LLC strategy for new Real estate investor

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LLC strategy for new Real estate investor

Lua Jambeiro
Member since 2018 · 6 posts · 2 votes

Hi everyone,

I'm not sure in which category to post this question, but I'm about to create an LLC with a friend for real estate investing and am debating whether we should elect to be taxed as an S-corp or not. I've been doing a lot of research on this and it seems being taxed as an S-corp is the way to go, but since we are just starting and haven't bought any real estate yet, I was wondering if we should or not. Because I also read that with S-corps we have to pay ourselves a salary, there's more reporting that needs to be done and etc. So just wanted to hear some feedback from other real estate investors.

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  • Amber Glus
    Rental Property Investor · Cortland, OH · Member since 2016 · 8 posts · 2 votes
    7y

    @Lua Jambeiro I'm still researching this topic but can share what I've learned so far. We use an S-corp right now because we've done mostly new builds or fix and flips and we also run small jobs we do for other contractors through our company. We like using the S-corp for this and we do pay ourselves a salary. My accountant has said this is the best set up for new construction or fix and flip but we are about to purchase a few buy and hold properties and are setting up separate LLCs that would own each. My accountant told us to set them up and single-member LLCs so we can use it as pass-through income to our personal taxes and not have to pay for a separate return for each LLC. If you have each property owned as an S-corp, each of those needs a tax return filed. You still get liability coverage via the LLC, without having to have an additional return filed for it. Sometimes it can be difficult to find lending institutions for newly formed LLCs, I'd recommend checking out Lending One for options with financing for this. I'm still learning more and I know you can also visit this article that has some great pros and cons for this topic https://www.biggerpockets.com/blog/using-LLCs-real-estate hope that helps!

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  • Weston Couch
    Attorney · Austin, TX · Member since 2019 · 128 posts · 98 votes
    7y

    @Lua Jambeiro Hi Lua, I work with a real estate asset protection group, and since we use LLC's for a lot for clients, we run into this question frequently. If you're interesting in reading some of our resources on the subject, or talking it out with an expert, feel free to connect or DM me.

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  • Bill HamptonBusiness Member
    Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
    7y

    @Lua Jambeiro, it depends on what type of investing you going to undertake. 

    If you are going to do buy and holds a multi member LLC is fine.

    If you are going to do wholesaling or flips then set up a separate multi member LLC.

    You can have your LLC taxed as an S-corp after you become profitable. An S-corp is not recommended for new investors because most new investors don't generate enough income to pay themselves a salary.

    404-482-3170
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