Hey Everybody, I am a young investor looking to get the ball rolling on my Business LLC and I need some opinions. The goals of my LLC are to acquire a single or multifamily rental or flip in Rhode Island, Mass or CT. This will be my first transaction and I want to make sure that I am prepared and learn as much as I can from it.
- The LLC that I am planning on starting is going to be an S-Corporation
-I have yet to define which style loan I am going to get...so I am open for suggestions.
-What can I do to prepare myself and my LLC prior to going to the bank?
-I have the set parameters for a property defined. I built these from many of your blogs..Thank you!
-Now for the Taxes.... What tricks can I do to prepare for the taxes when I set up my LLC (S-Corp) and loan?
-Now the Exit... my favorite part. I have yet to define this critical set in my evolution. I want to define this step from a collection of others experiences. For my situation what do you think would be the best and most efficient exit strategy for my LLC?
Welcome to BP @Hunter Sperry ! You may find it difficult getting a loan for a brand new LLC. Are you planning on buying with cash? Your best bet is going to be talking to a CPA/tax attorney. You probably can get a free consultation.
Hunter, as Frankie wrote, you should definitely consult a CPA or tax attorney (of which I am neither).
That said, my non-professional understanding of the entities is that S-corps are usually used for something like wholesaling which is "earned income", where there are few/no other employees than yourself. And single-member LLCs or partnership LLCs are usually used with buy-and-hold real estate. So as you presented it, I'm not sure I would choose S-corp for a buy-and-hold strategy. But I'd definitely recommend doing more research on it.
I'm not sure what you mean by "style" of loan, but if you're paying market value (such as buying off the MLS) you may as well get a bank loan unless there is a reason to avoid it (such as bad credit). It will be a pain to go through, but you'll usually get much better rates than private $.
On the other hand, if it's a really good deal or you expect actual other simultaneous offers (as opposed to the alleged simultaneous offers the agents always say they have... "we're in a multiple offer situation, I need your highest and best offer by X" - don't fall for the phantom horse race and bid against yourself, stick to the #s that work for you), then you might want the extra cachet that a "cash, quick close" offer provides. And if it's an off-market transaction with a motivated seller than you definitely want to line up your private/hard $ ASAP (ideally before you start getting such deals actually...).
As for "tricks" to prepare for and loan... The best "trick" is immaculate, detailed record-keeping. Get some bookkeeping software like Quickbooks or the equivalent and start using it. If you create a separate entity like an LLC set up a separate bank account(s) for the business - and look up "LLC entity formalities" while you're at it.
I will say (with the voice of some experience) don't bother analyzing things to the Nth degree to determine an ultimate "exit strategy for the LLC". Choose something standard, that most investors use and your CPA clears as a good idea, such as a single member or partnership LLC for a buy-and-hold, and then focus on making money.
So many things about your life and financial situation can and will change between now and your hypothesized "exit" that coming up with an elaborate "exit strategy" strikes me as a waste of time, time that should be spent figuring out how to run & profit from the investment instead.
If you absolutely must come up with an "exit strategy", to check off that box or something, then my recommendation would be that it should be something so simple that you can write it on a napkin or in one reasonably-sized paragraph (3 or 4 short sentences max). Example:
"Even though the west side of Providence has done well over the last 10 years, the area is convenient to me and I still think there is a lot more room for growth, so I will concentrate most of my buy-and-hold efforts there. I will get long-term, low-rate bank loans, fixed rate if possible, and pay down the loans over time to build wealth. I will re-evaluate my properties and their loan-to-value ratios on at least a yearly basis to see if I have accumulated enough equity that I should refinance and pull some out to use for property improvements or to buy more properties."
Ok, that was obviously more than a napkin, but I tend toward the wordy anyway - you get the picture. The idea is that you really should be focusing on how to make $ today instead of agonizing over what might be in 5 or 10 years.
Good luck and let us know how it goes, other questions, etc.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.