Can somebody help with this confusing question....

[Teresa Miller]

Hello, question... When you purchase a property is it purchased as an LLC or stated another way , is each property its own LLC? Also, When you're acuring a deal, as a flip, do you acquire all under your S corp company?

I'm new at this so forgive me if I seem confused! 😁

Thanks a bunch!

[Joe Villeneuve]

The property isn't an LLC...the LLC is what buys it.

[Siye Baker]

@Teresa Miller

Rentals are usually held in Multi member LLCs, while flips are usually held with Corps.

Sebastian

[Fred Heller]

You'll establish the LLC in your state first, and then it will buy the properties. You'll probably want to get a lawyer or Legalzoom to do it.

Good luck!

[Teresa Miller]

@Joe Villeneuve thanks for the clarification can the one LLC purchase multple properties? I understand @Siye Baker flips are held by s corp.  So if i want to do have both rentals and do flips Inwoukd have to have LLC and S Corp?

Thanks for the advice @Fred Heller.

Thanks for your prospective!

T

[Siye Baker]

Originally posted by @Teresa Miller:

@Joe Villeneuve thanks for the clarification can the one LLC purchase multple properties? I understand @Siye Baker flips are held by s corp.  So if i want to do have both rentals and do flips Inwoukd have to have LLC and S Corp?

One llc can purchase unlimited properties, although ppl sometimes limit the number of properties/llc for asset protection.

Sebastian

[Siye Baker]

Originally posted by @Teresa Miller:

 I understand @Siye Baker flips are held by s corp. So if i want to do have both rentals and do flips Inwoukd have to have LLC and sCorp?

Thai is correct, 1scorp for flips,1llc for rentals(later adding more llcs as you acquire more rentals if you wish)sorry about any double posting..phone is acting up

Sebastian

[Teresa Miller]

Thanks @SabastianBaker, that's my understanding!

[Teresa Miller]

Originally posted by @Siye Baker:

Originally posted by @Teresa Miller:

 I understand @Siye Baker flips are held by s corp. So if i want to do have both rentals and do flips Inwoukd have to have LLC and sCorp?

Thai is correct, 1scorp for flips,1llc for rentals(later adding more llcs as you acquire more rentals if you wish)sorry about any double posting..phone is acting up

Sebastian

Thanks @Sebastian Baker, That's my understanding as well.

[Nicole A.]

Yes, one LLC can purchase multiple properties. Everyone has their own opinions on it.

I personally have one (multi-member) LLC owning a few properties in Maryland. However, when I start investing in Florida, I might want to open a LLC within that state to avoid foreign entity fees.

[Teresa Miller]

Hi @Nicole A. thanks for your comment. What do you mean by multi-member? LLC with multiple properties or partners you have on each property? ( I feel like I should know the answer :-\ )

[Nicole A.]

Multi-member means there are multiple people in the LLC rather than a single-member LLC where only one person is in the LLC.

Gotta learn somewhere! There's tons of reading about LLCs here on the forums and you'll also get to see the many debates of LLCs benefits as well. :-)

[Dave Weikart]

Create your LLC in Utah...greater protection between you and your company

[David Dachtera]

Originally posted by @Dave Weikart:

Create your LLC in Utah...greater protection between you and your company

...but you still must register your LLC in the state where you do business and it will governed by that state's laws, not by Utah's.

[Rob Beland]

@Teresa Milleryou're missing one major consideration. Do you actually need an LLC or an S-Corp. You can in fact buy real estate, do flips, wholesale deals, etc...as a sole proprietor. You need to take an internal survey so to speak of your personal net worth. What are you looking to protect with the LLC for example? Determine the value of all of your real estate including your personal residence and then subtract the balance of all of your mortgages. Secondly, add up all of the money you have in savings/checking and in investments like a 401K, IRA, etc... Now determine the value of your large purchase items like your cars, boats, etc...and subtract the loan balances. This calculation will give you your net worth. If you are sued then your net worth is the extent of what your exposure is in the lawsuit. You should also consider a basic liability insurance policy. If your net worth is less than $500K you can get a liability policy for a few hundred dollars per year as opposed to setting up multiple corporate entities that will cost you thousands per year to establish and maintain. How much money are you making monthly/annually from your investment deals? The costs associated with LLCs and S-Corps will quickly eat away at your profits in the beginning of your investing career. Good luck Teresa. Lots of interesting advice on which entity to use but not enough consideration on whether or not you even need the entity at this stage of your investing career.

[Rob Beland]

Originally posted by @Siye Baker:

@Teresa Miller

Rentals are usually held in Multi member LLCs, while flips are usually held with Corps.

Sebastian

Multi-Member LLC assumes the investor has business partners and "usually" assumes most investors have partners which is actually quite the opposite of reality.

[Rob Beland]

Originally posted by @Dave Weikart:

Create your LLC in Utah...greater protection between you and your company

It really doesn't matter what state you choose to set up your LLC if it's not going to be in the state where you do business. Judges have ruled time and time again that even if your LLC is set up in a different state, you are bound by the laws of the state where you do business. You can google reasons to set up an LLC in "fill in any state" and you will find reasons why that state is better than the next. Could you give some examples of why an investor in MA is better off setting up an LLC in Utah as opposed to here in Massachusetts?

[Karen Barber]

The major thing that a LLC will do for you is protect your personal assets should the company fail. However, if you get into hard money lending you as the individual still might be on the hook for outstanding debts the LLC has regarding purchases, check out recourse & non-recourse loans.

I have seen many people purchase houses, do flips as a sole proprietor.  Some bankers are more willing to loan to sole proprietors since they can place a lien on the personal assets as well should you run into problems.

If you are holding multiple properties, then you might wish to get an LLC. It will need to be registered in the state you are in, you can do this for a couple hundred bucks generally & can be done with a online application (Legalzoom etc). It will still go on your Schedule C on your personal tax return as income.

I guess the main question I would be asking myself is, why do I think I need a LLC? What am I trying to benefit from by having an LLC?

[Carolyn Mullen]

it's my understanding, that an LLC should be taken out in Nevada, because they have everything set up so well that it is impossible fo someoneto win a law suit against you, even if you are in another state.....

[Nicole A.]

@Carolyn Mullen The reason someone would win a lawsuit against you is if you did something wrong. Run your business legally and don't be negligent and there will be little to worry about. Have good insurance.

When you open an LLC in a different state than the one you're actually doing business in, you then have to pay foreign entity fees/tax (I forget the exact term). Opening your LLC within the state of business is perfectly fine and saves from extra fees.

[Ravi P.]

call up legal zoom and they'll set you up with an LLC, but you don't need one until you get that 5th investment property. until then just get homeowners insurance

[Teresa Miller]

Wow a lot to consider Thanks everyone. @Account Closed Thanks for explaining mult-member. I get the LLCs... I have a another business set up as an LLC... Just wasn't sure which was best for Flips.

T

[David Dachtera]

Originally posted by @Ravi P.:

call up legal zoom and they'll set you up with an LLC, but you don't need one until you get that 5th investment property. until then just get homeowners insurance

My attorney / accountant (he's a JD and a CPA) jokes that "he fixes LegalZoom entities..."

[David Dachtera]

Originally posted by @Rob Beland:

@Teresa Milleryou're missing one major consideration. Do you actually need an LLC or an S-Corp. You can in fact buy real estate, do flips, wholesale deals, etc...as a sole proprietor. You need to take an internal survey so to speak of your personal net worth. What are you looking to protect with the LLC for example? Determine the value of all of your real estate including your personal residence and then subtract the balance of all of your mortgages. Secondly, add up all of the money you have in savings/checking and in investments like a 401K, IRA, etc... Now determine the value of your large purchase items like your cars, boats, etc...and subtract the loan balances. This calculation will give you your net worth. If you are sued then your net worth is the extent of what your exposure is in the lawsuit. You should also consider a basic liability insurance policy. If your net worth is less than $500K you can get a liability policy for a few hundred dollars per year as opposed to setting up multiple corporate entities that will cost you thousands per year to establish and maintain. How much money are you making monthly/annually from your investment deals? The costs associated with LLCs and S-Corps will quickly eat away at your profits in the beginning of your investing career. Good luck Teresa. Lots of interesting advice on which entity to use but not enough consideration on whether or not you even need the entity at this stage of your investing career.

The point about costs is well taken.

However, you can build credit in your business entity(-ies) separate from your personal credit. This is helpful when your personal credit is unfavorable - it gives you a second chance to obtain funding, credit, etc. even if your personal finances are challenged.

That said, of course, trade line issuers, lenders and credit card companies prefer to see companies in business at least two years. START THAT CLOCK!

The sooner you gain experience and knowledge about building a business entity structure the better off you'll be and sooner, as well.

[Rob Beland]

@David Dachterathat is absolutely false information for a new investor. Give me the name of an underwriter for any bank that will lend to an LLC without a personal guarantee.

[David Dachtera]

Originally posted by @Rob Beland:

@David Dachterathat is absolutely false information for a new investor. Give me the name of an underwriter for any bank that will lend to an LLC without a personal guarantee.

Who said anything about no personal guarantee? 

Be careful: just because you make a personal guarantee this does NOT mean that the business entity's accounts appear on your personal credit report.

Personal credit goes under your SSN.

Business credit goes under the entity EIN(s).

Those are separate files in different agencies. Personally guaranteed business accounts do NOT appear on your personal credit unless you default on them.