Incorporating your Foreclosure Investments and DIY Real Estate Forms

You can save a lot of money by selling your home yourself  (for sale by owner) or buying a home without the aid of a real estate agent. Here in NJ, real estate agent commissions are usually negotiated to around 4-6%. If you're selling a house priced at $450,000 that's $22,500 which is not an insignificant amount of money, especially considering the current housing market might have left you in a position where you might actually take a loss on selling your home.

The housing boom drew a lot of people into the real estate market, including many real estate agents that distorted the facts or didn't have much experience or knowledge, but were able to be successful because houses were so easy to sell. These days, selling houses is tough business. Even if you have a really good agent, you're still going to have to do a lot of work yourself. Why not do a little more, if you can, and save a lot of money?

With so many distressed sellers, foreclosures and high inventory, buyers know they can find deals. This is one way you can present a more attractive price to buyers without sacrificing your profits.

If, like many of this site's visitors, you're interested in foreclosure investing, you know it requires you to do a lot of work on your own. You don't have or need a a real estate agent in many cases and the following recommendations can help make things easier for you.

If you can do the work to research and purchase foreclosures, you know enough to handle most types of real estate transactions yourself. You may still want to use a real estate agent if you have a lot of properties or if you need exposure when you try and rent or sell a property. It's up to you, but you never know when someone might hear that you have a good deal and it's good to be prepared.

A real estate attorney is probably more important when buying and selling, but most of what they do is create boilerplate legal forms. If you have a bit of knowledge and experience you can use stock real estate forms that you can purchase online for most transactions.

This isn't for everyone, but the pace of the real estate market has slowed down. You may decide to still go with an agent or attorney but you have an opportunity to take the time to investigate other options and see if you're comfortable with them. The information contained in some of the kits will also help you choose agents and attorneys as well as educate you so that you understand what's going on better.

If you're starting a foreclosure investing business, you'll likely also want to set up a an LLC or S-Corporation to protect your personal assets in case your run into any issues with your real estate business. Even if you're purchasing just a single property as your residence, you may want to incorporate to limit liabilities. There are many things that can go wrong with buying foreclosures that you should consider protecting yourself. You can hire an attorney or CPA to do this for you, you can use an online service or you can register your business yourself.

In this post I'll cover different options for forming your business entity and links to resources that provide forms you can use in your real estate transactions, including real estate purchases, sales and leases.

Form an LLC or S-Corp

Incorporating your business provides you with some liability protection to guard your personal assets. You can create one business entity for your entire business or form a separate one for each property. You might have noticed in the foreclosure sales results that some of the buyers are LLC's with the address of the property in the name of the LLC.

By creating a new corporation for each property, you can also insulate liabilities from one property affecting others. This may also be necessary in some instances. Some foreclosure investors don't do it all themselves. They have financial backers/partners that may change with each property. Since one property may have different investors than the next, it makes sense to have different corporations.

Filing the paperwork is pretty simple and in NJ you can form your business online. You'll also need to register your business with the IRS and in some case you may need a Federal Employer Identification Number (FEIN). All of these are relatively cheap and easy to get. The hard part is creating the documents you need to file along with your application, such as your articles of incorporation. Using an online service or a kit, will help speed things up by creating these documents for you. They will even file some or all of them on your behalf. At the very least, I would recommend you pick up the Incorporation/LLC Kit from Socrates Media. It will provide you with information on choosing and setting up the right entity as well as the forms and instructions. You pay a bit for the service but it saves you a lot of time and it is cheaper than going with a lawyer or CPA.

The first thing you'll want to do is set up a legal business entity. Either an Type-S Corporation or an LLC. An LLC is easier to manage but an S-Corp does have it's own advantages. Both will provide liability protection for your private assets. Which one is right for your business will need to be determined and you might want to consult a CPA for advice if you don't feel comfortable doing it yourself. Though the information in the resources provided below can also help answer many questions you might have.

The biggest advantage to an S-Corporation is in the treatment of taxes. With an LLC you pay self-employment taxes on your total net income while with an S-Corp you only pay the 15.3% employment tax on salaries that were actually distributed.

For example. Your business has net income of $100,000. If you were an LLC you would pay $15,300 in employment tax. If you were an S-Corp and you decided to only pay yourself a salary of $50,000 and keep the rest in the business, you would only pay employment tax on the $50,000 which would be $7,650.

S-Corporations are more complicated to set up and you are required to file more documentation to maintain them. This can be too much for some, but if you're dealing in real estate you're likely dealing with large amounts of money and at some point you might want to hire a CPA to help you manage it after you get things running along with taking care of your taxes.

An LLC is easier to maintain and cheaper to set-up. An owner of an LLC pays his corporate taxes by submitting the same 1040 Schedule C form he would if he was just a sole-proprietor. Running as a sole-proprietor tough doesn't give you the protections of an LLC though.

Separate Your Business and Personal Funds

As with any business, you should have a clear distinction between your personal funds and your business funds.

To accomplish this, Set up at least a business checking account in the name of your business. Keep detailed records of any money you transfer between your personal and business accounts and label them appropriately if they're salaries, bonuses, loans, etc.

If you are doing you're own accounting, a good software accounting program can help make this easier for you. Quicken Home & Business provides enough for most personal and business accounts. You may also want to look into Quicken Online Edition which is available for free. At some point you might need a little more power in your bookkeeping software and you should consider QuickBooks Premier Edition , especially if you start hiring employees.

You'll likely also want to secure lines of credit or credit cards under the business name to make it easier to track business expenses. Since your personal credit can affect your business credit, I recommend you check your Fico Scores/Credit Reports.

Real Estate Forms

A lot of the legal forms concerning real estate are fairly standard. It's nice to have an attorney review and prepare documents, but it's not always necessary. Most attorneys will reuse the same forms for their transactions. You can do the same by using forms that were prepared by attorneys that take local laws into account.

Below are some State Specific Forms that relate to Real Estate transactions as well as software and educational information.

Complete Forms Package

This is the complete package of Real Estate Forms. It has over 100 forms to handle every type of Real Estate transaction from buying, selling or renting properties. It comes as a software application you can download and then enter the appropriate information and it will generate the form. If you need multiple forms, this is the most economical package.

Below are a list of the forms that area provided in this package:

Real Estate Investing Guide and Forms

If you don't need the complete kit, they also have one for people looking to invest in real estate or Essential Real Estate Forms .The invest in real estate kit contains:

• detailed, easy-to-follow user manual covering such topics as:
  • real estate investor personality
  • long- and short-term investing
  • finding a property
  • inspecting a property
  • flipping a property
  • landlording duties
• CD-ROM
• neighborhood/suburb analyzer
• preliminary home inspection checklist
• buyer’s walk-through inspection form
• maintenance schedule
• HVAC inspection form
• appliance inspection/replacement schedule
• broker appraisal form
• mortgage loan evaluator form
• hazardous materials inspection checklist
• banking information sheet
• appraisal request form
• tenant forms

For Sale By Owner Kit

If you are just looking to sell your home, you might find the For Sale By Owner Kit useful. It contains information and forms for:

• Choosing a real estate attorney
• Preparing your home for sale
• Pricing to your market
• Advertising your home
• Attracting qualified buyers
• Handling offers and negotiations
• Disclosures and inspections
• Structuring seller financing
• Handling the legal paperwork
• Mortgage, tax and estate planning basics

Purchasing Real Estate Kit

If you're interested in purchasing real estate, or even arranging a lease to purchase contract, the Essential Real Estate Purchase Forms kit provides the forms you need forms for both sides of the transaction, sellers and buyers. The five forms included are:

• Offer to Purchase Real Estate: make an initial offer on a property
• Agreement to Sell Real Estate: set out the conditions for a purchase
• Lease with Purchase Option: lease or rent property with an option to buy it later
• Quitclaim Deed: finalize the transfer of property
• General Power of Attorney: transfer control of real estate transactions to another party

Real Estate Forms

If you already have the knowledge and just need particular real estate forms you can choose from the following individual forms:

• Real Estate Sales Disclosure
• Agreement to Amend Real Estate Purchase Contract
• Letter of Intent to Purchase Real Estate
• Contingency Addendum: Sale of Real Estate
• Resolution: Mortgage Real Estate
• Resolution: Retain Real Estate Broker
• Real Estate Buyout Agreement
• Resolution: Sell Real Estate
• Resolution: Purchase Real Estate
• Counteroffer to Purchase Real Estate
• Cancellation and Mutual Release of Real Estate Purchase Contract
• Option to Purchase Real Estate
• Open Agreement to Sell Real Estate
• Community Assessment
• Agreement to Sell Real Estate
• Warranty Deed