s corp or llc?

Question

I was wondering what was recommended as the preferred company set up for a rehabber. I do not have any partners, plan to rehab primarily and am located in Orlando, Florida (no state tax). I've asked an attorney and my cpa and a couple local flippers. It seems the LLC is common but can be more expensive once you get several houses under your umbrella as the insurance becomes more expensive once you need more than 1 million in coverage. The s corp has the same tax advantages, but more paperwork for employee tax deductions. I can also add partners (not planned at this point) more easily with it. I know one person who uses an s corp that owns several other LLC's as needed to cover houses as they come aboard.

Thanks all! Steve

Thanks all! Steve

Steve Vaughan · Answer

A rule of thumb I use is actively earned operator income is for s-corps, passive   income - llc. Like @ned mentions, you can elect to be  taxed  as an s-corp in your LLC. If you don't 'pay yourself' through dividend distributions, you have the same tax advantages of a sole proprietorship. None.  See a qualified RE focused CPA.

Ned Carey · Answer

Of course @Steven Hamilton II is right but I will throw in my two cents. (or is it nonsense LOL )

• You can do an LLC and elect to have it taxed as an S-Corp. 
• An S corp does not have exactly the same tax advantages as an LLC. You may be able to save some self employment income with an S corp by taking some income as dividends.

Talk to someone smarter than me for the details. IE a good CPA familiar with real estate.

Jared Townsend · Answer

Speaking from an insurance perspective I often see investors split the properties into multiple LLCs. Typically they have 1-7 properties per LLC. We write $1 million per occurrence and $2 million aggregate per LLC and the cost is usually around $200/year per property and an additional $200/year for each pool.

I would certainly consult with a good attorney and CPA to get their take as well.

I would certainly consult with a good attorney and CPA to get their take as well.

Jared Townsend · Answer

@Percy N.

That would be liability only coverage for multiple properties. I would recommend you also get hazard coverage to best protect your home and other assets.

Steven Hamilton II · Answer

This will depend upon what you are trying to accomplish as well as your specific tax situation.  There are many variables in the way.

Account Closed · Answer

In my opinion I would use a land trust, this is the only vehicle I use for my properties

Steve Blair · Answer

All, thanks for the discussion!  Does anyone have a good real estate savy cpa in mind?  My understanding is that you pay self employment tax in an LLC and not with an S corp.  My situation is as a flipper starting out, so I will have a couple deals coming through creating dividend income as well as some salary.  I hear the IRS wants some "reasonable" salary to be paid to yourself in an S corp.

Steve

s corp or llc?

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