Corporation vs LLC vs Nothing?

7 Replies

I'm finally getting around to reading the acclaimed 'Rich Dad, Poor Dad' book, as everyone always recommends it. In the book, it discusses starting out establishing a corporation for yourself, as a corporation is nothing more than a file in a desk, but the benefits and tax savings can be massive.

I have heard a lot of debate between deciding between an LLC vs simply insurance, but are there really benefits to starting a corporation for yourself, or is this part of the book a bit dated?

Thank you, BP!

Originally posted by @John Walter :

I'm finally getting around to reading the acclaimed 'Rich Dad, Poor Dad' book, as everyone always recommends it. In the book, it discusses starting out establishing a corporation for yourself, as a corporation is nothing more than a file in a desk, but the benefits and tax savings can be massive.

I have heard a lot of debate between deciding between an LLC vs simply insurance, but are there really benefits to starting a corporation for yourself, or is this part of the book a bit dated?

Thank you, BP!

Its a great question and has multiple answers. Your CPA has a narrow view that is specific taxes and accounting, I'm not diminishing his knowledge or advise, just giving a different view on a broad and complex theme.

There are different goals for you to consider. All three are interconnected. Some are taxed some are not and some are good individually but serves little purpose for the other two.

Rule Number 1. Exit strategy, determine how to tax the LLC. What's the nature of the investment (commercial, SFR, Mobil home). What is your personal income tax bracket, does the property produce gains or loses, what's your intent 5-10 years out hold it or sell it. These questions will determine how to form your real estate investment entity.

Rule number 2. Buy as much insurance as you can afford to ensure all of your LLC's real estate and business activity. Make sure you have written proof of insurance showing that the LLC is a named insured.

Rule Number 3. Form a disregarded LLC or multiple ones to hold title to your real estate so that if a lawsuit occurs, the LLC will be the defendant rather than you. (Even if you form an LLC and transfer the real property to the LLC, you will remain liable for your conduct).

Rule Number 4. Create a holding LLC that owns your other LLC's. Treated as an S-Corp if applicable.

Thank you @Guifre Mora Seems they can all be a valued option and I should take a deeper dive to see what would better work for my situation. I appreciate the insight; never would have thought to have an LLC that owns the other LLC's!

@John Walter it’s also worth noting that the way you hold title can have a significant impact on the type of lending you have available to you. This is a frequently discussed topic with tons of opinions, but there doesn’t seem to be a firm “right answer”. Take in as much info as you can and make best choices for you. 

Thank you @James York . I appreciate the advice. I am still very much in the information-gathering stage, so I plan on absorbing as much as I possibly can.

In most situations you don't want to use a corp or S corp if you're going to be holding rentals. But like everything in tax- it depends on your specific situation.

@James York I’m about 20 or so shows in right now. I’ve read both of David Greene’s books, almost done with a book on wholesaling by Than Merrill, and now Rich Dad Poor Dad with a few more in the queue. Can’t get enough of this stuff!

@Natalie Kolodij Thank you. I figured there must be a reason why I never hear anyone talking about corporations. In any case, I definitely want to be a buy and hold investor.