BiggerPockets

I notice that just about everyone signs their posts here with an LLC. I don't know much about being LLC'd. Should I do that prior to flipping my first house or doing my first wholesale deal? If so, why? Is it a liability thing or a tax thing? How does the process work and costs involved? Thanks!

David

If you are financing a house, most banks will not let you take title in the LLC. You would have to transfer the title after closing. If there is not financing, then you can buy the property in the LLC name. An LLC is a separate business entity therefore it gives you some legal protection. Meaning that if the LLC owns the house and a tenant sues you, then a lawyer is not supposed to be able to go after your personal assets. The costs vary by state. I think it is around $200 in North Carolina.

David;

Not to be too technical, but a corporation of any type is usually set up to provide a few advantages. First is the ability to (relatively) easily take on partners or investors. Second, and the big one here, is that a corporation will normally be able to shield investors and owners from liability. The loss of an individual investor is normally limited to their stake within the entity. As with all things, there are exceptions to these rules, so it's important to know how the rules work and set up a structure to mitigate risks. But that's just a good idea overall.

When setting up you overall structure, you have to decide, hopefully with the aid of competent counsel, the proper organization and entity or entities that will provide the maximum benefit to you. As has been already stated, an LLC is quick and easy to set up in most states and is normally pretty cheap if you're on your own. If you have partners, you may find an LLC is still appropriate or you may look into other corporate types such as an s corp or a c corp. These all have distinct tax advantages and disadvantages.

I would suggest doing some research on the comparative differences between the corporate forms to get a general idea of the merits of each as well as the potential problems. In my experience, your accountant and attorney will steer you towards what they are most comfortable with, which isn't always a bad thing as long as you know what's what going in.

Most of this will depend on your current situation, your near term goals, and then your long term goals. Most misjudgements can be negotiated around or fixed, but it can get really expensive if you're not careful. Do your research now and enjoy the money you'll save through proper planning.

Good Luck!

For reference, you can have an LLC and elect s-corp status for taxation; from an IRS perspective an s-corp and an LLC taxed as an s-corp are exactly the same. The additional benefit is that managing an LLC is easier than managing an s-corp.

That said, there are some asset protection differences between s-corps and LLCs taxed as s-corps, so it's probably best to speak with an attorney if asset protection is a major consideration.