All Forum Posts by: Sidney S.

Not an attorney but this is my recollection of summary with my attorney.

LLC gives you more flexibility but has to be done by a great attorney. Start with an LLC and make money. When you make enough income, you can file the LLC as a S-corp. The benefits of the S-corp are paying FICA on your "wage that must pass the BS test for the type of job" rather than paying self-employment tax on all of your flip or wholesale income. I am sure there are some investors who are not filing their flip or wholesale income properly and paying self-employment taxes. But you need to make a substantial amount of money to pay yourself a wage. That's why the LLC gives more flexibility.

Anyone chime in if I am missing something in my explanation. 

@Sidney S....I'm in agreement with @Steve Vaughan in regards to the purpose you wish to have the entity. Most use LLC but Land Trust are popular and can help if you don't want to deal with double closings in that you can assign the beneficial interest. As far as I know, LLC and S-corp are similar in taxation but offer the differences in management styles.

@Sidney S.Becuase we have partners we always use LLCs but you must ask the accountant about tax consequences and attorney about asset protection. In Illinois most should tell you an LLC.

Great question @Sidney S.! I have been wondering about LLC vs s-corp for flipping houses. For a flip I would be looking for tax advantages/savings. I will start looking into s-corps now.

@Richard McGouirk

Your GA LLC will need to be registered in IL to do business in IL. May be cheaper to just start an IL LLC (no duplication of costs). Also, IL allows series LLCs where GA might not - check into that.

Conventional wisdom holds that properties be held in LLCs while income should be processed through an S-Corp.

You'll want to get hold of a tax attorney who understands structuring business entities for purposes of controlling tax liability as well as protecting assets against liability due to lawsuits and other issues. I can refer you, if you need it.

I've read LLCs are not good entities for short-term flips.  I use them with my larger apt bld buy and holds.  They are better set-up for passive income.  From what I understand an S-corp is better for active income.  

The answer may be neither. For what purpose do you want an entity @Sidney S.?  Asset protection? Anonymity?  Tax advantages?  The only one I see it offering is #2.  I am not a lawyer though.  Cheers!

@Sidney Stephens

It appears you've received some pretty solid advise so no need for me to repeat what was already stated.

When you get a minute lookup South Euclid, OH & Cleveland Heights, OH.

There's some excellent deals there and you can partner up to create that relationship you're looking for. If both parties got skin in the deal there both are motivated to get the deal done in a timely manner.

Good Luck..

Sidney, when partnering out of state, I recommend you do the following first:

1. Visit the city you're going to invest in. You got to know the market and not rely solely on what your prospective on the ground partner is going to tell you. For instance, ask real estate agents to understand the market and ask them to show you different places in that market (A, B, C, D and F).

2. Only invest with experienced investors not newbies. Ask to see their previous deals. Check the public records to see if their company indeed own those properties. Ask to see any properties they have now or working on.

3. Only invest with partners who are willing to have skin in the game - meaning, do not invest in a project if ALL the money is yours - you want them to have money at risk in the project as well. So if the project goes south, they lose their money too.

4. Talk to their team - their real estate agent, their GC, their lenders, etc. By doing so, you will get a sense of how experienced the prospective partner is by how good his/her team is.

5. Hire a good attorney in that state. Have him or her draft the Joint venture agreement in a way that protects your interest in the partnership.

Partnering out of state takes a lot of work but it can be done and can be profitable if you do it right. The keys are to know the market you're going to invest in and the partner you're going to invest with.

@Sidney S. I think it depends on your situation. Do you work full time? How involved do you want to be with your investments? have you ever flipped before? I'm a newbie but I believe that flipping is harder (not impossible) to do long distance. You will probably need to have a solid team that you can rely on before you can do something long distance. Just my $0.02...