LLC vs. Corporation, what is better as an investor?

Question

Hi All,

When establishing a LLC or a Corporation to either buy and hold properties or wholesale properties, what legal concerns should I take into consideration when forming either of the two? I understand this may be an legal question but as experienced investors, what is your take on it and how has it worked out for you?

Thanks,

Jose Corbera

Ron Trinh · Answer

Owning real estate in a C-corp is not the best idea due to double taxation. The corporation would be taxed on the profits it makes from flipping and you, as a shareholder, would be taxed when you take a distribution from the corp. To avoid the double tax, an LLC may be your best bet.

Also, from my experience working in real estate tax as an accountant, most clients tend to adopt an LLC "tree" type strategy where they keep property in one LLC, and have it managed and owned by a separate LLC. From my understanding, this creates several "layers" of legal protection.

Not legal advice, but hope that clarifies a bit.

Alvin S. · Answer

Does it matter where the LLC is formed?

Do I need a Florida LLC to hold Florida real estate? Or can I put FL properties in an NY LLC?

Thanks!

Tony Guillaro · Answer

Form and LLC and elect to be taxed as an S-Corp

http://www.thetaxadviser.com/issues/2013/dec/casestudy-dec2013.html

Steven Hamilton II · Answer

It will highly depend upon what you want to accomplish. There are a variety of answers to the questions you have. I normal sit down and spend some time working with a client to figure out their needs and goals so we can make that happen.

Jose Corbera · Answer

Thank you all! I appreciate the advice. Seems establishing a LLC is my best bet.

Daniel Hyman · Answer

@Dennis R.

C-corps usually are not the best choice for small business owners due to the double taxation and transferring title out of the business (eg: refinancing).

Here is an old (but helpful) thread from some time ago. https://www.biggerpockets.com/forums/109/topics/78305-how-did-you-incorporate-c-corp-s-corp-llc?page=1

Dennis R. · Answer

@Steven Hamilton II I plan on flipping homes occasionally on the side while keeping a higher income W2 job. I'm in the process of forming a single member LLC to do this and am struggling with finding non-contradictory advice as far as what election to choose (disregarded, s-corp, or c-corp). Any advice on this? I am leaning towards election as a c-corp although it sounds more complicated.

Steven Hamilton II · Answer

Never hold either of those investments in a corporation. If you hold rentals or notes its a bad idea. Unless you are flipping notes or running an active business.

Jose Corbera · Answer

Thank you Marc!

Marc Yu · Answer

LLC. Making a corporation takes too much money and too much paperwork, and most of the benefits of incorporating can be had through the LLC vehicle.

LLC vs. Corporation, what is better as an investor?

LLC vs. Corporation, what is better as an investor?

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