To LLC or Not to LLC... what else is there?

Question

Hey all!

My business partner and I are in the beginning 
stages of our adventure. I want to avoid the whole paralysis by analysis
 phenomenon and get moving! We are discussing creating an LLC
 to protect our personal interests. We are currently investigating this 
plan, but I'd like to hear what some of your are doing out there. Again,
 our main goal is protecting our personal interests. Thoughts?

Peter Mckernan · Answer

Hey

@Jonathon Moore my opinion is get protection and make sure that you have everything setup. Like David M. said it comes up daily, do not get stuck on this decision for too long. It is a quick and easy one, and some upfront costs first then it's that yearly tax season expense (all states are different on price per taxes for the Corps). This is another thing to  not hang you up, it is a sunk cost, and keep moving.

If you are needing protection on props for flipping/buy and hold/any other protection for your company ask a CPA David M sounds helpful as above he is saying give him a call/DM. I would say buy and hold, and flipping use an LLC, get it done and start looking for that deal or multiple deals.

David M. · Answer

@Jonathon Moore

Sounds like you have a non-spousal partner.  Then a business entity is warranted.  Just realize that a legal entity needs commercial funding as it doesn’t qualify for cheaper conforming residential loans.

Learn how to protect/maintain your corporate veil.

This topic comes up daily.  Check out my prior posts, or if you want to just chat feel free to direct message me.

Of course, talk to a few qualified professionals.

Alonzo Moreland · Answer

Hi Jonathon,

I'm also new to investing although I've been a BP member for several months.  I'm really interested in what some of our seasoned investors think but here's my two cents: I'm checking on some business names and will complete my LLC application  and open a business account within the next 2 days because as I'm analyzing potential deals I'm not going to want to complete a deal with an investment property assigned to my personal finances. All the advise that I've seen suggests it's a bad idea because of potential liability and lawsuits. It also seems that buyers, sellers and lenders take you more seriously when you have a company name and the look of an acceptable business.

Even though I don't have all the answers I don't want to remain stagnant so that's why I'm doing it now.  I hope this helps you, but like I said there are some great minds on these forums that can give you a more seasoned answer.

Good luck,

Alonzo

Cal Dunagan · Answer

@Jonathon Moore

You have a ton of good advice here in the thread. I found a few articles that might be helpful for you when trying to decide what type of pass-through entity you want to use for your partnership. This article is about the different type of partnership entities real estate investors normally use. After that, read over this article that goes into a bit more depth. If you're still wary about LLCs, maybe look into what is known as a Delaware Statutory Land Trust. Hope this helps!

Best of luck.

Nicholas Field · Answer

I do international business and some countries don't recognize LLCs as pass through entities.

I do this:

LP ----> General Partner (LLC Company X to avoid liability) 1% owner. Limited Partner ------> Me (Nick) 99%

I control the GP LLC, so in effect it operates the same as the LLC, but it's an LP for tax purposes. Complicated I know. But useful for anyone working internationally. Particularly in Canada.

Jonathon Moore · Answer

Thanks for all the info everyone!

Cal Dunagan · Answer

@Jonathon Moore

There's some good advice here. There are a ton of great article on BP regarding LLCs. It's a fairly complicated topic, so I'll try and direct you to the right place. First, since this is a partnership you're considering, take a look at this article regarding business entities for partnerships. Next, this is a good primer for pass-through entities (which an LLC is considered). Then you'll want to consider what type of LLC is best for your situation. If you're planning on investing in multiple properties, which I think is the goal here, I would consider a Series LLC. Here's a good article about the difference between a Traditional LLC and a Series LLC. Finally, the biggest reason you want to look at LLCs is asset protection. However, you're going to want to do more than setting up an LLC when you're protecting your assets. This article goes over the different strategies a RE attorney would use to protect your real estate investments. Hope this helps.

Best of luck!

David M. · Answer

@Alonzo Moreland

Well, the need for a LLC is constantly posted about in BP.  Below are some of the recent threads on it that I've posted on.  From my opinion, you don't really need a LLC for residential buy and hold.  Also, series LLC's are relatively new and not available in every state.  So, my understanding is literally the "jury" is still out (there is very little case law) on their legal effectiveness.

https://www.biggerpockets.com/...

Alonzo Moreland · Answer

Thank you guys for the advice. So if I’m going to buy and hold I should be setting up an LLC. My plan is to purchase more than one property so would a series LLC work for me in Maryland?

Thanks

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