Help with starting a real estate business entity structure

[Bony Mathew]

hello everyone, I'm working with a lawyer in the area to start a business structure for real estate investing (mainly for rental properties). I drew out a business structure based on my conversation with him. if you guys could look at it and give me your opinions/recommendations and How you have done it if your starting out from scratch that will be awesome!

Few Questions that came to my mind this structure:

- Would it be better to do a pass-through from LLC to INC be wiser for tax purposes or should I make the LLC as S-Corp for each property holding LLC?

- How would the salary & quarterly distributions work under the main entity being INC. rather than an LLC ? (i originally planned on having the main entity a LLC, but the attorney recommended this setup)

- any opinions on putting each rental property under a trust rather than an LLC?

I'm looking to finance most rentals that I would buy under this vehicle, would this setup hold me back in any way (not having enough business history, etc ?) I appreciate any suggestions you may have, seriously! 

[Naseer Khan]

@Bony Mathew 

1) Question: Are the Sub LLCs just going to hold rental property or short term rentals? If they are simply holding long term rental property, then the income from those properties is passive income and is not subject to self employment tax. Accordingly, you would not need the S Corp election for those entities. However, if they were short term rentals (less than 7 days at a time - like airbnb) then the S Corp election would make sense since the income becomes active income and is subject to self employment tax. FYI - the S Corp election allows for tax planning that helps reduce self employment tax. 

2) See above discussion about whether these are long term rentals or short term rentals. If long term rental, then no need for salary and distributions. 

3) There is no need to separate each property into its own LLC. The number of properties in each LLC should correlate to the amount of equity you might lose in the case of a lawsuit. Since you plan to finance most properties, you likely do not have much equity, so you could place all or several properties in one LLC. If you were to get sued, you would not lose much due to the debt on the properties. However, if the properties are paid off, then you want to start separating them based on your risk level and equity level. Note that this is just one factor to consider when separating properties in LLCs.

This response neither constitutes legal or tax advice nor establishes an attorney-client relationship. Inquirers must seek the advice of their own legal counsel prior to undertaking any course of action related to this inquiry.