Health Insurance for REI - Issues and Questions - Posted by Frank Chin

Posted by JHyre in TexOhio on August 13, 2001 at 12:52:48:

is a valid issue. I don’t see a big issue with IRS ignoring corp IF all formalities are folowed AND expenses paid to/revenue received from related parties (e.g.- Frank, his LLCs, etc.) are at arms-length prices…better yet. document what third parties charge for similar services and pay your corp accordingly. Use of C-corps in this manner (get perks, use lower bracket for $ that are to be reinvested) is common. To reduce chances of attracting attention, pay attention to details…corporate formalities, WRITTEN contracts between you & corp for services, consistent payments. I would NOT show the same income all the time…$9,000 per year every year would look suspicious. If you do the sandwich lease thing be sure to document everything.

John Hyre

Health Insurance for REI - Issues and Questions - Posted by Frank Chin

Posted by Frank Chin on August 12, 2001 at 07:41:21:

Hi Everyone:

The health insurance I have through my last employer’s COBRA will be expiring 01-31-02. I’ve discussed the issue with my insurance broker, and CPA, after visitng some WEB sites. There are two issues for me:

1- Types of Coverage

These range from HMO’s to PPO’s to a high deductable basic plan.

Plan prices range from 595/month to 750/month or more for a family if secured through a corporate plan. They range from $950/month to $1,150/month or more if secured as a family privately (not corporate).

The cheapest non-corporate plan, for a little over $400/month, has a $15,000/year deductable.

The insurance man suggested I take advantage of a corpoate plan if at all possible since they got more features(such as perscription drugs), and generally better than non-corporate plans. He tells me to skip dental, as he did not think it to be cost effective.

Then, most plans are for “2 employees” and up. But for a 10% surcharge it seems, a broker can add you to a larger plan.

2- Setting up “C Corp”

I had a meeting with my CPA. Currently, my rentals are all reported as passive income.

The plan is to set up and have a “C Corp” perform management for a monthly fee, say $750.00, which will they pay the health insurance. This way, I can fully deduct the insurance through the C Corp.

Also, as I’m finding out, as a LONG TERM buy and hold man, taxes are biting as rents are going up, depreciation disappears, and large principal amortization kicks in all at the same time.

The CPA thinks its a bit aggressive, but won’t raise any red flags. The IRS won’t be chasing companies with $750/month revenues. He says that if I plan to pay myself anything beyond the “health insurance” benefit, then I’ll have to pay FICA and the 4% unemployment insurance for NY state.

He suggested, that if I use the C Corp as a tax deduction vehicle, why not set up tax deductible retirement plans as well?

I wasn’t thinking about retirement plan, but leasing a car maybe?? There’s sooo much runing around being a REI.

Is there anything I missed? How are you FULL TIME REI folks handling this ??


Frank Chin

Re: Health Insurance for REI -. - Posted by Kim, S. Florida

Posted by Kim, S. Florida on July 18, 2002 at 13:05:15:

HI! I just found what appears to be a great alternative to the plans I have found for small businesses.

It has a deductible of $3,000 HOWEVER this is just for major illnesses. If injured in an accident, it is $1,500. The monthly amout for hospital., ER, outpatient is $230 (single coverage) plus they have discounts up to 50% on doc visits, visioncare, dentists etc.

The plan is NOT an HMO or PPO but rather a POS meaning there is not list of whom you have to see or which hospital… Their policies are NON-Cancellable unless you don’t pay a premium. This is important because who knows if we’ll get sick…

The company is called the Alliance for Affordable Services and the insurance is underwritten by Midwest National Life of Tennessee. Go to their website at and check it out for yourself.

Hope this helps.


what about a group of our own? - Posted by Dee-Texas

Posted by Dee-Texas on August 12, 2001 at 20:04:35:

I know that doctors, dentist and many other professionals have their OWN group.
I’ve been paying HIGH prices for insurance forever, since my husband and I are both self-employed.
Someone out there that knows? Help Us out.
Creonline Investors group Insurance? Has a catchy ring to it.

JT - IN Knows of what he speaks-- LISTEN - Posted by BWhite(TN)

Posted by BWhite(TN) on August 12, 2001 at 16:36:11:

Hi All,
I posts this to second JT’s info. I also am a former licensed Life and Health agent and Financial Planner.
Every word of both JT’s posts is right on the money.
This is one area where you must do your best Due Diligence or find yourself in a very expensive seminar
on how to get gang raped by your trusted advisor.

Nuff said.

As JT My opinions from experience.


Medical Savings Account - Posted by Tim Jensen

Posted by Tim Jensen on August 12, 2001 at 12:52:18:


I would get an MSA. To find more info go to This is a real cool way to go.


-One big deducatable for the whole family $3200.00 per year. You get tow write that off on your taxes, also what ever you don’t spend grows tax deferred. It is like another IRA

-You spend your yearly deducatble on any medical expense you want. Prescriptions, eyecare, and the like.

-The monthly premium is not that high. I was quated $300 for a family of three.

Just check out the website I gave you, they can explain it much clearer then I can.

Good Luck,
TIm Jensen

Re: You need more info… - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on August 12, 2001 at 12:33:48:

Perhaps your CPA, does too.

Your c-corp managing your property for you (for another that is you not the corp), and for a fee ($750 per month) would require a real estate brokers license (for the c-corp), in most states (possibly all states).

Now that said this could be avoided by leasing your properties to the c-corp and having the c-corp lease to the end users. This is a sandwich lease and the corp then beoomes one of the parties rather than the “for another and for a fee” situation that requires licensing.

Your c-corp can have a medical reimbersement plan, whereby the corp pays your medical expenses, including insurance from the profits before they become taxable (pre tax dollars).

Your c-corp could also provide a few other benefits for you with pre tax dollars. Things like a company car, an office, additional education (like seminars on cruise ships) and so on.

There are two other solutions to your cash flow becoming taxable, one is to buy more property so that you can generate more depriciation deductions. The other is to lower the rent.

Re: Health Insurance for REI - Posted by DavidV

Posted by DavidV on August 12, 2001 at 10:42:48:

I’m no expert here, but i’m also setting up a C corp for srictly management now also. One thing about the Dental, include it with your medical reimbursement plan and have the corp deduct any premiums or actual costs. Even if you don’t sign up on a dental plan you can deduct that stuff. Makes you look forward to going to the dentist. :slight_smile:

Issues and Questions - Posted by BillW.

Posted by BillW. on August 12, 2001 at 09:21:38:

For health insurance, have you checked into member co-ops and such? Small business networks and also some credit unions offer health plans which might be lower cost since you would be a member of a large network. Just a thought.

Deductability of expenses via the C-Corp route is interesting. The only problems I ever had were that, despite the fact that you coud deduct lots of expenses, there are fees from the state for having the C-Corp, accountant fees, setup fees,separate tax return for the corp. and so on. You have to make sure the deductions you take are worth the fees you pay. If you’re only running the medical through to get the deductions, it might not be worthwhile. Also, there is a tendency by some people to use these corporations to try to deduct personal expenses as business expenses. It’s very important to keep these separate. If you get audited and the IRS decides you’re doing this, it will become “unplesant”. They may even decide to expand their audit to include other years, and if they decide you’re engaging in a pattern of deception, well, you can guess the rest. Just keep good records and you should be OK.

To alleviate the tax bite on the rentals as they throw off more cash flow and less deductions, you’ll probably need to exchange them via a 1031 for other units. As you keep doing exchanges, the tax gets deferred(but not forgotten by the IRS). I’d talk to a good CPA that’s WELL versed in real estate tax and exchanges to get the best scenario for your particular situation. On the other hand, however, it’s good to be making enough money to have a tax problem verses having a low paying J.O.B. and not having to worry about taxes because you don’t make enough to have to pay any tax.
Good luck to you,

Re: Health Insurance for REI - Posted by JT - IN

Posted by JT - IN on August 12, 2001 at 08:58:14:


As you are discovering, there is much to consider in the determination of which plan and the best way to set this up. I will certainly not be able to get as detailed in this post, with as many caveats as I could list, with available space and time, so let me take a stab at a couple of suggestions, and this will be the tip of the iceberg only. Let me also mention that I used to be very involved in this type of advice for a living, until 10 yrs ago, as a Certified Financial Planner, however, many things have changed in that span of time, and I am not current on recent changes. With that said, please take these ideas as such, and verify everything that I will say with a (current) professional.

Plan selection:

Yes, there are so many options, and most ppl look at the obvious differences, price, deductible, co-insurance, AM Best rating of the carrier, group vs. non-group; and these are all important. However, one of the most misunderstood buying decisions, even by many who are supposed to know, (agents), is that of experience rating in health insurance. In other words, how does the underwriter determine your rates, now and more improtantly, in the future? Are the rates based upon the “groups” experience? What is the group? Is it a group of a pool? Pool, being evryone that is insured by that company.
Why is this so important? Well, let me give you a couple of e.g., with very different outcomes. Lets say you select a plan that based renewal upon the entire group/pool experience rating. Obviously, the “law of large numbers”, in dealing with insurance risks, the more ppl the risk is spread accross, the more likely you are to get a true and accurate rate of affordable insurance. There are many plans that use the experience rating of “your group” only, to figure renewal rates. This is OK until you have a catasrophic claim, for heart surgery, cancer,or other large illness. Shuld your rates be based upon this system, in a matter of a couple of years, the insurance carrier can price you out of your plan, with a series of healthy rate increases, all at a time when you may be uninsurable, and have no portability. Now most companies use the combination method, which is OK, but when the rates begin to climb for the entire pool, then the healthy groups shop for coverage and jump to a cheaper plan, leaving the residue, who can no longer move due to insurablilty reasons, to bear the burder over a smaller group size. And, you guessed it, the rates skyrocket.

This feture of how rates are udnerwritten is the single most important feature, in the insurance decision. Now, my other caveat here is, do not take the word of the insurance professional, when asking about this feature, as I have heard on numerous occasions when the question comes up, an answer that the agent thought was correct, but in checking, find out the answer was partially correct or flat out wrong. Just do your homework here, directly with the company, and check with the insurance commission in your state, on some of these answers, too. Each state regulates insurance differently, and if I remember correctly, you are in NY, and NY has some of the strangest insurance laws, that are on record. Maybe the sate has curtailed some of the insurance company discretions, due to state law, but I find the more restrictive the state law is, then fewer companies are willing to do business in the state. Some/many companies have pulled out of NY periodically, due to these encumbrances.

One of the other features to look at, when setting up a plan inside of a corporation, as you are considering, is a medical reimbursement plan, for corporate officers. This will allow you to set up a plan with high deductibles, and when there is a claim, your corp, can pay these deductibles, and deduct the payment as and expense. This gives you total deductiblity, but you have to set up a plan in the beginning, in writing and you can not descriminate, so this will need the attention of a professional, as well. Again, it has been a while for me on these details, as far as staying current, and I’m sure there have been changes in the laws, that I am not current on, so take this as intended good advice, but it will be dated.

Retirement planning is another deeeeeep subject. It mainly depends upon where you are trying to get to, and in what time span. To list off some of the possible solutions, would be lenghty and too general, but I would be happy to give more sprecifics, with more input here.

Well Frank, I know from reading your past posts, that you are certinly intelligetn, detailed and analytical, so should you go shopping for health insurance, maybe you will be better armed to analyze the situation. I hope that this info is useful to you, and I will gladly assist you with anything else that I’m able.

Good Luck.


Re: Health Insurance for REI - Posted by Tom B.

Posted by Tom B. on August 12, 2001 at 08:49:24:

Frank - thanks for your post, I wish I had more to add but at the moment I do not. I am new to investing and I have seen a few of your posts here on CREONLINE. I work in midtown and I live in Rockland County. I would like to know if I could contact you to discuss any Investment Clubs and investing in general. I have had some decent leads, but so far homeowners are paying full asking price and my bids are left in the dust. Thanks in advance and my e-mail address is (home) and my work e-mail is Good Luck, Tom.

Thanks Tim - Posted by Frank Chin

Posted by Frank Chin on August 13, 2001 at 07:09:21:

Hi Tim:

Thanks for this idea and the Idea of the Week that you post here.

Frank Chin

Re: Medical Savings Account - Posted by JT - IN

Posted by JT - IN on August 12, 2001 at 14:21:37:


The only thing wrong with your idea here, is “Golden Rule”. They have a terrible reputation, when it comes to long term relationships. The companies phylosophy is among the worst, in that they underwrite at the time of a claim, vs. to time of issue of a policy. If we were using this description about the female gender, we would call that a “wh*re”, as they are the equivilent to that in the insurance industry.

I am well familiar with their antics, as they have committed the very essense of the abuses tht I described in my earlier post, of this thread. They have pulled the contract of ALL insured, in several states, refusing to renew coverage, after not getting their way, at the state level with several insurance commissions. What happened to these insureds, that were not able to medically qualify for new coverage?? Not good, that is the polite answer.

The company is in my home state of Indiana. I drive by the companies headquarters periodically, I am well familiar with them, in fact the President of the companies is Pat Rooney. Believe me, I know of what I speak here.

If you are insured with G.R., and are healthy, able to qualify for new insurance medically, then I would get out your daytimer, and on the line where 8:00am is on Monday morning, August 13, 2001; write “shop for medical insurance”.

Just the way that I view things… (My opinions only)


PS. My appologies to all, for such a strong view, on a such widely misunderstood subject. Many have been harmed by their lack of understanding of these very principles.

Good Point, Maybe I could do this … - Posted by Frank Chin

Posted by Frank Chin on August 12, 2001 at 17:15:59:

The C Corp could perform accounting, cleaning and maintenance services. I don’t think I need a license to perform these functions.

I do recall from my Real Estate licensing course years back that in New York State, a license is required if you collect rent for someone else. I also recall that you can get licensed for this limited function, called Rent Collector, and not have to get a full Realtor license. I vaguely recalled one may have to be bonded.

So I’ll have to personally open the rent checks and run it to the bank, and have the C Corp take care of the rest.

Certainly a point to check out.

Frank Chin

You made a few Good Points - Posted by Frank Chiin

Posted by Frank Chiin on August 12, 2001 at 18:17:33:

Hi Bill:

When I first met my CPA, he thought it probably wasn’t worth it to do it just for the benefits. But after comparing Individual non-deductable rates of $1,100 vs corporate deductaable rates of $750 resulting in an after tax value of $500/month - even he was convinced the savings of $600/month is worth looking into.

I had done my own corporate books. The CPA mentioned that several of his clients was able to incorporate rather inexpensively on their own.

I didn’t mention I currently have a dormant “S Corp” which I file tax returns, and pay a nominal franchise tax of $100.00 to the state annually as I had a consulting business a few years ago. I plan to dissolve it, and just have the C Corp. For some reason, The corporate charter indicate that it can engage in any business activity except real estate. One option being considered was amending the corporate charter, corporate name, and making it a C.

Looks like I’ll be OK after the setup expenses.

I am also re-positioning my RE portfolio. One problem in using 1031 exchanges to do this is the original depreciated basis goes into the exchanged property - and the new property has to be extremely leveraged to generate zero or positive cash flow with healthy depreciation writeoffs.

So the easier way, at least for now, is to offset some of the taxable income with deductable fringe benefits.

Frank Chin

Member Co-ops & Networks… - Posted by JT - IN

Posted by JT - IN on August 12, 2001 at 11:11:14:


We seem to haven taken the proverbial lid off of the proverbial can of worms, with a health insurance discussion. I’m afraid this topic will “get me going” about some issues that I feel deeply about, as a result of seeing many abuses in this business relationship, that we call health insurance.

The issue of Member plans, co-ops or networks, that you describe, is one that I am NOT a fan of. Reason being, is that the contract that an insured holds, is not with the underlying insurance company, but a Trust, that in turn has a contract with the insurance company. I suppose, if the Trust or assn is very, very strong, this will never become an issue, but it has become an issue, many times before, as the undrcapitalized trust struggles, and eventually raises rates or limits coverage, to attempt to survive.

See, I told you this was going to get opinionated. (Grin).

The biggest problem with the above relationship, is that insured just never seem to understand the razor-thin line that they are walking, and risk involved of possibly losing coverage. They are not insured by the insurance company, but the underlying Trust. This would be akin to depositing your funds into a Bank, but instead of putting the moeny in your own acct. it goes into the Trust acct. No problem here, if the trust never gets in trouble, but if they do, don’t go back to the Bank and complain about the way you set-up your savings plan. it was your choice, didn’t understand to begin with, but get educated after it is too late.

I’m sure that there are some good Assn & Trust plans out there, but why not go direct to the underlying carrier, and have their guarentee, instead of a middleman?

Just the way that I view things…


Thanks for the detailed Post - Posted by Frank Chin

Posted by Frank Chin on August 12, 2001 at 17:34:48:

Hi JT:

I just started checking as my present plan has a few more months to go.

It looks like I got some homework to do as far as comming up with a medical inurance reimbursement plan as well as researching and selecting a good medical plan. I was concentrating on rates and features, but the cheapest plan, or the most expensive may not always be the best.

When I worked for several large firms, Human Resources had consulting firms review plans, write up the company policy, negotiate rates etc. Would be nice if someone can perform the same service for small guys like us.

Frank Chin

PS: I thought of going into the Financial Planning field once. Did you like it at all, or you found other more interesting endeavors.

Reason I ask is my wife thought I spent so much time researching financial planning, I should go all the way. Any thoughts?

Re: Medical Savings Account - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on August 12, 2001 at 17:41:11:

Hi JT,

I would like to discuss this further with you. Coul dyou e-mail me at I would like to get further input on choosing providers.


Re: My point is that - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on August 12, 2001 at 20:28:49:

the c-corp. is not you. You own the properties not the c-corp. so to get the c-corp to manage the properties it would be necessary for you to hire the c-corp, and as you have mentioned pay them (the c-corp.) for that work which requires them (the c-corp) to be licensed as a real estate broker. Not necessarily you but someone in the c-corp.

No required license, and the IRS will most likely look at your c-corp as an attempt to evade income taxes.

Correction - Posted by JHyre in TexOhio

Posted by JHyre in TexOhio on August 13, 2001 at 13:10:35:

Makes no sense in the 2000’s, not 90’s! I am SO retro!