What Is Best, Sole Proprietorship, LLC, Etc.
I was wondering what would be the best way to structure a business for buying, rehabbing and selling foreclosures. Should I consider an LLC, Sole Proprietorship, etc.?
I was wondering what would be the best way to structure a business for buying, rehabbing and selling foreclosures. Should I consider an LLC, Sole Proprietorship, etc.?
Most attorneys these days recommend a LLC; the reason is in the name- limited liability. However there can be tax benefits to S corp and C corp structures- it depends on your particular situation. Best to ask a tax attorney or accountant.
Chris
You may want to consider renting out some of your properties for 1 year before selling to cut your tax bill by at least 50%. I second the comments Chris made.
I guess that holding for under one year requires short term capital gains... correct? What exactly would that mean for an LLC where some of the money would flow through to my income?
Renting seems like it would be such a hassle.
Thanks for the info. What are typical charges for property managers?
Until the LLC establishes credit, you will likely need to co-sign the loans for the lenders as an individual.
i am looking for a hard money lender in new jersey. does anyone know a good lender that will consider lending to a newly formed llc.
I have an S Corp and the paperwork is negligible. I just have one Annual Meeting per year (which is a fill-in-the-blank form). Much of the rest are just forms and Resolutions that I tore out of a book. What I find ideal about an S Corp is that I can own as many as I want (perhaps one for each business) and just combine all the income/losses for each and file one 1120 S with the IRS to get one figure that goes on my 1040. Most of the deductions are placed separately on a schedule (sheet of paper) and thus not placed on the 1120 S itself, effectively eliminating many audit triggers. Is there more paperwork required with an S Corp as opposed to an LLC? Yes, but that paperwork can be cookie-cutter (if you have a good record-keeping system) and as easy as simply buying a book and tearing out forms.
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"A deal is only as good as the quality of your Contracts." --Me[ Edited by LeaseOptionKing on Date 06/05/2006 ]
Hmmmm... I need an attorney.
Some attorneys push an LLC, because it is new (relative to other structures). Of course, in some cases an LLC is really the best choice. I think a Corporation (properly run) has every bit as limited liability, so it really comes down to taxes. It might be cheaper to consult a competent tax professional first to see what would best suit your needs.
[addsig]
AN LLC that elects to be taxed as an Scorp will have the benefits of an S corp and less paperwork.
In the past I have been able to step through almost any entity as most do not do the minimal required to keep their corps "bulletprof" there are approximately 20 things that need to be done or the judge sets them aside.
Now, most of us form a corp for the tax reasons and not protection.
every time you make a change in business etc. you need to have minutes for your corp. Capital expenditures should have a resolution by the board passed to support them etc. etc. etc.
What you need is not an attorney, you need a good CPA or bookeeper
[addsig]
What are the tax benefits of an S-corp?
Corporate stock is considered an "investment" and as such is available to satisfy judgment creditors in the event you are personally sued and lose. So when you rear end someone in a pinto, they sue you and win, they can receive your corporate stocks. They now own the corporation and its assets, including the rental property.
Member interest in an LLC is considered "personal property" by statute. As such, it is NOT available to satisfy judgement creditors.
Both the corp and LLC protect the individual from liability arising within the company. Only the LLC protects the company from your personal liabilities.
And neither protect your property -- you need a land trust to do that. Placing the property into a land trust and taking title in your LLC is the ultimate in asset protection.
Da Wiz
not a lawyer
This issue has been discussed extensively in the "subject to" forum. Mtnwizard has a lot to say about trusts there.
Chris
Hey Chris, congrats on the mod job!
Maybe Joel should consider adding a trust topic forum?
Jim
The old hippie in me dislikes censorship of any kind too.
It appears that more and more CIs are looking at trusts as a creative tool. Just thought a separate trust forum might eliminate some feelings of trespass.
Jim
Not sure that this article will answer all of your concerns, but it should help on the insurance issue:
http://www.thecreativeinvestor.com/modules.php?name=Articles&file=article&articleid=472
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mrmark ,
Thanks for your response. How to find the property, do due diligence, and make money was not my question.
If you have attended the US Treasury seized real estate property auctions, do you know how they set their reserve price?
[ Edited by NewKidInTown3 on Date 06/01/2006 ]
Thanks Mark.
I will let you know what happens at the auction next week.
Property auction was yesterday. The bidding opened at $256,500. I had set a bid limit of $210K so I was already out before I even got in.
The final sale price was $306,800. Property values in the neighborhood range from $330K to $385K. This was one of the smaller units in the complex so I would have put FMV at $330K