Agent/Investor - LLC for both?

[Marc Brenner]

Hello All,

I am just starting as a realtor and plan to form an LLC / S - Corp to maximize tax benefits.

I also plan to purchase my first investment property this year. 

Should I plan to create a separate business entity for my investments or will one entity suffice for both?

Thank you!

[Scott Smith]

Originally posted by @Marc Brenner:

Hello All,

I am just starting as a realtor and plan to form an LLC / S - Corp to maximize tax benefits.

I also plan to purchase my first investment property this year. 

Should I plan to create a separate business entity for my investments or will one entity suffice for both?

Thank you!

 Hey Marc,

Whenever you can you always want to separate different types of activities. The reason for this is that they both expose you to different types of liability. So if you combine them you are essentially doubling your liability while also increasing the potential loss if there is ever a lawsuit. 

This would also apply to people who do both flips and holds. I try encourage people to use different entities as the buy and holds are in a different liability class than fix and flips. If you put them together you have an LLC with more liability and generally more assets in it because it is performing "double duty." Looking at it from the top level you want to keep entities small so there isn't much of a payout for anyone looking to sue you.

I often break it down into the "four pillars" of protecting your assets. The first pillar is a good insurance policy as that cover the majority of your exposure. However, it only protects you from one type of liability: accidents.

After that you want to compartmentalize your assets, which is often accomplished through the use of LLCs or corporations. I personally find the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely - check out this article to learn more. The third pillar is somewhat similar - you want to separate your operations from your assets. That means you establish a Traditional LLC to carry out the operations of your investments, in order to separate the liability from your assets, including: paying property management, paying contractors, collecting rent, marketing, etc. Finally, with the use of Trusts while establishing these structures you can add a level of anonymity by removing your name from public record.

This isn't legal advice, just my opinion as a real estate investor.