Would It Be WISE?

Would it be wise to form an LLC first before having a few properties under your belt ?

I just bought my first one and after I finish cleaning it up I want to roll the equity into other potential properties but that wont be until the end ot the year or early next year.

I also have other people that are willing to support my decision on buying and flipping property if they see its worth it.

So should I form the LLC now so when I do business I can use the LLC or I should wait and have a few properties lined up first ?

Thanks for any inputs

Comments(8)

  • edmeyer22nd June, 2005

    You did not state what you are ultimately looking to do. If you are going to be turning properties as a business, then the properties are not depreciable. You might want to look at the advantages of a C-corp rather than an LLC if you are turning properties.

    Whether you form a corporation now or later may depend on your circumstance and your plans. If you have many assets that you want to protect in case a drug dealer moves into your empty property in the middle of the night and falls down the stairs while hallucinating on his own wares, then you may want to incorporate.

    There may be business reasons aside from liability issues that may also influence a decision.

    Regards,
    Ed[ Edited by edmeyer on Date 06/22/2005 ]

  • Jose7122nd June, 2005

    Thanks for the response. This is what I want to do.
    I want to use the LLC to be able to buy/rent properties out. I want to seperate my business funds from my personal funds. Instead of me as the buyer try to purchase a property or help someone get out of a jam I would prefer to say MY LLC can assist you or willing to purchase etc. etc.

    Some people prefer to deal business with or takes an LLC more seriously.

  • edmeyer22nd June, 2005

    Jose71,

    You need to make another distinction--between flipping and holding. If you are going to do both, you want to have separate entities and you might have one an LLC and the other a C-Corp. What you want to avoid is doing both under the same entity. Besides tax advantages if you co-mingle both activities, the IRS may declare everything as dealer activity and disallow losses from depreciation.

  • Jose7123rd June, 2005

    ED

    The one I just got im going to hold for myself. Once i get the upgrades done to the house it will jump from 108k to atleast 180k { I estimate 10k for upgrades}. I was going to use the equity to start getting other properties and flipping them...

    Am I headed the right way or im going down a dead end street ? Thanks for the inputs

  • edmeyer24th June, 2005

    Jose71,

    If you are going to hold the first property in your name you might want to set up a separate entity for your flips. You do not want the first house to be declared "inventory" in your flipping business. What you can do is refi the first house and then use the money as capital for your flipping entity. You might want to run this by a tax person just to see that I am not being too conservative on this.

    Regards,

    Ed

  • Jose7126th June, 2005

    Thanks Ed,

    Thats my intentions. Once I get the one rehabbed the way I want to then I will REFI so I can continue on my journey. I didnt really know how many different ways until I physically started. Thanks again. I will keep my progress posted

  • cjmazur26th June, 2005

    dig up your contract for deed and take it to RE lawyer ASAP.

  • annstnt26th June, 2005

    Thanks all for the input...

    He is not technically in forclosure on this property..His parents are..who took it over in the name of a business he owns also...It is a mess...

    I just assumed that if I was buying a property that already had a lien or whatever on it I had a right to know about it before I agreed to the sale...hmmmm

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