Benifits To Starting LLC
My business partner and I are just starting to pick up foreclosures then flip and carry the mortgage.
Is it a good idea for us to form an LLC or simply for both of us to buy the properties we want directly? What are the taxes advantages -- if any -- to forming an LLC. Liability protection??
Thanks for any feeback![ Edited by socal77 on Date 09/15/2003 ]
Liability Protection is the biggest one.
Other advantages are that you begin to establish Business lines of Credit. Also, many business loans and LOC's are nearly impossible to get until you've been in business for 2 years. The earlier you start this, the better off you'll be.
Also, I find it much easier to separate Business and Personal expenses when I have an entity.
An LLC would be a good idea. That will allow you to pay for all the business expenses and yourselves what you wish, all before taxes set in. The corportate tax rate may still be lower than your personal, depending on your regular personal income.
Liability protection is another good idea, but banks will probably want personal guarantees from you both (even if there's enough equity in the prop), so that's not the main reason. However, the liability you can avoid is the legal/injury type.
Of course, if the bank doesn't need a personal gty (which would surprise me) then you can also keep your personal assets clean.
Also it just makes everything cleaner, more professional, easier with a partner, etc.
Hope this helps!
The Fox
[ Edited by TheFox on Date 09/15/2003 ][ Edited by TheFox on Date 09/15/2003 ]
Don't even fool around with anything else. GO WITH THE LLC. For REI it is the best entity.
The LLC comes highly recommended from Tax Advisors as well. Just make sure you do it right, ie. all the proper documentation, minutes, etc. Else you can kiss your ASSet protection bye-bye.
If you can, find someone (ie. an attorney) who knows the ins & outs of LLCs. Little known strategy is to have a "Master" LLC with "Sub" LLCs.
Ho...
Thanks for all the info.
I'm based in CA but will not be buying any properties there. I think Nevada is the best place to set up an LLC. What is everyone's opinion on this? I own another C-corp that I set up in Delaware.
Last I heard, even if you setup your LLC in Nevada, it still needs to be registered in the state where you will be doing business.
Might be best for you to chat with an Attorney that knows Corps/LLC/LP etc. real good.
Ho...
Hello Socal77,
There is no tax advantage to setting up an LLC. Only liability protection. The best tax breaks come when you form a Family Limited Partnership with an C corp and the limited partner. You can read all about these on-line. You can see which program best fit your current investment needs.
Some say there is a min and a max for for each program. Example $1,000,000 assets is min for FLP and $800,000 is min for C corp. You could start with less, it is just that you could take full advantage of all the tax breaks without the funds in place.
Thanks for the great info! I appreciate it. I am planning on looking into a family trust.