LLC or CCorp?

Question

For fix and flips, LLC or CCORP and why?

David Dachtera · Answer

@Carrie Barrette,

@Linda Weygant is quite correct. While there's no "one size fits all" (because it never does), in general the "wisdom" is to hold in LLCs, flip in an S-Corp and set up a personal trust to stand between you and your business entity structure such that the trust is an owner of each other entity and the LLC(s) and S-Corp are each owners of the other. This is mainly for asset protection. It doesn't prevent lawsuits, but it limits potential losses should one be successful and raises an additional barrier between your business holdings and your personal assets and properties.

An S-Corp is easier to manage than a C-Corp, plus there's no "double taxation".  Thru the S-Corp, you can pay yourself using the "salary / dividend" technique to reduce your "self employment" (payroll) tax liability.

Definitely see what your CPA has to say...

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."- DJ Benedict

Linda Weygant · Answer

A C-Corp, except in a very few scenarios, is absolutely the WORST way to own real estate.  The general advice is to flip in an S-Corp, but buy and hold in an LLC.  However, that is not a cookie-cutter approach.  There is no, tried and true, one size fits all approach to either flipping or landlording.  Talk to a qualified CPA  who will ask you many, many questions about your personal situation, your short term goals and your long term goals before offering a strategy.

(PS - If anybody offers you advice without knowing a lot about your other sources of income, your family status, your retirement goals and investing goals, then discount that advice in the same manner you would if you read it in a tabloid)

Blake Meester · Answer

Hello @Carrie Barrette

It is just not that simple.

There are many considerations when considering a choice of entity. The important thing to remember is the entity decision should not be driven by a single factor, rather a combination of legal, tax, ownership, and control issues. It is likely that one entity will not be the perfect fit and you will need to weigh your options against you needs to settle with the entity that works best for you.

There are many questions that you will need to answer prior to making the choice of entity decision. Where will I operate? What business activity will I be participating in? Who will the owner be? What are the compliance costs? Do I understand this entity or am I forming it because I heard I should? These are few question you should understand PRIOR to forming any entity.

It is very difficult, if not impossible, to adequately apply “general” advice you will find here to your specific situation. The best advice I can give you is to have a discussion with an attorney and tax professional that are experts in real estate. This way you can be sure that you questions are answered by someone with the understanding of your specific fact pattern.

Karen Foster · Answer

Hello Carrie! I personally prefer and have an LLC, in which I buy properties under. 1) this type of entity is easier to form, and 2) the tax benefits. If you are going to buy and hold or fix and flip properties on the regular you will probably end up forming more than one LLC. I recommend you research the information for your own satisfaction. Check out Legalzoom.com, Forming an LLC for Real Estate Investments: Pros & Cons.

Kind regards, Karen Foster

Matthew Kreitzer · Answer

Well that would depend; are you asking the relative tax benefits of the two holding structures, or the asset protection benefits? For tax consequences, I think Mr. Meester has the best answer for you so far.

For asset protection questions, find your own local attorney. Do not rely on Legal Zoom. Many attorneys do not like Legal Zoom because they do not provide the same level of detailed analysis and explanation that a personalized attorney does. Using services such a Legal Zoom may subject you to harsh realities in Court down the line. Please consult with a local attorney for all things related to asset protection. Do not rely on "conventional wisdom" from investors in this regard. Only a licensed attorney has all the laws, regulations, and rules relevant to the disposition of the unique facts of your particular case.

For the vast majority of instances, most new investors can be relatively safe with an LLC. However, that is far from a cure-all. There are many times an LLC would not be appropriate, or not offer the best kind of protections for your case.

DISCLAIMER: Any statements about Legal Zoom or any of its affiliates are the personal opinion of this poster. None of this information is intended to act as a factual allegation against Legal Zoom. All statements are based upon personal experiences and observations. Should you have any questions about whether legal zoom is right for you, consult an attorney.

Chelle Knijnenburg · Answer

Karen Foster.  I found it easier to find the Legal Zoom real estate information when I googled "Legal Zoom Real Estate".. When I googled your phrase it immediately brought me to a page that was determined to have me sign up for an LLC right away (I assume :-)   Thanks for the tip. It's good info.

Steve Vaughan · Answer

Without knowing anything else about the rest of one's goals, family or financial picture, it's tough to say other than a c-corp is a pretty much a universal no for RE.

Hope you post what your CPA says and why. Be a nice change of pace. Thanks!

Logan Allec · Answer

Ask your CPA if he thinks an S corp would be right for you.  It could save you a bit on self-employment taxes, but there are more administrative costs to forming and operating an S corp than there are for an LLC.  Good luck.

Carrie Barrette · Answer

I am waiting for our CPA to get back to us. Thanks.

Carrie Barrette · Answer

I understand the taxation is better with a LLC taxed as a CCORP. No?

LLC or CCorp?

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