Need Input On Business Plan And Formation Of Company

I need a little help with the business plan I have especially from someone who has done something similar if possible although any thoughts are always welcome. My partner and I would like to form a management company with the end result having about 100 or so rental properties. In order to do this we would be rehabbing REO’s and distressed properties and then drawing out the equity to recoup our investment, closing costs and pay ourselves a small ROI of say $5000 each. I figure we will end up with a lot better cashflow with a lower mortgage than buying already rehabbed properties. Also please correct me if I am wrong but the $5000 we would be drawing out each is not taxable since it is coming out of a loan correct? My problem is I am not sure what structure to set the business up in. I am leaning towards a C or S Corp except for one thing. If I do that and get to the point I can finance the properties through the corporation, will I still be able to get that $5000 profit out of each property to me personally without being taxed on it? Is this the best entity to go with or are there other things that I should consider? I have read a lot of the posts regarding LLC vs C vs S corp but I am still confused at which is the best advantage. After we are getting rental income coming in, we will be drawing salaries and such and also once we hit about 100 properties, we will start selling our rehabs either outright or to other investors looking for rental properties. Any help would be appreciated.

Thanks

Joe
[addsig]

Comments(6)

  • KyleGatton28th April, 2004

    Personally I would go with a C-Corp because it gives you better protection. Also if you are doing 100 Houses you will need more tax benefits available to you. You will also want expandability that the C-Corp can give you down the road.
    Regarding the monies coming back to you, you will have to assign them for different tasks for it not to be taxable, such as mileage, lease from the c-corp to you for 1/3rd of your house for office space, etc etc. You will also want to consult a CPA, since you are doing so many houses, they will tell you the best way to go as well and pay for themselves in tax returns, etc.

    Good Luck,
    Kyle

  • joefm2628th April, 2004

    Is it possible to convert an existing S corp over to a C corp further down the road?

    _________________
    If you do what you have always done, you will get what you have always gotten. Success can't occur whithout taking risks, just be sure to take calculated, informed risks![ Edited by joefm26 on Date 04/28/2004 ]

  • airbornemsports29th April, 2004

    I like S-Corps. I currently have 3 of them and the tax benefits and the limited liability are great. It also gives you the ability to expand much easier in the future. You will not be double taxed in an S-Corp like you are in a C-Corp. Perfect if you plan to grow and sell a few shares in the company but still limit the ownership to a few people.

    God Bless,
    Eric

  • DaveT30th April, 2004

    You propose to form a corporation that will manage rental property it has purchased and rehabbed. Eventually, you hope to grow the business to 100 rental units.

    Consult a tax attorney or CPA familiar with Personal Holding Companies. I believe this is where you are headed with this strategy. You may find that the corporate tax burden is a lot higher than for another business entity equally suited for your strategy. Perhaps an LLC organized as a partnership will work better for you.

  • myfrogger30th April, 2004

    Read my article:
    http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=452

    In a nutshell I would recommend an LLC to you because of your long-term holding plans.

    Definatly consult a tax professional. Start interviewing them and your first hour or so for each one will be free! You'll start learning TONS!

  • joefm2630th April, 2004

    OK maybe this is going to be more complicated than it has to be but I am looking at what dave said and from what I have read it is better to hold property in an LLC than a corp. would there be any advantages to having a main corporation and then having the corporation own the properties or hold the proerties in LLC's of say 5-10 properties each? so that the LLC's are sub comapnies of the parent corp? I only thought of this because of the not putting your eggs in one basket theory. If one LLC got sued it wouldn't affect the others. and if I did do that then would the profit pass through to the parent corp and then pass through the parent s corp to me? also please tell me if I am being more complicated than I have to be. Am I going to pay mnore taxes set up as an LLC or an S corp ? thanks for the good answers so far guys!

    Joe
    [addsig]

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