Which real estate entity to set up for my rental properties?

Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes

I have one single family rental and looking to buy another. I have had trouble finding good advice on the best strategy for setting up an entity to hold my rentals in. Any good books to explain exactly which states to set things up in and which entities (LLC, S-Corp, Etc...)?

0 Reply

142 views

Most Popular Reply

Caleb Heimsoth

Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

@Phillip Scalise. My advice would be you don’t need any entities. Hold the propeties in your own name.

5 Reply

See this reply in the discussion

37 Replies

Jump to latestLatest

Sort by

Quinton Bogle
Rental Property Investor · TN · Member since 2019 · 62 posts · 13 votes
7y
@Dennis M. A I was wandering about that myself, do you know how much will it cost to set all that up because I'm interested in doing that, and I can't find anyone who can give me a ballpark figure on how much that will be
0 Reply
Steve B.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
7y
@Phillip Scalise at some point LLC's are worth the money spent to set up and maintain them. Considering the small odds of ever needing one for 1-3 properties with under 100-200k of net worth it certainly doesn't justify those costs. An umbrella policy is almost always prudent.
0 Reply
Steve B.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
7y
@Quinton Bogle be careful of law firms selling comprehensive legal protection plans for the same reason you should not expect non-biased advice on investments from an annuity salesman.
1 Reply
Aj Lee
Rental Property Investor · Columbus, OH · Member since 2019 · 3 posts · 1 vote
7y
@Phillip Scalise very Great books on this
Rich Dad Poor Dad- To Explain The importance of Entity Protection
Garrett Sutton- Start A Corporation
Garrett Sutton- Run a Corporation
Very great books with detailed Steps on how and why. Also try Morris invest YouTube channel for free he shows you everything you need to know also how to you a business account
0 Reply
Costin I.
Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes
7y
@Quinton Bogle @Nicole Heasley Beitenman @Phillip Scalise - Here is a graphical representation to help you determine if you need asset protection and also what-when-at what cost.

asspro-cya-diagram
asspro-onion-diagram

Another perspective would be to apply the "Asspro rule of 2%" (© Costin 2018) - the cost of setting up and maintaining your asset protection should be less than 2% of equity you are trying to protect. Let's say, it costs you 1.5K to get your structures in place (holding LLC or Series-LLC, with or without land trusts, with or without separate operations LLC) and 0.5K per year (for maintaining the LLC properly, bookkeeping, lawyer and CPA, etc.) for a total of 2K. You should have 100K or more in equity to protect before it makes sense to spend that money - compare that with how much you spend in annual insurance for the same property/equity (on the same FEAR principles, just in case your property might burn down).
3 Reply
Phillip Scalise
OP
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@Steve B. Thanks Steve. This is great advice! I t makes sense to wait until I have a few more properties. Thanks man.
0 Reply
Phillip Scalise
OP
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@Costin I. Thanks. This is great!
0 Reply
Justin Tomlinson
Bend, OR · Member since 2019 · 2 posts · 0 votes
7y
@Phillip Scalise Anderson Business Advisors is a good source of info. They have a bunch of youtube videos that will explain everything per your situation and protection you want.
0 Reply
Account Closed
Realtor · Boerne, TX · Member since 2015 · 75 posts · 51 votes
7y
@Phillip Scalise I set up a series LLC with my attorney here in Texas. Built in 5 LLC's under the holding company with room for an additional 25 for later use. I just have him do the paperwork as a new series is required.
1 Reply
Jerry W.Pro Member
Moderator
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
7y
@Phillip Scalise, much of the entity and protection entities are personal preference. I started off in a Sub S corporation due to some partnership reasons when I started buying solely for investment. Still my first 3 or 4 properties were all in my individual name and I think that was the best route for me. It can be hard to get your first loan or 2, and it is easier when you do it in your own name, the interest rate is cheaper that way, and there can be some substantial tax benefits if you live in it for at least 2 years. There is a cost to creating and maintaining entities. It can be hard enough financially to make a go for the first couple of properties anyway, making it more expensive can be a problem. I really don't think the anonymity thing will work for most folks here on BP because you do so many of the things yourselves that it is nearly impossible despite the paperwork. For example who is going to go to showings on properties? Who is going to submit and sign offers and negotiate? Who is going to do some of the work or hire contractors? Who is going to talk to the bank about a loan? Who is going to place adds and answer phones, and interview prospective tenants? Who is going to sign leases? Who is going to sign checks? Who is going to inspect properties? You see what I mean? How will you be anonymous if you any or even all of the things above? I really don't like trusts except for estate planning. Legally you still own the property and must list it in discovery like interrogatories and depositions. I really like tenant by the entireties protection, but those vary a lot from state to state. I do like LLC and series LLCs. I do not believe in an entity for every property. Technically that means a separate bank account and set of books for each property, what a nightmare. I do not believe in putting bogus liens on property, it is a VERY good way to have your entity protection pierced, and it is so easy to follow the money to you. If you stop and look NONE of the big players on here use anything but entity protection and insurance. All the trust stuff and anonymity things, none of the big players do it. They have the money, the assets, the income, but they don't do it. The only ones really pushing it are the ones selling it. Think about that. There are some things you should do especially if you are high net worth or high income, but not that many of us have those problems. yes there are frivolous lawsuits out there, they are not nearly as common in my area as I hear them tout. Work on building a business through net worth and income, and then buy the asset protection stuff when you can afford it. Again just my 2 cents.
2 Reply
Phillip Scalise
OP
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@Jerry W. Thank you so much, Jerry, for taking the time to explain. I appreciate it and value it more than you think. Thanks again! I think I'll stick with an umbrella policy for my first 1-2 and then look to start a series LLC or whatever the attorney and CPA recommend as the best strategy.
0 Reply
Nicole Heasley Beitenman
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
7y
@Costin I. This is phenomenal--thank you!
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.