Need Advice on LLC Setup & Tax Strategy for Real Estate Investments

[Isaiah Cortez]

Hi everyone,

I'm looking for guidance on setting up my LLCs to be as tax-efficient as possible as I prepare for my first multifamily property purchase. I’m a high-income earner and just received a substantial tax bill, so I want to make sure I’m getting everything right from the start.

To give some context, I currently own one rental property where my dad resides. My next step is purchasing my first multifamily property in Tampa, Florida, which will include tenants, as a house hack. I file my taxes in Florida and am considering setting up an Investment LLC, a Property Management LLC, and possibly another LLC for short-term and mid-term rentals. I'm also thinking about using an S-Corp or another passthrough entity for tax purposes.

I'm looking to scale my real estate portfolio, and I know that starting sooner rather than later will be more beneficial in the long run. Who should I be talking to for the best advice on structuring these entities to minimize taxes, protect my assets, and maximize my investment strategy?

Any insights or recommendations would be greatly appreciated!

Thanks in advance!

[Jorge Vazquez]

Hey Isaiah, congrats on the Tampa multifamily! I’ve been in real estate for 10 years, and I’d suggest setting up an Investment LLC for holding properties, a Property Management LLC if you're managing it yourself, and maybe a separate LLC for short-term rentals. An S-Corp could help save on taxes if your income's high, but it’s worth chatting with a real estate-savvy CPA to get the best strategy. I’ve got the best CPA who knows the ins and outs—shoot me an inbox message, and I’ll send you the info!

[Bill Hampton]

@Isaiah Cortez

Do not create a property management LLC. If you use this setup you will be turning passive rental income into active income which means you will pay higher taxes.

Do not put rental properties into an S-corp or C-Corp. This setup will lead to higher tax prep fees and if you refinance these properties the IRS will consider this selling the property and you will have pay taxes at the end of the year on a property you didn't actually sell.

I recommend finding an accountant who specializes in real estate taxation and tax planning and set up a paid consultation before you do anything. 

You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

There are over 20 real estate accountants on this site. Reach out to a few and see who you like.

You can also ask members of your local real estate investors association for real estate accountant recommendations.

Good luck.

[Account Closed]

Quote from @Isaiah Cortez:

Hi everyone,

I'm looking for guidance on setting up my LLCs to be as tax-efficient as possible as I prepare for my first multifamily property purchase. I’m a high-income earner and just received a substantial tax bill, so I want to make sure I’m getting everything right from the start.

To give some context, I currently own one rental property where my dad resides. My next step is purchasing my first multifamily property in Tampa, Florida, which will include tenants, as a house hack. I file my taxes in Florida and am considering setting up an Investment LLC, a Property Management LLC, and possibly another LLC for short-term and mid-term rentals. I'm also thinking about using an S-Corp or another passthrough entity for tax purposes.

I'm looking to scale my real estate portfolio, and I know that starting sooner rather than later will be more beneficial in the long run. Who should I be talking to for the best advice on structuring these entities to minimize taxes, protect my assets, and maximize my investment strategy?

Any insights or recommendations would be greatly appreciated!

Thanks in advance!

 Hey Isaiah, 

I would talk with an accountant that knows real estate for the stuff you mentioned. I would not recommend doing any S corp elections without knowing more about your situation. The LLC for the property management business and LLC for the STR business makes sense, and if your looking to scale this is a good "top level" that can own properties underneath it.

[Gregory Schwartz]

Quote from @Isaiah Cortez:

 My next step is purchasing my first multifamily property in Tampa, Florida, which will include tenants, as a house hack. 

If you're planning to buy a multifamily property as your primary residence and house hack, you'll almost certainly not want to own it in an LLC.

As for setting up an LLC for property management (whether long-term or short-term), I'd recommend it primarily if you plan to scale your portfolio. My wife and I have a property management LLC that manages our portfolio, including the properties I own in partnership with my father. In total, we manage 25 units through this PM company.

Good Luck!

[Basit Siddiqi]

It appears that you have a complex structure already suggested to you(PM company, S-Corp, Investment LLC, etc).

Who suggested this structure to you and what did they say was the benefit for setting all these companies up?

I like to keep things simple. I do not like more entities because it means more bank account numbers, credit cards, debit cards, check books, etc

Best of luck

[Ashish Acharya]

Given that you’re a high-income earner, planning your tax strategy carefully is crucial, especially as you scale your portfolio.

Setting up an Investment LLC (holding) for your properties, a Property Management LLC for operations, and possibly another LLC for short-term and mid-term rentals makes sense. This structure will NOT minimize taxes but can provide asset protection.

Please don't get S-crop to hold the asset. That will have negative tax consequences.

[Fulton Sanchez]

Hi Isaiah. To set up your LLCs for tax efficiency and asset protection, consider forming separate LLCs for each purpose (Investment, Property Management, and Short-Term Rentals) to limit liability and manage tax implications. An S-Corp might help reduce self-employment taxes by allowing you to take a salary and receive dividends. You've come to the right place, there are over 20 enlisted CPAs working with real estate investors across different states. Feel free to reach out to one and set an advisory.

[Dave Foster]

@Isaiah Cortez, Always nice to see a neighbor growing their business.  We'll see you in a bit on the 1031 exchange side of things.  For now you've gotten some great advice from some seasoned tax professionals.  And as you can tell much of it is contradictory advice.  Not because anyone is wrong.  It's just one size doesn't fit all.  You are going to have to get personal with your team so they can structure something that works for you personally.  It's about liability yes.  But it's also about efficient accounting, and maximum tax advantage both on the operation and the sale of assets.

One thing I've always seen is that many times it's easy to fall in love with a comprehensive strategy and set it up only to find that it really doesn't work when your parameters change.  Or your direction shifts.  So try to set up your structure to be small enough for now but scalable as your business scales.

For me personally I won't use an S corp (or an LLC taxed as an S corp) for simple real estate holds. The off-sets for self-employment tax can be good as @Fulton Sanchez pointed out.  But for me the complexity of getting out of an S corp plus the cost of running one just didn't make sense when I could eliminate net income so many other ways and still get the pass through from disregarded or series LLCs.  Entity set up is nifty.  But it can bite you on the back side in increased finance costs.  But that's just my situation.

[Sean O'Keefe]

Good feedback from @Basit Siddiqi @Ashish Acharya and @Dave Foster I don't think I can add much more to this. 

@Isaiah Cortez We support a lot of real estate investors in Florida. If you're looking for some unbiased feedback on services providers we get a lot of recommendations from our customers and networks and would be happy to pass these along. 

[Max Emory]

Hey @Isaiah Cortez, speak to an REI-savvy attorney who operates in FL (doesn't have to be located in FL but should know state-specific rules/regulations/laws).

We see so many different entity structures for rental portfolios in our REI Bookkeeping Firm.

Whatever you decide, ensure it's simple enough for you to easily abide by the structure in your day-to-day operations. 

We've had bookkeeping clients with complicated structures that apparently protected them to the maximum degree but they didn't abide by the structure when conducting transactions in their business daily (lots of unintentional commingling). When this happens the fancy/complicated entity structure is useless protection-wise.

Lots of attorneys out there who will sell you a $10k+ entity structure that doesn't mesh with your operations as you scale your portfolio and team.

Also, ensure your REI-savvy tax pro and your REI-savvy attorney link up during the entity structure creation process so things are optimal on all sides.

Just something to keep in mind as you're beginning this journey.

[Ámlèh Quáwáin]

Quote from @Isaiah Cortez:

Hi everyone,

I'm looking for guidance on setting up my LLCs to be as tax-efficient as possible as I prepare for my first multifamily property purchase. I’m a high-income earner and just received a substantial tax bill, so I want to make sure I’m getting everything right from the start.

To give some context, I currently own one rental property where my dad resides. My next step is purchasing my first multifamily property in Tampa, Florida, which will include tenants, as a house hack. I file my taxes in Florida and am considering setting up an Investment LLC, a Property Management LLC, and possibly another LLC for short-term and mid-term rentals. I'm also thinking about using an S-Corp or another passthrough entity for tax purposes.

I'm looking to scale my real estate portfolio, and I know that starting sooner rather than later will be more beneficial in the long run. Who should I be talking to for the best advice on structuring these entities to minimize taxes, protect my assets, and maximize my investment strategy?

Any insights or recommendations would be greatly appreciated!

Thanks in advance!

Your best course of action is  to form a varied interest entity llc, then elect it to be taxed as an S Corp. The tax efficiency of this is tremendous. S Corp status comes with a deduction and then the VIE will bring on the deeper deduction, as long as you have the structure in place