Consulting and REI LLC

[Adam Jones]

Hi everyone. First post here. My name is Adam and I'm from Houston. This site and the podcasts are so helpful. I really appreciate the info. I have learned a ton in the few weeks since I joined. I have a question about setting up an LLC. I do some consulting work in addition to my full time job. I've been planning to set up an LLC for the consulting work and treat as a small business. Now that I am planning to start real estate investing I thought I might combine the two areas into a single LLC. What are your thoughts on that? Pros and cons of doing a single LLC versus two separate LLCs? Thanks again. This website and the info available is tremendously helpful!

[David Beard]

Yes, you should separate these, can't think of a good reason to combine (and saving a few bucks on initial and annual LLC costs is not a good reason, IMO).

An "active" consulting business will pass through for tax reporting to a Sch. C (or equivalent schedule if it's a partnership), and net income is subject to FICA tax. A "passive" real estate investing business (holding rentals) will pass through to a Sch. E. ((or equivalent schedule if it's a partnership) and is not subject to FICA. So segregation is crucial to keep tax reporting straight.

Liability is also an issue, as it's reasonable to segregate dissimilar risks and protect your real estate assets from some sort of judgment against your consulting firm, for example.