Any downsides to investing in CF deals with an LLC?

5 Replies

Hi,

I know that this is likely a "speak with your lawyer/CPA" type question, but I figured I'd give it a shot here in case folks have personal experience with this. I do plan to deep dive with my lawyer when it's time to actually set up the LLC in a few months.

My question is: What are the implications (tax, headaches, roadblocks) of using a single-member LLC to invest in crowdfunded deals like those found on Real Crowd and CrowdStreet? I would be the only member of the LLC. I've read the accreditation rules around this and it seems like that will be OK as long as every member accredited.

I've been doing some estate planning and will be setting up a revocable living trust next week. I would like to ensure that my future "investment LLC" falls into my trust (either by direct ownership of the LLC, or transfer on death) when I die, so that it can skip probate.

It seems like having an entity to aggregate a number of deals would simplify everything a bit (at least from an estate planning standpoint), but maybe it would complicated taxes so much that it's not worth it.

Thanks for any advice!

@Jason W.

I have not invested in sites like real crowd or crowdstreet. 
However, I assume it is a platform where you along with other investors pool money together to acquire/invest in real estate.
More likely than not - You and the other investors will be limited partners in a limited partnership or non-managing members in an LLC.
If this is the case - Would an LLC investing in an LLC/LP provide you more liability protection/anonymity than if you personally invested in the LLC/LP.

From a tax perspective - the single member LLC will be disregarded and the income from real crowd/crowd street will be reported on schedule E. You will likely get a K-1 from the sponsor indicating what your income/loss was from the deal.

You can just invest in the deals in the name of your trust. Quite simple, and no need to form an LLC. That's how I do it. When you die the investments are handled like everything else in the trust, without probate.

@Jason W. - I have been doing this for a while- investing in RE syndications and HML loans via crowd funding platforms. I use my single member LLC for all my US investing and it really couldn't be simpler.

A single member LLC is a "pass through" entity as far as the IRS are concerned- so all income/ capital gains etc are reported on your personal tax return in any event. Accreditation is simple as long as all members (in this case only you) are accredited. Once set up, the only extra cost is a small annual LLC registration fee.

I use an LLC for different reasons- I am not a US citizen and most of the platforms require a US entity to be the investor- but if it helps with your estate planning, I wouldn't hesitate.

Thank you all for the replies so far! 

Directly investing with the living trust is an interesting idea. The main wrinkle that I can think of is that I will be accredited based on my income and my wife does not work. So, I think if we were both grantors of the living trust, then the trust would not be considered accredited (because my wife is not - I think). 

If your income is greater than 300K, you would qualify as a married couple, but that's an interesting question if your trust would qualify with your income between 200 and 300K.

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