Starting an LLC or Corp?

[Justin Cox]

So currently, I don't have any properties but I am wanting to go ahead and start either an LLC or a Corp. What is the difference between the two? Would an LLC be better for me since I'm just starting out? And is there any reason why I would want to wait until I have bought my first property and have money coming in to start either one of these because of costs to have one?

Thanks in advance!

[Randall Alan]

There is plenty on the internet that will describe the differences between a Single Member LLC and a Sub-S Corporation, etc (just google that phrase). They can both flow through to your personal income tax.

I would point out that you cannot buy a residential property in the name of an LLC or a Corporation. So if you are looking to do a (cheaper) residential mortgage, versus a (more expensive) commercial mortgage, you are going to be buying the property in your own name. After you buy it, you can USUALLY deed it to an corporate entity... but be aware that lenders reserve the right to call a loan if a property is transferred. USUALLY, lenders won't balk at deeding it to a company you own, but you literally never know if they are going to. As I hear it, as long as you don't give them a reason to look, they don't look.

The general theory of having the corporate structure is to separate your personal assets from your business assets. There are other reasons, but that is the typical reason I see most often. As you add new properties there becomes a balancing point of what makes the most sense to do. We have 24 properties. To maintain 24 LLC's... just the yearly filing fees to keep the LLC's current with the state are in the thousands of dollars.

We took a different approach.  We opted to get that "protection" by taking out an umbrella policy to protect us should we ever get sued.  So we have $2,000,000 with of insurance at a cost that is less than the cost of the filing fees for the LLCs.  

So you have to ask yourself, what is your objective for having the LLC, and what makes the most sense for you in your situation. If you have one property, a single LLC would cost $150 to maintain each year. No big deal. You still probably want an umbrella policy, possibly, but the extra expense of the LLC is negligible. That changes the more you have.

Hope it helps!

Randy