What is the best type of entity to set up for a small investor?

[Rohan J.]

I live in California and own a few properties in the midwest, and I have heard not-so-great things about using LLCs for small-time investors (i own mostly SFHs and townhomes), like it's more difficult to get a loan to purchase more properties if it's owned by an LLC.

What are the pros & cons of owning under an S-corp? C-corp? Any other entity I'm missing? 

[David Dachtera]

@Rohan J.,

You'll want to hold properties in LLCs and use an S-Corp for operations and short-term holds like fix-and-flips.

Ideally, you'll want to set up a revocable trust first with yourself as the beneficiary. Then, put your home and other elements of your estate into the trust. Revise your will to specify how your heirs will receive the assets in the trust.

Now, set up your S-Corp, owned by the trust (NOT you!).

Then, setup your first LLC with the S-Corp as one member and the trust as another. The LLC also becomes part owner of the S-Corp.

Together, these form the foundation of your business entity structure. Nothing "beyond" the trust is owned by any human person, only other entities.

Control everything, own nothing.

That's the most important and most often ignored part of building an REI business.

If you're worried about the costs associated with renewing entities every year, you may not be ready to start investing in real estate seriously. Acquire an entrepreneurial mindset, first.

Typical consumers say, "How much money will it cost?"

Entrepreneurs say, "How much money will this investment make?" It's all about ROI.

What about tax burdens? You need to learn about deductible business expenses to control taxable income. Your financial professional should be able to handle all of this. If not, I can refer you to someone.