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Posted over 7 years ago

Questions as Common as the Cold - LLC

One of the most common question I see on the forums is "Should I form an LLC"?

I have a definitive answer for you.  It depends.  I can already hear your groans of oh goodness, one of these forum CPAs is hedging again and going to tell me to talk to a CPA because it all depends on your situation.

There's a reason that we comp our answers and hedge our bets.  Because in reality, the question does end up with talk to a CPA.

If you are going to buy 4 investment properties and stop, you probably shouldn't form an LLC.  You should probably get those properties purchased under your own name with a rate locked, 30 year mortgage.  To protect yourself, get a nice big umbrella policy (which you should have anyway) and call it good.  You can deduct the same expenses as an LLC, but save on tax prep, annual filing fees, etc.

If you are going to have partners, grow the business and have the portfolio go beyond 4 properties, those are areas where you want to start looking at an LLC.  

Are you fixing and flipping? Will you have employees? Should you start an LLC taxed as an S Corp?  Should you just start with an S Corp?

These are just some of the considerations to have in mind when you ask the question "Should I form an LLC".   The answer definitively is... it depends, talk to a CPA.


Comments (2)

  1. Hey Jake ,  I'd just like to start off by saying I'm new to this whole process so please excuse any ignorant questions... I want to start a business in Real Estate flipping homes and turning them into rental units and maybe I'll sell some. I plan on using FHA financing to get the low down payment, once obtained I'll fix up place a renter in the property and then refinance the loan, taking the equity and using it to purchase my next property... What type of Corporation do you suggest is best for me, LLC or S-Corp ? I don't have any partners it will only be me. And as far as hiring contractors to do the work, I'm not 100% if I will or not. I might end up doing the work myself, at least 90-95% of the work. Would def appreciate your guidance. 

    Thanks!! 


  2. Great guideline. Thanks!