How to you structure your REI business/es?

Question

Generally question when looking to protect yourself (personal liability) from your investments (Rentals). Share your experiences or things you do. Do you have a holding company? S or C Corp? Just an LLC?

I am also curious about expenses, reserves, and the financial side of your business. Each property has a checking account for your reserves, repairs, capex, etc. Do you just invest in a good CPA? How many properties do you need for a CPA to be worth it?

Curious on everyone experiences good or bad and general input, thanks BP!

Context on my journey: Currently house hacking a duplex with an FHA loan and looking into my next house hack in the next 6 months and want to make sure I am setting my self up for success on the business side of investing. I believe I analyze deals well and know what I want on the buying and management side of REI but could LEARN ALOT on the business structure side, the tax side, and the accounting side of REI.

Kenneth Garrett · Answer

@Bryan Cavellier

To protect yourself from your rental properties a LLC is the proper entity method.  On BP here you will have very passionate thoughts on just insuring it versus an LLC.  It’s two different philosophies. An important aspect of owning it in an LLC, it will require commercial financing.  This financing has higher interest rates, but there is no limit and you don’t have to worry about DTI.  One option is to buy it in your name and transfer it to a LLC afterwards.  The negative with that is a lender could call the note due as the ownership has changed.  This is very unlikely, but I know someone that had it happen to them.  Talk to a CPA to find out the advantages of a rental business.  There are many deductions you can take advantage of.  Even if you only own one property you can still have the conversation for the future.

David M. · Answer

@Bryan Cavellier

You don’t normally use a C Corp because of the double taxation.  For rentals, that kills you especially since the income, if any on paper, is passive.  You may need to read up a bit on types of taxable income and taxation in general

As far as entities, same thing. Some tips:  S Corp isn’t an entity.  It is a tax status electable by LLC and C Corp.

Google around a bit.  While you could pay an accountant and attorney to teach you The basics about legal entities and taxation, you can find a lot online (Bette than getting piecemeal answers on a forum — BP has blogs/articles on this stuff as well).  An informed customer/client/(full in the blank) is a good one...

The cpa wants to wait after the first one I think to see if you are serious and because there is little to setup right now

Good luck

Salvatore Lentini · Answer

I buy my properties in LLC name and I also have an umbrella policy for added protection.  Listen to @Basit Siddiqi.  You need a CPA if you are investing in real estate.  And not just any CPA.  I would find a one that is well versed in real estate.

Bryan Cavellier · Answer

@Basit Siddiqi No no, they advised me to work with them (CPAs) when I get into my second deal

Basit Siddiqi · Answer

You had a paid consultation with a couple CPA who got to know what you plan to do and they advised you a corporation?

Bryan Cavellier · Answer

I actually talked to a couple CPAs and they advised me it would be worth it when I  go for property number 2 to talk to them about tax strategy (that includes LLC as well). Curious (I have no clue) why would you say not a corp? In the near future (5 years) I see myself owning SFH and MFH (2-4 units). @Basit Siddiqi

Basit Siddiqi · Answer

@Bryan CavellierEveryone will have a different experience in regards to asset protection.Some people go the entity route, some people go the insurance route. You should consult with an attorney to see which is right for you.Regarding buy and hold rentals, it is usually never suggested to hold them in a Corporation.

I am surprised you are already not working with a CPA if you are house-hacking. House hacking adds a lot of complexity from a tax perspective.

How to you structure your REI business/es?

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