Real Estate Corporation & LLC Structure FAQ

BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes

We've tried to compile some of the most important forum posts and articles about using an LLC or other corporate structure for your real estate business.

Check out the most frequently asked questions about setting up an LLC for asset protection and more, through the link below:

Real Estate Corporation & Real Estate LLC Structure Information

We hope you find this to be helpful in your decision making! :mrgreen:

Podcast Guest on Show #100

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Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

16y

Great work on putting these thread posts and blog articles all in one easy to reference location Josh.
Greg Boots wrote the blog posts and I consider him to be an intelligent resouce of information (accurate) on the subject.

As to the forum posts, I would like to add that many things stated in there are "OPINIONS" of others and each individual investor should consult their competatnt RE attorney before taking any of the advice.

For instance, many state to use one LLC per property. I have stated my opinion that it is unnecessary.
Others have stated that LLCs are better than S Corps and vice versa - only you and your attorney can choose which is right for you based on your goals, plans, etc.

Again, great job putting this all together Josh!

Podcast Guest on Show #130

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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Great work on putting these thread posts and blog articles all in one easy to reference location Josh.
Greg Boots wrote the blog posts and I consider him to be an intelligent resouce of information (accurate) on the subject.

As to the forum posts, I would like to add that many things stated in there are "OPINIONS" of others and each individual investor should consult their competatnt RE attorney before taking any of the advice.

For instance, many state to use one LLC per property. I have stated my opinion that it is unnecessary.
Others have stated that LLCs are better than S Corps and vice versa - only you and your attorney can choose which is right for you based on your goals, plans, etc.

Again, great job putting this all together Josh!
Podcast Guest on Show #130
8 Reply
Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Josh,

This sounds like a great step toward one of the requests I passed on to you - to have a good set of FAQs assembled for the BP site. The info is here, it's just not all assembled in a manner that makes it straightforward for a new user to get at it.

You might wish to consider having the various "subject matter experts" help in the process of assembling this too.
2 Reply
Joshua D.Pro Member
OP
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
16y
Thanks guys.

Steve - I'd love to get some help from the members in making this happen for the various topic areas. I think I'll start a thread where we can see who is interested in helping put these things together.
Podcast Guest on Show #100
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Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 692 votes
15y
Great to see this collection before posting in the forum. Thanks Josh!
Podcast Guest on Show #112
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Originally posted by Joshua Dorkin:
...
Steve - I'd love to get some help from the members in making this happen for the various topic areas. I think I'll start a thread where we can see who is interested in helping put these things together.

Josh - is there a link to this thread that you started?
0 Reply
Joshua D.Pro Member
OP
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
15y
That would be tough to dig up at this point . . . as our unofficial "archivist," maybe you'd be interested in helping us with this . . . time to start a new thread about it?
Podcast Guest on Show #100
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Josh,

I am all for having such a thread, and I would be a willing contributor to this effort. But I think you'd be a better recruiter!
0 Reply
Patrick LiskaPro Member
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
10y
@Joshua D.,@Steve Babiak,@Will Barnard, i think that's a great idea to put a certain subject matter of posts together for one to research through. if you put in a subject in the search box then it would bring you to that page that lists all the posts. It does seem that there are topics that the same questions do just keep getting asked about, but that is what makes the forums so lively. if people just sat and read past posts, there would not be as much activity on the forums unless they add to the posts they researched. I know for myself, when i have a question and want to find out, i would want to post the question and get answers right away if i could and not spend the time searching through posts to find answers. just my input to it, but i do think its a good idea
0 Reply
Dennis Cuocci
Investor · Hoboken, NJ · Member since 2016 · 11 posts · 1 vote
10y
Side Question..............
An investor has an LLC, how important is building the credit rating on that corporation? history, score, etc.....
so investors say its crucial (secured, un secured, line of credit, etc....) and some say why bother?
if its a business entity it makes sense to me that every LLC should be set up with D&B and strive to get a positive credit history
0 Reply
THU NGUYEN
Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
10y
Hello BP members, I have a question on LLC that I hope you guys can help:
I have 2 rental properties that I own outright now. I am thinking of setting up an LLC and move these 2 rentals into this new LLC. However, I am thinking of getting cash out by doing cash out refinance to buy more properties, will the bank allow the cash out refinance loan if the properties belong to an LLC?
0 Reply
Ritesh Bagga
Investor · Dallas, TX · Member since 2016 · 5 posts · 2 votes
10y
@THU NGUYEN I had similar situation and currently working with a bank, who suggested on getting a business loan with SF property as collateral. They promise to give up to 80% LTV. I haven't applied for the loan yet, but this was the only option I came across.
Some lenders (non-bank) said I can't have conventional financing if the property is under an LLC.
0 Reply
THU NGUYEN
Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
10y
@Ritesh Bagga, talked to a commercial mortgage company, they said it's harder to get money out of LLC, possible with business loan but just harder.
0 Reply
Mohammad Akif
Investor · Houston, TX · Member since 2016 · 15 posts · 1 vote
10y
@THU NGUYEN Its all about exposure of risk and mitigation of risk. Its easier for banks to after individual and their properties if the loan was made personally in case of default. Most lender will discourage the LLC route.
0 Reply
THU NGUYEN
Investor · Sugar Land, TX · Member since 2016 · 109 posts · 46 votes
10y
Thanks Mohammad. I haven't moved my properties into LLC yet. I will refinance as individual, then move into LLC after the loan is sold.
0 Reply
Donald Dickerson
Investor · Houston, TX · Member since 2016 · 36 posts · 22 votes
10y
Has anyone dealt with Series LLcs yet? Sounds on the surface this is a great way to place your properties.
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
10y
The thing about giving any advise when it comes to entity structuring is it's a guarantee for no consensus, because with the different states and twists to laws, more kinds of investments than colors in the rainbow, it turns more into a topic like stating what the perfect meal is.
With that I will stay away from trying to catch smoke and label "whats best" and instead keep to the simple of pointing out some poisonous ones.
The 1st simple on is yes, you NEED an entity of some kind, doing business without a company structure of some kind is literally gambling with everything you have ever amassed because it is all available for the taking. Entities divide risk.
The most common poison confused for food is placing EVERY property into it's own llc. Go ahead, balk all you want but it comes down to this simple fact that if you do not have separation of entity you do NOT have separation of entity, such as a bank account used for multiple llc's where there funds co-mingle, any 1st WEEK lawyer would be able to easily "pierce" that veil and appropriate all as one and attach assets and funds, including freeze accounts. So while on the surface yes every property in its own llc would be super independent, the moment you commingle the money a bridge was built from that llc island to every other llc island that also utilizes that bank account, and all assets, including all personal if one is suicidal enough to commingle personal and business funds.
So, to recap, commingling is to asset protection what shaving with a chainsaw is to health improvement.
The answer to the question of what is the best entity: the one that is best for preservation of gains.
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Link McGinnis
Investor · Knoxville, TN · Member since 2014 · 38 posts · 16 votes
10y
@James Hamling - Wow, you're great with word pictures. I can almost see what you're describing!
But, in the "EVERY property into it's own llc" paragraph I got a little confused. It sounds like you're saying that if you have multiple properties in one llc, you're commingling funds. Correct me if I misunderstood. But, if you don't commingle between entities, you should be ok. If one entity owns multiple properties which are held by that entity, this isn't considered commingling.
Also, I've gathered that there are a slew of investors who have multiple properties and have NO entity at all. This may sound foolish but my CPA/lawyer advised the same for me. Just my $.02.
0 Reply
Raymond Williams
Upper Marlboro, MD · Member since 2016 · 14 posts · 6 votes
9y
I have a question about forming an out-of-state LLC. I live in Maryland, however, want to form a Nevada or Wyoming LLC. What will be my tax obligation to the State of Maryland other than filing personal income taxes every year? What if any documentation do I need to file with the State of Maryland regarding my out-of-state LLC? Can anyone answer these two questions?
2 Reply
Aaron Christen
Investor · Green River, WY · Member since 2016 · 47 posts · 13 votes
9y
Neither one has a state tax, as far as your obligation to your state, I would recommend contacting a CPA in your state.
0 Reply
Steve Remender
Dallas, TX · Member since 2016 · 4 posts · 1 vote
9y
@Raymond Williams, if your out-of-state LLC will be doing business in Maryland, the State of Maryland will want it to register as a Foreign LLC and file an annual Personal Property Tax Return. In addition to contacting your CPA and attorney, check out the official government page related tothis matter here: http://dat.maryland.gov/businesses/Pages/Non-Maryland-(Foreign)-Business-Entities.aspx
1 Reply
Sebastian Taylor
Baltimore, MD · Member since 2013 · 85 posts · 28 votes
9y
Originally posted by @Raymond Williams:

I have a question about forming an out-of-state LLC. I live in Maryland, however, want to form a Nevada or Wyoming LLC.
Would you explain why? What do you want to achieve that is not possible by openng an MD LLC?
0 Reply
Roberto Westerband
Developer · New York, NY · Member since 2016 · 50 posts · 7 votes
9y
@James Hamling; @Link McGinnis - I'm late to the party. But, what if you have multiple properties of the same purpose within one LLC? If I have passive income properties (buy and hold) in one LLC and active income properties (buy and flip) in another, would that be considered commingling of funds? Thanks
0 Reply
Sebastian Taylor
Baltimore, MD · Member since 2013 · 85 posts · 28 votes
9y
Each LLC should have its own bank checking account
0 Reply
Chris WaltersPro Member
Montreal, Québec · Member since 2016 · 133 posts · 19 votes
9y
@Roberto Westerband To be safe, have one LLC for your passive and another for your active. First, it will save you money in time your CPA will have to spend sorting out things. Secondly, the last thing you need is the government wondering if you are doing everything right and anything wrong. The more transparent your business and taxes look the less headaches you will have to face with the IRS up your arse. Ask anyone who's been audited how annoying it is to have to prove little details that seem obvious, not to mention the CPA's invoice for having to sort your stuff when the tax man demands to open the books. Better safe than sorry. For the extra thousand or two it will cost to open an additional LLC for your active stuff, you will be winning in the long run.
3 Reply
Chris WaltersPro Member
Montreal, Québec · Member since 2016 · 133 posts · 19 votes
9y
@Sebastian Taylor You said it right! A different bank account for each LLC. One less horror story to tell around the camp fire :)
1 Reply

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