Please Read!; Texas Residents; Creating an SLLC a good idea?

Question

My questions are:

1) I intend to be a life-long real estate investor within the State of Texas. I will be inheriting one property in the next month that I will turn around and sell immediately and then potentially purchasing 19ac in the next few months (financing the 19ac). Should I create a Series LLC before I own both of these properties? What are the issues with owning both properties and then transferring title to the SLLC? i.e. Due On Sale Clauses, loans, etc.

2) Should I file as a S Corp for tax purposes? I understand this means I am an "employee" of the SLLC but I'm not sure what I should list my own salary as if one at all or how that works. I just know the pass-through taxation is a benefit of up to 20% more to write off or something like that.

3) Do I even need to create an SLLC at all? I think it would be a good idea to go ahead and create one since I intend to own at least 10+ properties within the next 7-8 years.

4) LegalZoom or talk to an attorney?

Kris Wong · Answer

First and foremost, you really need an attorney and a CPA to get good answers to these questions. However, an attorney is certainly going to tell you an entity is a must, when that's not necessarily the case. There are a lot of issues that come along with combining financing and business entities. That being said, how much risk do you really perceive from this 19 acre plot of land? Who may want to sue you? I think an umbrella policy would certainly be enough to get you started. This will give you time to research these topics more thoroughly. I will say that long term you will want to incorporate asset protection, and you do not want to use Legal Zoom to do so.

Lastly, on the surface I don't see any reason that you would tax your LLC as an S-Corp. It sounds like a holding company, not an active business.

Jerel Ehlert · Answer

Get connected with local REI groups.  I'm in Georgetown and there are quite a few that post events here, meetup, fb, etc.  Quest Trust in Austin hosts others' events at their location.  You can find out what other investors do, get lots of questions answered for free (often worth the cost).  Then talk to a TX attorney and accountant.  Most every aspect of REI operations has a legal and/or account component.  You will need local (TX) support, might as well develop that relationship early.

Jerel Ehlert · Answer

@Costin I. hit a pet peeve of mine.  Without discussing the merits of his post...

S-corps and c-corps as creatures of federal tax law, and not entities.

LLCs, series-LLCs, for-profit (Inc.), GP, LP, LLLP, and even trusts - are all creatures of Texas law.  Each state has their own statutes.  All except for a trust are found under Texas Business Organizations Code.  Trusts are under Texas Property Code.

An LLC can choose to be taxed as an S-corp (if it qualifies) or C-corp, or partnership, or disregarded entity for tax purposes.

Carry on.

Costin I. · Answer

@Tyler Sample - you should have something to protect before complicating yourself with the cost and maintenance of asset protection structures. If you don't have major personal assets, lots of equity and/or cash flow, you might want to concentrate first on acquiring said assets and developing the wealth worth protecting.

The 20% tax write off applies to pass-through and regular LLCs, as long as you meet the conditions required for it (contemporaneously documented number of active participation hours in the required business activities). You don't want to hold assets into an S-Corp - Owning Rentals in an S Corporation Might Be a Costly Mistake.

If you do flipping or property management and have active income, that's when you might want that into an S-Corp.

Here some diagrams to help you in your quest for answers:

Come to our events if you want to meet people and learn more.

Tyler Sample · Answer

Awesome, thank you.

Tyler Sample · Answer

Thank you for the input. What would be a reason someone would file an LLC as an S Corp?

Basit Siddiqi · Answer

@Tyler SampleYou don't want buy and hold real estate to be held within an S-corp. Bad idea

Tyler Sample · Answer

1) Financing because I only have so much cash to put towards the 19ac. The only income that will come from it is a livestock lease which is fairly cheap.

2) My income right now from my job? 75K. No income from any RE investments yet.

and thank you!

Ronald Rohde · Answer

1) Great goal, long term horizon is the best way to invest. Series LLC can be a great option, I form them weekly for my clients. Why are you financing the land? is it income producing? yes, you may have those issues, but certain loans/lenders won't trigger DOS.

2) what is your taxable income? Theres a fairly simple cost/benefit analysis for scorp.

3) Sure, I recommend Series or a traditional LLC.

4) Go ahead and spend $200 on legal zoom, you'll come away with more questions than answers. Then you can find a Texas attorney who also invests (SFR, office, and land).

Nicholas Covington · Answer

2 answer: CPA and Attorney. Not the spot to ask for this type of advice as unless they are one of the two I listed it's all based on their "experiences"

Please Read!; Texas Residents; Creating an SLLC a good idea?

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