All Forum Posts by: Philip Barr

Good to see a fellow attorney on here, and congratulations on starting your real estate investing journey.

To mitigate personal liability, ownership of investment properties is often transferred to a limited liability company (LLC) via deed. It is generally recommended that the LLC be formed in the same state as the property, allowing for smoother legal recourse. By placing the property in an LLC, any liabilities associated with it are generally confined to the entity, helping to insulate personal assets.

For added protection, individual rental LLCs may be held under a Wyoming holding company. Wyoming is recognized for strong laws that help shield business assets from personal creditors and liabilities, offering an extra layer of defense.

These are just some basics and tips for the legal side of things.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

It is essential for terms to be in writing when it comes to contracts in general, but especially real estate deals. Whenever there is ambiguity between parties, there is an opportunity for exploitation and dispute. It is always recommended to have an attorney draft contracts for you or at least review them to ensure that your rights are protected and you are being treated fairly.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Hi, welcome to the forums. I'm sure you have a lot to share with us given your wealth of experience. You will find that there is a lot of information here on structuring real estate deals, legal strategies, tax advantages, retirement investing, etc. 

I recommend exploring the forums' subsections based on your interests and questions. As I am sure you have discovered, there is a category for everything. Again, welcome, and thanks for the introduction.


Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Agreed about the necessity of an attorney here. Although you may not have funds upfront to hire an attorney, many of them work on a contingency fee basis, even for matters that don't involve vast sums of money or that are in small claims court. You may want to check your state bar association or reference resources like martindale.com to find an attorney.


Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

What is often recommended is for investors to separate out their active and passive income-producing assets into separate structures. For example, having your passive long-term rentals in LLCs, one rental property per LLC, and each in an LLC set up in the state where the property is located. Each rental LLC would compartmentalize the liability of each property so that it doesn't affect you or your other properties. The rental LLCs would all be owned by a holding company, set up as an LLC in WY to provide protection against personal liability as well.

For the active side, we typically want a separate structure. As was mentioned by @Ashish Acharya you could have an S Corp as a base. I recommend having each flip property in its own LLC, to again isolate liability, owned by the entity taxed as an S Corp. Alternatively, a C Corp can work because it has more robust tax reimbursements and deductions for medical plans and the idea would be to bring money out through those versus a dividend that would result in double taxation. That way, the dreaded double taxation is actually avoided and you can pull out money with a lot of tax advantages and also grow the company and reinvest given that the corporate tax rate is only 21%.


Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Welcome Staci.

Congratulations on your first step into a larger world. The basics of real estate investing can be found here, as well as collaboration and learning from people in the same boat as you, whether it be finding a property, financing, setting up a business entity, etc. I wish you the best of luck in your journey.


Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Another thing I would mention here is that if you are in a dispute with this other party and want your rights represented, legal counsel is an essential part of the process. As you highlighted, documentation is important. It will build your case against the other side's fraud or harm. But you don't want to go it alone. Local counsel is important in making sure that you are doing the right things and preserving any remedies that may be available to you.


Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

I want to highlight some common recommendations regarding legal structuring for flipping properties. Generally, it’s best to conduct flips through a structure subject to corporate taxation to avoid being classified as a "dealer" by the IRS. If you are labeled a dealer — typically because of engaging in multiple flips — the IRS treats your property sales like inventory sales, which leads to significant tax consequences. You could lose access to valuable benefits such as installment sales, 1031 exchanges, and preferential capital gains rates. Instead, all profits would be taxed as ordinary income, along with other negative tax implications.

To help avoid dealer status, it's advisable to set up an entity taxed as a C Corporation, whether that's a traditional corporation or an LLC electing C Corporation tax treatment. However, the structuring usually doesn't stop there. Over time, as you flip more properties within a single entity, the risk of liability increases — a problem with one property could expose the entire business to legal and financial issues.

A better approach is to have the C Corporation own separate subsidiary LLCs, with each LLC holding a single flip property. After a property is sold, the funds are distributed back to the C Corporation, and the flip LLC is then closed. You would form a new LLC for each new property. This strategy not only limits liability but also allows you to take advantage of the tax benefits available to the C Corporation.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

I agree with @Marty Sprong. Investing in an SDIRA can be a great way to grow your retirement nest egg and do incredible things, but you have to follow the rules and regulations. If you do engage in a prohibited transaction with your SDIRA, the SDIRA will be considered nonexistent as of January 1st of the year the prohibited transaction took place in. That means that the entirety of the assets in the IRA becomes taxable income to you that year and is subject to an early withdrawal penalty of 10%.

Once you apprise yourself of prohibited transaction rules and you have decided to move forward with real estate investments, it is important that you properly structure your long-term rental so that your other SDIRA assets are not affected by the property liability. You can do that by holding your real estate in an LLC owned by the SDIRA. You can be the manager of the LLC, but you cannot take any fees or salary for doing so, no payment at all, actually, because of the prohibited transaction rules. You cannot manage the asset itself, as @Marty Sprong mentioned, since that is also a prohibited transaction. You hire property managers to do so, however.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Congratulations on your first step into a larger world.

One thing investors, new and old, should know about when investing in real estate is asset protection strategies.

Too often, real estate investors hold property directly in their name, simply relying on insurance to save them when a potential liability occurs on one of their properties. Unfortunately, we live in a world where litigators go after more than just restitution for their clients, and insurance often falls short of providing the incentive to settle. In many cases, the entire real estate empire that someone has built over a lifetime is gone with the wind.

When you identify a property to invest in, it's crucial to protect yourself from personal liability by transferring ownership to a limited liability company (LLC). This can be done through a deed, which officially changes the property's ownership and grants title to the LLC. It's best to form the LLC in the same state where the property is located, ensuring that your rights can be enforced in that state's courts. By holding the property in an LLC, any liability arising from the property is contained within the company, shielding your personal assets from risk.

You can also hold your individual rental LLCs in a holding company set up as a WY LLC. That WY LLC will provide great protection against personal liability, such as if you get into a car accident, reaching your rental LLC. WY is known to be a state whose laws help protect business assets and investments against personal liabilities and creditors.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.