Starting A LLC For Every Property
I was told by an investor that it is better for one to have every real estate deal to be its own seperate entity by creating a company for it. As in every house should be attached to its own LLC.
I wonder if the investors on this site think this is a good strategy? and if it is how can one go about creating one, what will be the process? Will it be better for one to start the company before the house is bought or after?
Also how can one get unsecure business lines of credits with banks or other financial instutions to help finance real estate deals?
I will be grateful if my questions can be answered.
You could create an S Corp for each property. Keep records for each one separate, but when the time to file taxes comes around, you combine the income/losses for all of them, file one federal (1120S) and one state information return, and then report the total combined profit or loss on the first page of your 1040.
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"A deal is only as good as the quality of your Contracts." --Me[ Edited by LeaseOptionKing on Date 10/03/2006 ]
You could also place each property into its own Title Holding Trust with your LLC as trustee.
Delaware has no privacy (they used to, but no longer). A Nevada entity still retains privacy (they even thumb their nose at the IRS). But even for holding property (if you have Tenants), some states require registering as a foreign entity. What are these "disadvantages" to holding property in a Corp that you speak of?
[addsig]
Thank you all for your replies. So which structure am I better off with, tax wise and protection wise?
A regular LLC that has all my real estate deals under it.
An LLC per each real estate deal
A series LLC (like in the case of Delaware)
An S or C corp for all my real estate deals
or an S or C corp per each deal
There was one post that said: "You could also place each property into its own Title Holding Trust with your LLC as trustee."
I recommend this strategy with one glaring exception. NEVER make your LLC trustee.
Using your own LLC would create a merger of title, invalidating the trust, should it be challenged in court as not being a bona fide land trust (see N.C. A.G.O. vs Russell and Dianne Barberio 2005)
A privately or closely held corporation would not charge legitimate fees and therefore would not likely be seen by the courts as a bona fide holding company, whose business it is to hold titles in trusts and charge fees commensurate with industry standards.
One’s own corporation would not be seen by a co-beneficiary as a mutually trustworthy, and wholly unbiased third-party holding (“escrow”) entity. Such a bias would not be in the best interests of co-beneficiaries. As well, using one’s own business entity would create a merger of title invalidating the land trust model.
I wish you the very best of luck.
Wiz
not a lawyer, just a certified land trust consultant
[addsig]
what about using a land trust?
what about using a land trust?
First of all I will like to thank all of you guys for your priceless input.
Here is my plan, I plan on creating regular LLCs for my rental properties till I have $300000 equity in them each and then create more after that, so that all my investments are not in one shell.
In event I go into flipping, wholesaling and the sort, I will do those deals under an S corp, to reduce capital gains taxes and for other tax reasons. What do you guys think?
Land trust only keeps you annonymous. I keep my riskier properties in seperate sub LLCs under my Parent LLC. Reason being if a tenant sues LLC A they may get 2 or 3 properties but not the other 20
I was told that it is better to establish an S corp for flipping and wholesale deals and to establish LLCs for rentals. Can anyone explain why this is so in terms of how they help tax wise per situation?
I would suggest placing your like kind risk properties into one LLC or corporation. FOr example if you have four houses and three are in a high crime area, create two corporations and place the three into one and the "nice" home into another. It is all about risk management.
Remember a corporation is a separate "person" under the law, and therefore, if it is properly organized and managed, it should protect its owners from any personal liability for corporate debts and obligations and from claims against the corporation. [ Edited by ctsee11 on Date 10/28/2006 ]