Why the LLC?

Question

Alex Baev · Answer

Best advice I've read on this so far!

Heather Alte · Answer

I have heard of people starting up LLC's so that when they wholesale a property they can just sign over the LLC to the actually buyer, thus preventing the contract being changed.

Steven Hamilton II · Answer

@Nkrumah Morgan,

You need to be careful, What you are referring to is called ROBS: RollOver as Business Start-up.  It MUST be a C-corporation. You need to plan your strategy with your current and future incomes in mind.  The individual rentals should be disregarded; however, the Management, you would probably want to be an S-corporation or something that flows through to your personal return if it is showing a possible loss or reimbursing you mileage.  A C-corporation might be a better option.  You NEED to do your research before you make any moves that might involved retirement funds.

Nkrumah Morgan · Answer

Thank you all for the replies.  Ok, here is some clarification.  I think that in my market, i am going to focus on buy and holds - primarily lease options/rental income. With my limited real estate investing experience... It seems as though that would be the best option for me at this point.  I am looking to establish a solo 401k and rollover my IRAs to fund my startup.  I planned on taking a salary sometime next year once the business can support it.  From which I planned on defering/profit sharing back into my 401k.  I have a solid full time gig to live off of, so the income from the real estate is not needed, and i would like to compound as much of the funds back into the business as I can.  My number 1 goal is to eventually quit the full time job and go full time with real estate.  I want the flexibility to bring in investors easily... Asset protection and minimizing taxes is very important as well.  The corp/s-corp looks like the better decision to me for the main company.  Now I do like the scalability of the Series LLC for individually holding the property in and using the main corp as the "property manager/financier."  The LLCs would run real lean barely showing a profit.

Steven Hamilton II · Answer

@Nkrumah Morgan ,

That will depend upon what you are trying to accomplish. In Illinois both incorporation and LLCs are expensive.  What type of investing are you doing?

Take a look at this thread to compare the entities: Simple Taxation Questions

Karen Rittenhouse · Answer

Nkrumah:

For real estate investing, a property established LLC with the necessary Articles of Incorporation and Operating Agreement offers more tax advantages than a C Corp or an S Corp. You need to check with a qualified real estate CPA, someone who can properly handle your entity structuring, for exact answers.

If you go online and do your own LLC, it is vacant - no operating agreement, no articles of incorporation, etc.  - and that LLC will offer you no tax advantages or personal protection. Entity structuring, setting up your business properly from the beginning, is one of the most important things you will do for yourself and your business.

To your success!

Stan Butler · Answer

Following up on @J  Scott posting, the LLC is just simply a business entity structure, not a tax structure.  The LLC can be taxed in many different ways.  See IRS link below for brief description:

LLCs

If you are just starting out, I would not incur the overhead.  If you are going to pursue it as more than a recreational hobby, then definitely setup some tax and legal protections.

J Scott · Answer

Who says you do?  Only a CPA/attorney can tell you what the best structure of your business is.

The best reason is generally that LLCs are easier to manage from an accounting and legal standpoint than a corporation, but from a tax standpoint, they can be treated identically.

Why the LLC?

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