Most suitable form of ownership?

Question

What is the best form of ownership for my real estate investment company? I.E. sole proprietor, S/C corp, LLC?

Bill Gulley · Answer

Follow Steve's advice. Also see if your state has a Series LLC, there are some advantages over the straight LLC. Look far down the road, consider what you might do, ever bring a partner in on one deal and then terminate that arrangement? Ever take on long term partners? Put a money guy in for financing arrangements? Then devise what you may do into your forming that company so you'll be ready. Costs money to re-do things. See an attorney, don't do it yourself, I guarantee you'll miss stuff if you do. examine state statutes as to what happens under various events, if you want it done some other way, then address that up front. See an accountant and an attorney. :)

Steven Hamilton II · Answer

Justin, Be very careful not to give tax advice when/if you are not qualified to do so. @Hector Trevino , NEVER hold real estate in a corporation. For flipping it is OK; however, NEVER hold real estate long term. If you don't have a very high income, I Highly recommend that you consider going utilizing a C-corp. It will allow you to build a track record and it might put you in a position to distribute a good amount of income at lower tax rates AND you would. In some cases an S-corp may be more appropriate. It all depends upon facts and circumstances. Fact is though that it is highly recommended that you keep all rentals in disregarded entities. You need to sit down with an accountant like myself who specializes in real estate. Feel free to ask if you have detailed questions but know that there are a LOT of factors involved.

Chris Piper · Answer

@Hector Trevino You may want to do some research and file for a Series LLC. Only 1 filing for multiple businesses within the corporation, and each business is under the umbrella of the LLC, but completely separate. That means if you get sued on a flip for your flip portion of the LLC, that the buy and hold side will not be liable for any damages. Delaware offers them, and I think 11 other states including Texas, Tennessee, and Nevada.

Brie Schmidt · Answer

Well as a buy and hold investor a LLC protects your personal assets. But you cannot get a loan under the LLC - So you would need to buy in cash. I am not sure about seller financing?

Hector Trevino · Answer

Thank You Chris, Bill and Steve. I REALLY appreciate your input and now know what questions to ask myself. I know now I will be digging deep to find my answers!

Chris Piper · Answer

Check out the link below . It is specifically for the State of Illinois, but it will give you the general idea of what a land trust is, how they function, and what the benefits are. If you want detailed information, I have a step-by-step training that also will show you how to set them up in the form of PDF's. Let me know and I can email them to you. http://www.idfpr.com/Banks/CONSUMER/Tips/TRUSTS.ASP

Chris Piper · Answer

@Hector Trevino At the end of this reply is a link explaining all about what a Series LLC is, and how it is beneficial. The Series LLC has been around for 17 years, so I would not necessarily agree with Justin when he said they are very new. I do agree that compared to other entities, they are very new. However, having been around for 17 years, I'm sure there have been plenty of legal issues that have come up and set precedent for how well they legally protect your business. http://legalwiz.com/what-is-a-series-limited-liability-company/

Chris Piper · Answer

@Hector Trevino Here are the locations that allow filling a Series LLC. All states recognize them also. You would need to check each state/city/country(s) rules to make sure their laws would be beneficial to you. Delaware District of Columbia Illinois Iowa Kansas Minnesota Nevada North Dakota Oklahoma Tennessee Texas Utah Wisconsin Puerto Rico

Hector Trevino · Answer

@Justin B. Thank you for your input. I'm sure I'll be forming an LLC

Justin B. · Answer

Without going into too much detail, a C-corp is just too much time, effort, and money. Then if you aren't educated enough, double taxation can hit you among other things. Plus, I prefer not to deal with stock at this point in my investing. Not familiar with Sub S, but maybe you meant an S-corp? I didn't research S-corps in too much detail because we have 3 people. I did all this research back in 2007 when we formed the LLC and an LLC won hands down. After that, I didn't worry too much about the other entities nor do I have experience with them. I'm sure there are reasons to go with others, but in most cases, I think LLC's are your best bet starting out. They are easy, cheap, and provide great protection (when operated correctly).