Okay, first let me start off with saying I understand that I should get an attorney and CPA to consult with regarding any legal/tax issues. With that being said, I'm curious how others structure their real estate business. What I mean by that is, have you set up an entity strictly for your acquisition business? I know people talk about setting up LLC's for every property, or some properties in one LLC and maybe a large apartment in it's own LLC. But that's not what I'm asking about, I'm curious about if/how you structure your actual business, not the properties that business owns. I hope this makes sense, if not please let me know and I'll try to rephrase. Thank you ahead of time!
What are you looking to do with your acquisitions?
Buy and hold or Flip?
Sorry, I should have stated that, I'm looking to do buy and hold, starting with small multi's (2-4 units) and working my way up to larger apartment complexes.
Jacob, those are great questions and I was working on forming my corporate entity as well. My research has me leaning toward an LLC to reduce legal liability. I am currently looking for a new CPA and an attorney. I am a buy and hold investor. Does anyone have any recommendations or people to avoid in the Westchester County New York area?
I have my operations (management company) set up as an S-Corp. It has few assets other than a work truck and tools. It handles all my payroll and my payments. I also run my fix and flips through here because of the tax structure (Self employment tax). I also have 5 other LLC's set up under one holding company (which reduces my filing fees, taxes return fees, and adds to my liability coverage) LLC. Each company doesn't have more than $300K of assets in it. If one LLC "falls" then it can't effect the others. If you have Partners an "LLP" (Limited Liability Partnership) may be better. LLC's are not only set up for liability protection but also to keep your assets structured separately as they are taxed differently for the IRS. I would recommend a CPA that specializes in RE, as the laws are very different (what can be and can't be written off and how much). I would also find one that invests themselves, that way they are more than likely finding strategies for themselves as well as you. There are several disadvantages of using a Corporation when investing in RE.
If you would like more ideas, Your more than welcome the PM me.
I am in the same boat as you Marc. I have been doing so research and I totally agree with finding a CPA that has experience in RE. I also noticed something called series LLC. Think of a bucket of water as being your investments in terms of liability if you put all your investments under one LLC if the water is bad all the water is bad in the bucket. Series LLC from what I understand is suppose to make each entity its own like carrying a bucket full of water balloons. That way when one goes bad the others are protected. I believe they are considered as partnerships in some states. Each state differs. I by no means am a CPA so I'd suggest the prior on seeking out a CPA. But I also suggest making yourself familiar with your options and I believe series LLC is a newer option. I also noticed you were military... As far as running your business there is a non profit called Institute of Veterans and Military Families. They offer free industry certificate training (VCTP) and they also train veterans with at least a 30% disability rating the program is called Entrepreneurship Bootcamp for veterans. One of the top programs for starting your own business not to mention your pro bono follow on services. I don't get paid to state this I was a student in their program and honestly we take care of our own :). Hope some of this info helps.
Thanks for your service. Amanda Han is a real estate CPS active on BP reach out to her.
We do free Multifamily investing training for veterans EMAIL me for info my BP PM does NOT work.
Thanks @Paul Timmins !
Hello and welcome to BP! I was going to say some of the same. First of all you need to know what you can do. That being said I bet you will be told to set up a separate LLC for all projects. You might close one way and then transfer to something else. I would also agree to find a lawyer or a CPA to advise you. Do not try to do everything yourself . This is probably one of those to things that you should bite the bullet and just hire somebody. This is too important not to do the right thing. Let me just tell you some other things. Always do the numbers to make sure you are making a good investment. Plus you should try to look at the property before you close or at least have a clause in the sales contract that will allow you some time ( usually 15 days) to inspect the property and maybe back out without losing any money or not beyond your earnest money. Insure your newly acquired property in case their is a loss.
I am 59 years old and I have not decided what to do next. I found BP about 7 months ago and it has been a good place to be. I went to college, not that it is mandatory, and I got a business degree that emphasized real estate. Since I was in Texas and planned to be there forever, I got a broker license. Regardless of what I had I felt more comfortable with the construction business. I kept that license for about 30 years. I did do a few deals for other people. My father has been in real estate for about 40 years and he has taught me a little bit. If you think I can help you please contact me through BP at any time. Good luck!
LLC, S Corp, C Corp, LLP, LP, Family Limited Partnership, Partnership, Land Trust, Irrevocable Grantor Trust, or simply insurance??? There are a lot of questions when it comes to setting up the proper structure and there is no silver bullet. Your business structure needs to take into consideration tax consequences, risk tolerance, total assets, type of investing, short term goals, long term goals, anonymity, partners, raising money now or in the future, borrowing money, etc.
You also need to consider maintenance of your business, think corporate governance, adequate funding of the business, tax returns, operating agreements, resolutions, authority, etc.
Also, don't overlook the fact that those starting out with a low net worth may be fine holding investments in their own name, or a d/b/a, and simply buying extra insurance (think an inexpensive umbrella policy) to cover potential liability risks. The cost of setting up and maintaining a new entity may not be worth the trouble for a property or two (assuming you have no other money in your name).
Many states, including Texas, allows slightly more complicated structures such as Series LLC. These can be great tools if you understand how to use them. One downside to Series LLC is that not all other states will recognize the series structure. So if you invest in another state with a "series" from your Delaware of Texas Series LLC then you might lose some of the protections that you thought you had. Also, an accountant should be consulted regarding whether you need to seek separate EIN numbers and/or file tax returns for each series -- you will get different opinions on this point depending on who you ask.
LLC, S Corps, C Corps are all treated slightly different under the tax code. The IRS is one creditor that you don't want to mess with. My suggestion here is to pay your taxes and to pay them correctly. There are many tax benefits that come along with real estate investing, but there are some pitfalls. Be smart and consult with an expert.
More complicated structures will include asset protection and anonymity features. These structures are essential for active and successful investors, but might not be worth the hype for those just starting out. Shielding and separating your assets from the risks of a deal can be valuable.
In summary -- you can make your business as simple (dba and insurance) or complicated (Family limited partnership with LLC general partner owned by a irrevocable family trust for you children) as you like or need. There is no easy answer for what you might need. A good attorney and CPA that will educate you on your options and not pressure you to use something you don't need is valuable member of your team.
My suggestion is that what ever you use/create, you need to understand how it works and how to maintain it. If you don't understand it, don't use it. Or hire someone to explain it to you or to help you maintain it.
Good luck and good investing!
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