Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
I have one single family rental and looking to buy another. I have had trouble finding good advice on the best strategy for setting up an entity to hold my rentals in. Any good books to explain exactly which states to set things up in and which entities (LLC, S-Corp, Etc...)?
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
7y
@Phillip Scalise the reason there aren't any books about this is because it is so location specific. You really need to speak to an attorney in your area so you can get good advice. This is the tough part as some attorneys specialize in this and charge fairly aggressively for this service. My regular real estate attorney here in the Chicago suburbs sets these up for me for a very reasonable amount of money, and gives me advice as needed. I also am very loyal and do a lot of business with him though.
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@John Warren thank you for the advice John. I have a property outside of the state I live in so I wasn't sure where to find a good attorney, and many forums I read mention setting up an LLC in a Wyoming, Nevada, or Texas so I'm just trying to find someone who will be able to set something up for optimal protection and wealth growth. I did find a book on Amazon called "Your best business entity for real estate investing" that I may give a read. Thanks again!
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@Caleb Heimsoth is there ever a point that I should switch to an LLC? Any tax advantages?
It's difficult to know as I'm sure you're aware of how much discussion there is around getting an LLC. So many people say to do it and so many recommend not to. It's quite hard to know without the experience. Thanks for all of your advice.
Rental Property Investor · Irvine, CA · Member since 2017 · 29 posts · 22 votes
7y
@Phillip Scalise do it in your name for now. If you start accumulating lots of equity (maybe 50k? What's your threshhold) once you hit that threshhold then think about forming LLCs in your state. If you get even bigger then consider an entity in NV or WY which will own LLCs in the state that the property is located in. Look up Clint Coons on youtube. https://youtu.be/lZpAkqNoXR0
Developer · Houston TX · Member since 2018 · 423 posts · 400 votes
7y
@Phillip Scalise
I’d say KISS. (Keep It Simple Stupid) that is what I’d tell the younger me if I was starting out. Don’t fall into the whole you need LLCs for protection. I did all these different LLCs and Living Trusts and it only makes taxes more difficult, most lenders won’t lend unless it’s a commercial loan. Keeping it simple by just putting into your name and getting good insurance with an umbrella policy will be best. Once you have a couple million in net worth then I’d recommend spending the money to set these up.
Each state has its own requirements and fees. So many people don’t start investing because they get stuck in setting up entities. You have started investing already so brownie points. Just spend the time finding deals. You can do the first 10 deals using traditional loans.
Also LLC is not able to protect you as a single member as many people are lead to believe in lawsuits if you are doing the work or money is not being placed in business accounts.
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@Peter Mac @Luciano A. You guys are great. Thanks for the information, it's definitely appreciated and exactly what I needed to hear. I will have around $80k in equity by December so I was thinking it may be a good idea, however, sticking with a good umbrella policy and avoiding all the fees to maintain an LLC seems like the best bet for now. I will keep everything you both said in mind. Again, thank you.
Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
7y
@Phillip Scalise - Check out this conference. It's free and provides tons of useful information. I just came back from it and it totally changed the way I'm doing business moving forward.
I have one single family rental and looking to buy another. I have had trouble finding good advice on the best strategy for setting up an entity to hold my rentals in. Any good books to explain exactly which states to set things up in and which entities (LLC, S-Corp, Etc...)?
You have to answer why you want it set up as a LLC or other entity?
For liability protection?
For anonymity?
To present yourself as a business to use to expand your empire?
Build credit thru a business?
There’s tons of reason why, these were just a few I could think of off the top of my head.
I selected a LLC for liability reasons and mainly for anonymity.
My personal net worth tends to attach sue happy lawyers.
I don’t want my name attached to my buildings as I expand my “empire”.
I like the presentation of a business asking for a loan versus a individual.
I would like my business to grew some credit to be able to leverage later on down the road.
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@Eric C. @Eric C. Thanks. Great advice. I have thought of these things, the trouble is not knowing when it's worth setting one up. As with everyone, I want asset protection, tax benefits, and optimal situations for wealth growth at the cheapest and easiest way possible. So, I'm not sure when and if it's worth doing an LLC... or is an umbrella policy good enough for asset protection, and the tax benefits don't differ from LLC verses keeping it in your personal name... I'm just not sure if there is a difference when it comes to all of these things so it's hard to weight for my situation... owning one property and looking to buy another soon.
@Eric C. @Eric C. Thanks. Great advice. I have thought of these things, the trouble is not knowing when it's worth setting one up. As with everyone, I want asset protection, tax benefits, and optimal situations for wealth growth at the cheapest and easiest way possible. So, I'm not sure when and if it's worth doing an LLC... or is an umbrella policy good enough for asset protection, and the tax benefits don't differ from LLC verses keeping it in your personal name... I'm just not sure if there is a difference when it comes to all of these things so it's hard to weight for my situation... owning one property and looking to buy another soon.
All my properties are inside a LLC. I started it before I closed on my first property. I did it for the above reasons.
The when to start for me was beforehand and I only buy 5 or larger units, so no owner occupancy is not going to be taking place.
Yes the tax implications don't change using a LLC, and how I understand it a S-Corp is never the preferred method for having rental properties due to the tax implications.
What's it cost to set up a LLC where you invest? I'm sure that will be cheaper and just as effective as the umbrella policy.
Natrona Heights, PA · Member since 2016 · 36 posts · 16 votes
7y
@Eric C. It’ll be around $700 to set up and then $300 every year for maintenance. Someone recommended starting on in Wyoming and then having another in the state of my property (Tennessee) so things would add up. It seems everyone has different ways to think about it.
Rental Property Investor · Midland, TX · Member since 2019 · 7 posts · 6 votes
7y
@Phillip Scalise check out Mark Kohler YouTube videos and his podcast refresh your wealth. Sign up for newsletter for his free E book. He's a CPA and a tax attorney. I did a 30 minute consult with my specific questions and I thought it was helpful. His tax and legal playbook is good too.
He doesn't recommend getting a WY LLC. He recommends rentals in LLC for asset protection and get the LLC in the state that you have the rental. You can make a separate business entity as LLC for maybe paying yourself as property manager then change to an S-Corp if you make about >$30 - 40K a year. At that point there are some tax savings according to them.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
Put the properties in a land trust with your llc as the beneficiary and someone you trust as the trustee . Also get an umbrella insurance policy . You can remain under the radar and protect yourself from lawsuits if you know what your doing and set it up right . You might skate by in your own name but why ? It’s worth noting No professional RE company that does this business puts houses in their own personal name for a reason . They get a judgment on that rental for a accident it can go right on your personal home as a lien
Put the properties in a land trust with your llc as the beneficiary and someone you trust as the trustee . Also get an umbrella insurance policy . You can remain under the radar and protect yourself from lawsuits if you know what your doing and set it up right . You might skate by in your own name but why ? It’s worth noting No professional RE company that does this business puts houses in their own personal name for a reason . They get a judgment on that rental for a accident it can go right on your personal home as a lien
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
If you know someone outside of your state that you can list as the trustee that’s even better .youbwant several barriers of protection . The ambulance chaser Attorney won’t even be able to find who actually owns it to sue you because the land trust isnt traditionally recorded .He will have to charge the client an absorbent fee just to figure out who or where to even send the papers to lol
Albuquerque, NM · Member since 2017 · 11 posts · 5 votes
7y
@Phillip Scalise there is a great book called start your own corporation by the rich dad poor dad folks was really helpful in describing the tax benefits for all sorts of corporations.