setting up the busness

15 Replies

What is the best way to set up your properties? An LLC or Land Trust and what is the best way to get this set up? Also, how do you go about getting a loan for you next property? Do you apply with your own personal credit and will the loan be under your personal name or the business name? If any experienced investors out there can give me some guidance, I would greatly appreciate it.

I have this question too.

I have seen from my research that if 'title seasoning' is an issue then a Land Trust should be used. Title seasoning becomes an issue if a property is flipped in less than 6 months or during a double close. It also seems like a land trust offers a little more legal separation than does an LLC. I'm sure using a combination of the two would probably be best...

Bump for more opinions

A land trust is basically used to provide privacy. Land trusts offer absolutely no asset protection. They also make the beneficial interest of the real estate personal property which can be sold without the usual recording of deeds, etc.

LLCs offer asset protection and are generally the entity of choice for holding real estate.

Good Luck,

Mike

MikeOH - can u point me to where the ads/disads are discussed for real estate investing and llc is seen as the superior choice? i read a book recently 'inc and get rich' and it seemed to love corps in general but did not mention a whole lot about why llc's might be good for real estate in particular...i think LLS is the way to go i would just like to read it for myself...

the first question is do you really have a business to set up in the first place? do you have a property under contract? if not go find one then you have a business to set up. too many people never do anything because they're too busy doing things that do absolutely nothing to create a business. don't be one of them.

i know there is more than one way to skin a cat but why would you ever want to get a loan to buy a property when it's so easy to buy them "subject to"? but if you insist on getting loans and obligating yourself to pay debts and put your credit at risk when it's completely unnecessary, that's up to you.

I buy properties using my LLC, but they are rehabs and my lender is a hard money source that requires I do it with my LLC. Any refinancing is done in my name personally, using my personal credit. I don't know of a conventional lender that lends to a corporation, (does anyone know differently?) Mortgage loans are made based on the borrowers credit worthiness. Even with the hard money lender, they base their decision to lend partly on my credit, but more on the value of the property and never lend over 70% of ARV.

I have transferred property titles into Land Trusts after buying with my LLC for anonymity reasons. I did run into seasoning issues. One lender needed 3 months seasoning, another needed 6 months which delayed the sale.

I am considering this issue as well.

Here is how my business is run.

1.) Company A Inc. pays me (company B, sole-proprietor LLC) a commission for everything that companies B,C,D,E,F sell (all sole-proprietor LLC's).

2.) Then I, company B, keep my commission and a portion of company C-F earnings and distribute the remaining portion to C-F

Seems good, but what if I put my sole-proprietor LLC company into a Trust?
What advantages would that bring if any? More protection and privacy?
What if I recieved my salary from my company "B" which is inside a trust? Wouldn't I then be a beneficary of the trust? And, what if companies C-F were set up to be beneficaries of the trust as well? Would this then also give a tax advantage.

Please provide feedback!

I'm just trying to think outside the box!

i know there is more than one way to skin a cat but why would you ever want to get a loan to buy a property when it's so easy to buy them "subject to"?

RP,

Only a very small percentage of properties for sale can be purchased at a large enough discount to make them a good deal for an investor. Of those potential good deals, only a very small percentage can be bought subject to the existing financing.

If you only want to do only occassional deals, then looking for only subject to deals might be sufficient. However, if you are running a more serious business, there are not enough subject to deals to feed your business. In addition, subject to deals have more problems than traditional deals. They are more prone to start lawsuits and of course there is always the due on sale clause.

I do take properties subject to the existing financing, but I've done a lot more through more traditional financing.

Mini Mouse,

I have bought many properties with my LLCs. Lenders will loan to your LLC, but you will have to personally guarantee the loan.

Realtx,

What is the purpose of such an elaborate structure? Also, there is no such thing as a "Sole Proprietor LLC". A Sole Proprietor is an individual the is conducting business. A LLC is a Limited Liability Company. Maybe you are thinking of a Single Member LLC, which is a Limited Liability Company that only has one member. This is not a good structure and a recent court case pierced a single member LLC stating that the single member LLC was simply an alter eqo of the owner. Single member LLCs are legal in most states but they may not be effective.

Mike

MikeOH - That is good information regarding the single member LLC.
As far as "why the elaborate scheme?"
I am asking you to think of what the advantages are to such a structure. I am asking you to stretch your mind and think outside of the box, unless you are telling me that it would be useless.

realtx,

Not only do I not see an advantage to this structure, it is opposite to the structure normally used. Normally, income generating properties are held in LLCs for the asset protection and a C-corp is used as a management company. The advantage of doing it this way is that you can transfer part of the income to the C-corp which only pays about 15% of the first $50,000 (as I understand it, an accountant does my taxes). The C-corp has more tax write-offs than an LLC. LLCs are pass-through entities and therefore any profit goes to your personal return. Paying the LLC a commission from a C-corp violates every one of these principles. It increases your taxes and does nothing to improve your asset protection.

So, what is the catch? Care to share your out-of-the-box thinking? If you've come up with something good, I'm sure we all are interested. I know I am.

Thanks,

Mike

Thanks MikeOH that is great advice!

I was asking you to evaluate this structure to find out what you think.

I considered the mentioned structure because I am evaluating different strategies and trying to figure out the best structure.

I like what you have mentioned about the C-corp and have decided to structure my business this way for now until the need arises for the LLC.

I like what you have mentioned about the C-corp and have decided to structure my business this way for now until the need arises for the LLC.

realtx,

I hope you also noticed that I said C-corps don't offer any asset protection and that properties are normally held in LLCs.

I am not an accountant or lawyer and don't play one on the internet. I would STRONGLY SUGGEST that you have an accountant or lawyer evaluate your individual situation. Some things are best not gotten off the internet.

Mike