S-Corp or LLC for a Partnership Practicing the BRRRR Method

[Justin Freyenberger]

Hello Everyone, I just want to say that I appreciate any friendly help that is sent my way in advance!

My partner and I are just starting out with getting into real estate, and we feel that we should take some steps to formalize our partnership first before we really dive in and get ahead of ourselves. I've been doing a lot of research and I keep getting differing takes on whether it's best to form an LLC or an S-Corp for our partnership. Our plan is to move forward initially with buying single family homes in the Chicagoland area, and then use the BRRRR method to raise the equity in them so that we can grow larger and larger by buying properties with the increased equity seen after each renovation. But then of course still retain each house as a rental and not necessarily flipping them. Not to say we wouldn't sell them a few years down the road if the timing felt right, but not immediately. And then after we get a few single family homes under our belt, we'd like to move into multi-families using the same sort of philosophy. So with this sort of investing goal, it's seemed like the BRRRR method sort of puts an investor partnership in an awkward middle place between an LLC and a S-Corp. We're both in our early 20's and have been drawn to Chicago for jobs. But in the long run, we'd both like to end up back in our small towns we grew up in, which are about 5 hours apart. So maybe in 5-10 years it could make sense to end this partnership simply due to logistics and where we'd be investing at that point. Obviously that's not something I'm thinking strongly about right now, but that could take place eventually.

To add to this, neither of us plan to see a whole lot of personal income from this for a little while because we'd prefer to put all profit back into the company to expand faster. We both work full time jobs that more than pay for our lifestyles, so that is totally doable. But at some point down the road, we'd like to make real estate our main focus. 

I understand that when using an S-Corp, the advantage is that profits don't get taxed until the owners themselves take those profits out at the individual level. So to me, it seems like in the short term that might be more advantageous since we prefer to just keep them money reinvested in the company. But obviously that would change at some point. And is the fluidity of an LLC a greater advantage in the long run because there is much more flexibility in how the company can split up properties and such that would make up for the fact that any profit seen is immediately taxed?

I appreciate any helpful advice, and thank you ahead of time!