Business Plan for New Investors

8 Replies

Hey BP Community!

My wife and I are getting into the real estate investment world and would love some support and advice from the BP community. We are planning to acquire around 20 units in the next 5 years through single family or smaller multiplex units. We really need some advice on how to get our business in order. We plan on doing most of our investing in Oklahoma, which allows for LLC series. What would be the best way to set up our business model allowing for the most protection and tax advantages. Have an S Corp own the series LLC?

Next, is there any legal way to personally finance the properties then transfer the property to the LLC's? It would be much easier to get a personal mortgage than a commercial one through the LLC, however, I do not want the bank to call the loan due because of this switch or not be completely protected because I was in breach of the mortgage.

Thanks everyone!

Respectfully,

Jaren Woeppel

Unless you are loaded with cash, I would forget the LLC or s-corps. See if you can get some rentals bought under your own name first. You can transfer to other entities later. Have good commercial insurance and start building an empire.

Arlan,

I appreciate the response. I don't know what qualifies as loaded with cash, but I can assume I do not qualify. However, I would prefer not to lose my life savings and retirement funds because of one incident...with that being siad, is the thought of everything being taken from me if I don't have a separate entity just a beginners myth?

I agree with @Arlan Potter

It's great to think ahead. It is apparent you already have some knowledge of the advantages of LLC's / S-Corps.

However it sounds like you are just starting out.  Unless you have plenty of assets to protect, just start out in your own name.  Make sure you have property insurance.  You can even get an umbrella insurance at a fraction of the cost and hassle of establishing entities.

Entities are inherently difficult to understand.  You talk to a lawyer, he will give you advice on protection in lieu of tax advantages.  You talk to an accountant, he will give you advice on tax advantages in lieu of asset protection.  Why drop a few thousand now to set up what you think is the right structure, when 9 times out of 10 you will revise it at a later time?

Originally posted by @Daniel Chang :

I agree with @Arlan Potter

It's great to think ahead. It is apparent you already have some knowledge of the advantages of LLC's / S-Corps.

However it sounds like you are just starting out.  Unless you have plenty of assets to protect, just start out in your own name.  Make sure you have property insurance.  You can even get an umbrella insurance at a fraction of the cost and hassle of establishing entities.

Entities are inherently difficult to understand.  You talk to a lawyer, he will give you advice on protection in lieu of tax advantages.  You talk to an accountant, he will give you advice on tax advantages in lieu of asset protection.  Why drop a few thousand now to set up what you think is the right structure, when 9 times out of 10 you will revise it at a later time?

 That makes sense, thank you. Also, if I start out getting the properties on my own, while having sufficient property insurance, will I have issues with the mortgages when I transfer the properties into a separate entity?

Form a LLC Start a relationship with a portfolio lender in the area. They should loan to an LLC with a personal guarantee. Don't get bogged down in the details of trying to plan on 20 properties or you will get analysis paralysis. Get your first deal done, then your second, then third... it's not rocket science.

Hi @Jaren Woeppel , I am starting to do something very similar. I would definitely prefer to keep my personal affairs separate from my business. Also, when you register your company, treat it like a business separate from yourself. The protections do not hold very much at times of litigation if you mix your personal and business expenses etc. like taking rent checks in your own name instead of the company etc. 

Few things that I have learned from experienced investors and partners is that you want to keep your active and passive income separate as well (in separate LLCs) so you can take full advantage of the tax benefits - that is in case you are also planing to do buy and sell or flips. Also, you can purchase a property in your personal name and then move it into a trust. Usually banks will not have an issue with that. Once that is done, you can change the beneficiary of the trust to the LLC which should not trigger due on sale clause as the name of the title doesn't change.

As for S-corp or Series LLC, it seems like LLC is better way to go since you have an option as to how you want it taxed depending on your income and also less obligations when it comes to annual meeting minutes etc.

Also, my recent findings have been such that you don't need a separate LLC for each property if each of the properties is in its own trust.

Please consider these as talking points with your CPA and Real Estate Attorney so you are covered for the state you are in. Hope this helps and good luck with your investments. 

Hi Jaren

If you put property in your own name, thereby owning property without the liability protection of a separate entity, it would be prudent for you to get liability coverage along with your property insurance package. Shouldn't cost too much, and you'll thank yourself later.

That being said, I recommend getting an LLC, even if it's your first property. Learning the tax/legal ins and outs of ownership entities will help you out down the road. Best of luck.

Thank you everyone for taking the time to share your advice. I am not certain at this point as to handle it, but I am definitely headed in the right direction. 

I know it may be getting ahead of myself to set up liability protection without a large portfolio, but I'm pretty conservative and think setting up entities in the beginning will help me later on. 

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