All Forum Posts by: Peyton LaBarbera

Quote from @Chris McKay:

Quote from @Peyton LaBarbera:

@Chris McKay I have been researching some more plans and I came up with starting a holding company LLC as a parent company for each of the subsidiary LLCs that will on their own protect each property separately with this I will also be able to utilize an S-Corp which will be attached to my Holding Company LLC and each subsidiary LLC will transfer the funds into the Holding Company LLC to cut down on my self-employment taxes by paying myself a W-2 along with dividend distributions paid out to the owner aka myself throughout the year.

 Gotcha! That's definitely an option, but please, please hit up your CPA and/or RE Attorney before filing your papers because this route will increase your filing burden. It'll be necessary to talk to professionals familiar with YOUR specific tax situation in order to address the pros and cons of using an S-Corp. You'll have at least a 1k increase in fees, so try to walk through multiple scenarios with people who know your filing situation and whether or not it'd be a net benefit for you. Good luck!

As long as the profits coming through into the business are over 50k a year then the S-Corp will make sense anything under and it just doesn't make sense. The reason for this is believe it or not the fees increase to more like $4000 per year since an S-Corp needs a payroll service in order for me to pay myself the mandatory W-2 salary. (Roughly $550 of that is for the payroll service alone)

But yes an re attorney and investor-friendly CPA are going to be my two very best friends in this endeavor ;)

@Henry Clark The tax returns are just made through the holding company LLC with the S-Corp attached for those tax purposes which would never be closed, one operating account is all I need for the funds to come into and those funds would funnel from only the holding company with the S-Corp attached while all funds are processed out from their own LLC into the holding company, I have a single credit card for all business expenses that would be connected to the operating account aka my business checking, the insurance policies can only cover a single property at a time anyways so no going around that.

Otherwise, if I can get around doing it this way and just have a single LLC to cover all of the properties I flip throughout the year then by all means I am up for saving some money but only if there is not a big chance that I can run into problems down the road with your suggested plan of attack.

Let me know your thoughts on that because trust me I would much rather have it be as simple as possible

I am looking into reverse 1031 exchanges and came across the term EAT. I know what this person's job is but I am just confused about where I can find one. Do they possibly work for a company that does 1031 exchanges?

Thank you to all that reply

Quote from @Jonathan Bock:

@Peyton LaBarbera

As humans we have a negativity bias we go to the worst case scenario in our minds.  I would advise you to work on this you are in a high risk business that is a fact you can not escape it get comfortable with that.  

Yes I agree, I will most definitely be working with a re attorney to help me cover all of my bases.

Ok glad I cleared that up thank you guys for answering so quickly, I appreciate it.

Let's say you have a property that will take just a bit over 12 months to renovate and sell... now the rule for 1031s is that you can only use them if you hold the property for at least 1 full calendar year so does this mean that I can now 1031 the property or not?

The reason why I ask if you can't is because I have heard from some people you can't no matter what because you aren't renting the property but flipping it but others say that as long as you hold it for over 1 year you can utilize the 1031 to get into another property.

Thank you to all that reply

Quote from @Benjamin Aaker:

Keep in mind that the LLC concept only limits your liability. It'll help you prevent spill over from losses of one LLC into the next one usually if you sufficiently keep them separate. I'm not an attorney, but having them under a holding company LLC seems like a risk of having a judge rule that they are all part of the same company de facto, and liable for losses from others. This ruling could be made many years from now and anything that looks like they are related is a risk. For instance, co-mingling funds of two LLCs might qualify.
Setting up a bunch of LLCs for the benefit of limiting liability might be more expense then benefit. My personal rule of thumb is: absolutely use an LLC, use a new LLC for any change in ownership or when total value in the LLC exceeds 1 million dollars.

I get where your coming from but the point of an LLC is that it keeps the asset protected from all others so in a sense the holding company is just a formality for tax purposes since an s-corp would be attached.

If you do a separate llc for each property without a holding company then you would have to make a separate s corp for each property which wouldn't make sense as that defeats the purpose of the s-corp thus the reason for the holding company. So pretty much what I am getting at is that the holding company and the s-corp would never be shut down but every time I buy a new property a new llc is born and gets attached to my current holding company and when it is sold I close the Llc.

I could also add your idea of 1 million of deals within a single llc before closing it to save money but I still wouldn't hold more than 1 property in an Llc at a time.

Also, you had mentioned that you would worry about people who could come back and sue me but I feel that with all of the proper liens that I make contractors sign, all of this together would protect me.

Now you also were worried about intermingling funds but it is a known fact that each llc can't be tied to another because the llcs sole purpose is an asset protection entity serving to protect it from any lawsuits thus like I said before the holding company pulling in all of the funds wouldn't matter.

But I want to still get your opinion on this, thank you.

@Chris McKay I have been researching some more plans and I came up with starting a holding company LLC as a parent company for each of the subsidiary LLCs that will on their own protect each property separately with this I will also be able to utilize an S-Corp which will be attached to my Holding Company LLC and each subsidiary LLC will transfer the funds into the Holding Company LLC to cut down on my self-employment taxes by paying myself a W-2 along with dividend distributions paid out to the owner aka myself throughout the year.

@Stuart Udis My only concern is if in the worst of the worst-case scenarios someone goes after one of my properties if I have multiple properties in the same LLC then they can now just go after everything. But correct me if I am wrong that is just my biggest concern

Thanks again @Stuart Udis

Quote from @Stuart Udis:

In your example I see no reason why each cannot be owned by the same LLC. An LLC is perfectly suitable as long as the LLC is operated properly. The reason why this may not work is more tied to your investor and banking relationships rather than from a liability perspective. If you have different investors involved in the various projects who each have membership interest, this would require separate LLC's and in some instances if different lenders are involved they may not want other lenders collateralizing assets titled to the same LLC. However this is more circumstantial and may not apply to your situation.

My suggestion is to focus more on the operations of your business. This is truthfully the best way to protect yourself. 

1. This means making sure you are signing contracts between yourself and the GC and are keeping track of subcontract agreements between the GC and the subs. 

2. Maintain builder risk and general liability insurance. 

3. Collect insurance certificates from everyone who is providing services where you are listed as a certificate holder.

4. Collect lien waivers (especially if the payments are passing through an intermediary GC).

5. Maintain a strong physical presence at your job sites ensuring dangerous conditions do not exist or are remedied quickly to avoid premises liability exposure. This means ensuring the property or the site are secured and right of ways are clear of debris or any tripping hazards.

6. Lastly, if you have a question about a condition on site, have the architect or engineer come out to inspect and issue a report on findings and suggested action plan.

If you consistently complete these steps you will be far better protected than the person who has the most elaborate web of entities but performs their duties irresponsibly.

I think from reading both of your responses the best plan of attack is to get a separate LLC for each of my properties since the costs to open a land trust cost more than the costs to open an LLC, thank you.