Do you incorporate before buying a rental property?

4 Replies

Hi, I am planning to research and buy rental properties / flip houses. Is it wise to form an LLC or do in personal account. How are others doing this? Any suggestion to a newbie?

For asset protection, it is best to own your properties within an LLC, whenever possible.

But be aware that depending on how you finance those properties, some lenders might have an issue with that and want you to hold them your personal name.
Hard money lenders would want you to set up an LLC.

Setting up an LLC is a very quick process. You don't have to do this long ahead of time.

You can do this once you have found the property you want to buy.

Rental properties and flipping houses are two very different things in the context of the question you are asking. The main difference being passive vs. active income, in the eyes of the IRS, and that distinction matters for LLC/entity structuring. So from that standpoint, you want to know exactly what you are doing REI-wise before you try to structure anything, if you decide to do that.

My answer from a completely different standpoint is-- no, creating LLCs before you've really gotten started is really putting the cart before the horse. In my opinion.

How do you figure out how many assets go into one LLC?

Originally posted by @Brandon P. :

How do you figure out how many assets go into one LLC?

For my commercial buy and holds (which is all I put in LLCs, not little houses with debt) it depends on value. If I don't want to have to do the sch l and sch m on my 1065, which are a complete pain, I stay under $1M per LLC. Some of my larger stuff I had to go to $2M. Obviously if each property is worth $1M+, then only 1 each.

If I'm doing Midwest low value houses with no debt, I'd probably do about 4 per LLC. Once you start financing houses tho, LLCs just create headaches IMO.

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