Entity Creation?

[Scott Tajima]

Hello All,

I'm in the beginning stages of starting my real estate investing career. I had a legal/tax question. Should I form an LLC, S-Corp, or something of that nature before I even start investing to protect my self legally and take advantage of tax benefits? The firms I have been in contact with are kind of pricey and I don't want to take away too much from my investing cash. Thoughts?

[Kevin Brown]

I started REI about 7 months ago. The first thing I did was start an LLC. One thing I will warn you about is financing through an LLC is a pain in the butt. You're looking at commercial loans with very unfavorable terms. An LLC passed through as a sole proprietorship is the best tax favorable entity for passive income from rental properties from my understanding.

Make sure you have a good idea of WHY you want to form an entity. You might be better off just having properties in your name with appropriate dwelling and Liability insurance along with an umbrella policy. It's a lot simpler and cheaper plus you get better financing. If you're not a millionaire and have a bunch of assets to lose this might be the better bet.

I'm finding out private lending is my best bet which means I have to rely on people I know. Not a huge deal, but dad is starting to get annoyed!