Which would be best; LLC or S Corporation

[Fernando Martínez]

Greetings,

Looking to open up a LLC or S Corp in Texas.

Not sure which one would be the best for holding real estate in. I would be doing the BRRRR strategy, buy and hold, ground up construction, having my notary services and being a part time real estate agent.

Can anyone provide any experience with pros and cons. Which can provide the best tax deductions

[Logan McKay Zylstra]

Don't get caught up in the entity holding your real estate before you acquire real estate.

[Ashish Acharya]

Please do not do S-crop if you are going to hold the property. If you are going to flip, wholesale, develop and sell, and be an agent, then S-corps is fine if it makes sense to get one. 

[Fernando Martínez]

Quote from @Ashish Acharya:

Please do not do S-crop if you are going to hold the property. If you are going to flip, wholesale, develop and sell, and be an agent, then S-corps is fine if it makes sense to get one. 

Thank you for your advise. If I'm going to hold property than what would you recommend? Would I need a separate LLC to operate those properties? Isn't a S Corp just a tax classification?

[Fernando Martínez]

Quote from @Logan McKay Zylstra:

Don't get caught up in the entity holding your real estate before you acquire real estate.

Thank you for your reply. If I've acquired property in my personal name how easy is it to change it over to my LLC or business structure? Is it just as easy as a quick claim deed. What happens with the mortgage if its under a personal name?

[Keaton Frieberg]

Hi Fernando, 

Depending on how many properties you plan on acquiring, you should definitely check out the series LLC that Texas offers. Our clients typically use a separate management LLC as an S Corp but do not elect S Corp status for the LLC Series holding company.

Disclaimer: I am an attorney. This is not legal advice, just friendly information.

[Keaton Frieberg]

Quote from @Fernando Martínez:

Thank you for your reply. If I've acquired property in my personal name how easy is it to change it over to my LLC or business structure? Is it just as easy as a quick claim deed. What happens with the mortgage if its under a personal name?

In Texas, it is much more advisable to transfer property via a General Warranty deed if possible.

[Fernando Martínez]

Quote from @Keaton Frieberg:

Hi Fernando, 

Depending on how many properties you plan on acquiring, you should definitely check out the series LLC that Texas offers. Our clients typically use a separate management LLC as an S Corp but do not elect S Corp status for the LLC Series holding company.

Disclaimer: I am an attorney. This is not legal advice, just friendly information.

Hi Keaton,

Can you elaborate on checking out the series LLC in Texas has to offer?

Are there CPA's in Texas that you would highly recommend to use in regards to real estate?

Are you a real estate attorney, just curious in case I would go with your services. What area of Texas do you operate out of? If not do you recommend any?

Thank you for your time.

[Keaton Frieberg]

Quote from @Fernando Martínez:

Quote from @Keaton Frieberg:

Hi Fernando, 

Depending on how many properties you plan on acquiring, you should definitely check out the series LLC that Texas offers. Our clients typically use a separate management LLC as an S Corp but do not elect S Corp status for the LLC Series holding company.

Disclaimer: I am an attorney. This is not legal advice, just friendly information.

Hi Keaton,

Can you elaborate on checking out the series LLC in Texas has to offer?

Are there CPA's in Texas that you would highly recommend to use in regards to real estate?

Are you a real estate attorney, just curious in case I would go with your services. What area of Texas do you operate out of? If not do you recommend any?

Thank you for your time.

 Hi Fernando,

The Texas, series LLC allows the investor the ability to compartmentalize each property into its own series or "cell" thus insulating each property from potential liability. With this structure you could either use one of the cells to operate as the management company, or you could create an entirely separate LLC to manage your properties.

Yes, I would recommend Lila Ramos- (512) 293-1770.

And yes, I am. We operate throughout all of Texas! Let me know if you have any other questions and I'll point you in the right direction.

Disclaimer- This is not legal advice, just friendly information.

[Mitchell Zoll]

Quote from @Fernando Martínez:

Quote from @Keaton Frieberg:

Hi Fernando, 

Depending on how many properties you plan on acquiring, you should definitely check out the series LLC that Texas offers. Our clients typically use a separate management LLC as an S Corp but do not elect S Corp status for the LLC Series holding company.

Disclaimer: I am an attorney. This is not legal advice, just friendly information.

Hi Keaton,

Can you elaborate on checking out the series LLC in Texas has to offer?

Are there CPA's in Texas that you would highly recommend to use in regards to real estate?

Are you a real estate attorney, just curious in case I would go with your services. What area of Texas do you operate out of? If not do you recommend any?

Thank you for your time.

Please slow down and really look into a series LLC before going that route. The benefits are not often there compared to the risk, especially if you are only investing in a few properties.  Texas LLCs are only $300 to form an entirely new entity and you can better separate properties and assets into LLCs if you need to (and you might not even need to hold that many LLCs).  

[Keaton Frieberg]

One reason why I prefer the series is that it is not necessary to implement the series aspect of a series until one is ready. So until you create a cell in a series, the company operates exactly the same as a traditional LLC. Thus, providing the investor the option to deploy the series element of the series when they so choose. If the individual forming the LLC were not to include this language in the initial filling but wanted to form a series later, this would require another filing with the secretary of state to amendment the certificate of formation.

While Texas LLCs are relatively inexpensive to file, and have no annual fee (besides possible franchise tax costs) your CPA will likely charge you separately for each return that needs to be done. Additionally, if you form your company the right way (having a professional help you) each LLC will cost more than $300.00 to form whether it is a series or traditional LLC. I believe that the "risks" that have been pointed out are in regard to the fact that the series LLC has not been heavily litigated by our courts. While this is true the statue clearly describes how to form and operate a series to maintain the division of liability amongst each cell just as is laid out for traditional LLCs. See below.

Sec. 101.602. ENFORCEABILITY OF OBLIGATIONS AND EXPENSES OF SERIES AGAINST ASSETS. (a) Notwithstanding any other provision of this chapter or any other law, but subject to Subsection (b) and any other provision of this subchapter:(1) the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular series shall be enforceable against the assets of that series only, and shall not be enforceable against the assets of the limited liability company generally or any other series;(2) none of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to the limited liability company generally or any other series shall be enforceable against the assets of a particular series.

Note that for the above to be true there are certainly formalities that must be maintained as well specific language that must be included in formation and company documents. 

Disclaimer*I am an attorney, but this is not legal advice, just friendly information. You definitely want a professional to look at your particular circumstance and help you come to the right structure.  

[Frank Zhang]

LLC if you plan on using it to hold onto your property as an investment. There's a lot more than goes into filing your taxes as an S-corp that probably doesn't apply to you.
Disclaimer: I am also not an attorney for legal advice

[Mitchell Zoll]

I think the real lesson is that lawyers have differing views on entities and structures, and that is why it is best for you, the investors and owners, to talk to YOUR personal lawyer to get guidance based on your investment profile and experience (and I bet your lawyer will likely have a THIRD opinion). This is why forms off the internet or DIY services aren't recommended (by lawyers of course). There are many questions to drill down, and there is a lot of learning that goes on before you simply "check a box". I understand the desire to save money and go it alone. That isn't wrong if you already know what you are doing. But if you are just starting out (or didn't take the education step from the start), call a lawyer. Ask them about their experience with forming entities. Ask them about their experience buying/selling entities and litigating disputes (that's what you are protecting against, right?). Then call another lawyer and ask them the same questions. Then, choose the lawyer that is the right fit for you (no lawyer is a good fit for every client) and use them to help you learn.

[Basit Siddiqi]

Appreciating assets inside an S-corp is a no-no.