC, usually named something like "BossPlow2010 Realty Trust" that owns and handles the rent for the property to your other business. The property wouldn't be in your name, it'll be in the LLC, but it's separate from your regular business. So if that one goes belly up, you still are the owner of the LLC owning the property.

The only expenses will be mortgage, taxes, and the like. The only income will be the rent from your primary business. So long as you aren't renting to yourself at a loss, that LLC will always be profitable.


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## Mark Oomkes (Dec 10, 2000)

Aerospace Eng said:


> It will be interesting to see what comes out of New Zealand.
> 
> New Zealand went 100 days without a case, with much press (this is just one of many)
> https://www.cbsnews.com/news/new-zealand-coronavirus-100-days-no-new-cases/
> ...


So basically there is no way of stopping it's spread, so we might just as well let it spread during the summer when it isn't as strong and develop herd immunity which is far better than a rushed vaccine.

Has anyone else read about the body that was exhumed from 1918, a victim of the "Spanish" flu and the virus was still viable?

This isn't going away, it isn't going to be eradicated just like no other virus has been eradicated. It isn't very deadly and spreads far more than the "science" shows so let's just be done with it.


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## EWSplow (Dec 4, 2012)

BossPlow2010 said:


> Hoping to get some sage advice for those of you that don't frequent lawnsite
> https://www.lawnsite.com/threads/appreciated-assets.498561/#post-6276776


No problem. Form as many LLCs as you like.
We've done it with properties for decades.
Advantage; one failing property can't bring down the profitable ones.
Disadvantage; can't right off money dumped in a property from one that's profitable to offset income, etc.

Edit if you're talking about you, or an LLC owns rented to the business for a shop, etc most definitely. If an employee sends a stone from a mower and it takes out someone 's eye, they can't get more than the insurance policy and the assets of the mowing company.


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## BossPlow2010 (Sep 29, 2010)

cwren2472 said:


> What that guy on there already said. You form a second LLC, usually named something like "BossPlow2010 Realty Trust" that owns and handles the rent for the property to your other business. The property wouldn't be in your name, it'll be in the LLC, but it's separate from your regular business. So if that one goes belly up, you still are the owner of the LLC owning the property.
> 
> The only expenses will be mortgage, taxes, and the like. The only income will be the rent from your primary business. So long as you aren't renting to yourself at a loss, that LLC will always be profitable.


How would that LLC get the initial loan for the property if they're brand a brand new business, ie not having a tax return and less than two years in business, also would that second LLC need a second Insurnace policy, or could they be covered under the first under additional insured?

If someone was hurt on the property, could they go after the LLC that owned the property?


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## Mark Oomkes (Dec 10, 2000)

BossPlow2010 said:


> How would that LLC get the initial loan for the property if they're brand a brand new business, ie not having a tax return and less than two years in business, also would that second LLC need a second Insurnace policy, or could they be covered under the first under additional insured?
> 
> If someone was hurt on the property, could they go after the LLC that owned the property?


Do you have a good relationship with your banker? Do you supply them with tax returns even if they don't ask?

I'm still the personal guarantor for some of my loans.


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## cwren2472 (Aug 15, 2014)

BossPlow2010 said:


> How would that LLC get the initial loan for the property if they're brand a brand new business, ie not having a tax return and less than two years in business,


You would likely to be required to personally guarantee the loan in that case until it's paid off



BossPlow2010 said:


> also would that second LLC need a second Insurnace policy, or could they be covered under the first under additional insured?
> 
> If someone was hurt on the property, could they go after the LLC that owned the property?


"I am not a lawyer" - that said, our company is run exactly as I said. The Realty Trust does not have a second insurance policy, the primary company does for all liability.

There isn't much point to having two since you would be paying for both of them anyway and both would be protecting you. As long as one liability policy protects it, you should be fine, except in the case where the insurance is insufficient to cover a claim. E.g. You have a $500k policy and a $2M claim. In that case, they could go after the Realty Trust for the difference and you'd be screwed. But that has nothing to do with the lack of insurance by the realty trust so much as a lack of adequate insurance in the first place.

Edit: I should add that our property does not have a mortgage. If you are getting a mortgage, the loan may (probably would?) require insurance.


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## EWSplow (Dec 4, 2012)

BossPlow2010 said:


> How would that LLC get the initial loan for the property if they're brand a brand new business, ie not having a tax return and less than two years in business, also would that second LLC need a second Insurnace policy, or could they be covered under the first under additional insured?
> 
> If someone was hurt on the property, could they go after the LLC that owned the property?


Banks would look at the officers of the LLC.
Yes, the property owner would have to have insurance. And, the business renting would also have insurance to cover rented property. 
If someone was injured on the property. The two companies insurance carriers would duke it out.


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## BossPlow2010 (Sep 29, 2010)

Mark Oomkes said:


> Do you have a good relationship with your banker? Do you supply them with tax returns even if they don't ask?


Have almost no relationship, switched banks back in April because the original one didn't offer the PPP and wasn't going to be doing anymore commercial banking, my account was grandfathered in. 
Got the PPP from new bank. 


> I'm still the personal guarantor for some of my loans.


 I am on one of my truckS. And one mower. everythinf else was paid with cash. Or lid off


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## Philbilly2 (Aug 25, 2007)

BossPlow2010 said:


> Hoping to get some sage advice for those of you that don't frequent lawnsite
> https://www.lawnsite.com/threads/appreciated-assets.498561/#post-6276776


Recommend you talk to a good business accountant. All I can tell you is that the exact words from my accountant years ago was "I FORBID you to purchase an appreciating asset in the corp's name"

The best I understand the tax side, putting an appreciating asset in your corporate portfolio is a bad idea.

With an S corp, if you hold an appreciating asset, you cannot do anything without triggering capital gains.

So if you purchase a property worth 250,000 dollars and in 5 or 10 years it is appraised at 500,000 you now have 250,000 in capital gains so you end up paying just under 40K in taxes. That tax can be deferred if you hold it as an LLC or partnership or what have you.

But as said above... liability is another big reason. Having multiple corporate veils in place before someone can come after your personal assets is essential.


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## Philbilly2 (Aug 25, 2007)

BossPlow2010 said:


> How would that LLC get the initial loan for the property if they're brand a brand new business, ie not having a tax return and less than two years in business, also would that second LLC need a second Insurnace policy, or could they be covered under the first under additional insured?


The company that makes money will be the backer to the LLC property loan.


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## Philbilly2 (Aug 25, 2007)

Philbilly2 said:


> S-Corp will be the backer to the LLC property loan.


EDIT: The company that makes money will be the backer to the property LLC.


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## Mike_PS (Feb 28, 2005)

BossPlow2010 said:


> Hoping to get some sage advice for those of you that don't frequent lawnsite
> https://www.lawnsite.com/threads/appreciated-assets.498561/#post-6276776


how about starting a similar thread here in the business forum instead

Edit: I moved this to it's own thread here in the Business forum


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## BossPlow2010 (Sep 29, 2010)

Philbilly2 said:


> Recommend you talk to a good business accountant. All I can tell you is that the exact words from my accountant years ago was "I FORBID you to purchase an appreciating asset in the corp's name"
> 
> The best I understand the tax side, putting an appreciating asset in your corporate portfolio is a bad idea.
> 
> ...


So I spoke with my accountant (CPA) this morning, she advised my to take a personal loan out to purchase the property and then to take the EIDL loan (1.9%) and to use that to pay the rent, since that's an allowed expense.


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## Ajlawn1 (Aug 20, 2009)

BossPlow2010 said:


> Have almost no relationship, switched banks back in April because the original one didn't offer the PPP and wasn't going to be doing anymore commercial banking, my account was grandfathered in.
> Got the PPP from new bank.
> I am on one of my truckS. And one mower. everythinf else was paid with cash. Or lid off


You're still going to be the guarantor along with Ajlawn on the new holding company... When we bought the empire we started a new holding company and as most have said to keep the liability down... If someone gets hurt at our property they can't come after Elite which is worth more then the building... Some people also do this with their house...

If you go SBA which we did, we could not show any profit with the holding company renting it out...

It's all about limiting your liability personally, business etc... Keep everything seperated between them especially financially...


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## Philbilly2 (Aug 25, 2007)

BossPlow2010 said:


> If someone was hurt on the property, could they go after the LLC that owned the property?


So I can tell you how mine is set up.

My S Corp physically writes a paper check to my property LLC and I physically deliver it to the bank. Both accounts are with the same bank, but for insurance reasons, having the "paper trail" is the main thing.

According to my insurance agent, if someone is hurt at my shop, they will exhaust the property LLC insurance first, then they will exhaust the S-Corp insurance, then they will go after personal umbrellas, then after that they can attempt to go after the LLC and S Corp members and officers personally.

As for my rentals, those are held in a totally different LLC so that if someone gets hurt on one of them, they "should" not be able to get at my S Corp business or the LLC that holds that operations property.


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## Philbilly2 (Aug 25, 2007)

BossPlow2010 said:


> So I spoke with my accountant (CPA) this morning, she advised my to take a personal loan out to purchase the property and then to take the EIDL loan (1.9%) and to use that to pay the rent, since that's an allowed expense.


That is a valid option... Just remember that you have now made yourself that much closer to a lawsuit with no veil in place.


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## seville009 (Sep 9, 2002)

Philbilly2 said:


> My S Corp physically writes a paper check to my property LLC and I physically deliver it to the bank. Both accounts are with the same bank, but for insurance reasons, having the "paper trail" is the main thing.


That's the most important aspect of having separate legal entities - actually operating them as such (separate bank accounts, no co-mingling assets, etc).

All too often, people will set up separate legal entities as advised by attorneys or accountants to do what has been described above, but once they've been created and the owner is out there on their own, they start to muddle the distinction between the separate entities.

For example, rather than pay rent to the LLC that owns the business property, they might skip a payment or two if cash is tight (or they're just tired of the paperwork). Or they'll pay the LLC expenses (property insurance, real estate taxes, etc) out of a different entity's bank account.

Once they do that, they've pierced the "corporate veil", and a suing party might see that and present that to a court to show that the separate legal entity was in name only as evidenced by the owner's own actions

So....if you go to the trouble if setting up separate legal entities, you must treat them as such or it is just a potential waste of time.


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## m_ice (Aug 12, 2012)

I'd get the opinion of your corporate attorney as well as your accountants. The accountant will have some background in liability exposure however their primary focus is from a financial perspective and tax laws not a liability perspective.


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## Philbilly2 (Aug 25, 2007)

seville009 said:


> That's the most important aspect of having separate legal entities - actually operating them as such (separate bank accounts, no co-mingling assets, etc).


To expand on this, you will need a separate checking account for your property llc.

When you need to pay your insurance, taxes, loan payments etc. I dont care if you write the check to the property llc, then turn right around and write it to the insurance company others, make sure that paper trail happens.


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