LLC Benefits

LLC for dummies-a good reference that explains LLC thoroughly and easy to understand; even has CD with forms you need to file.

Hi nstreet,

My name's Robert, just wanted to thank you for contributing to the forums...

I noticed you seem to know quite a bit about LLC's, and I wouldbe very appreciative if you could maybe shed some light with one question...I've not found an answer to this question yet in the forums..

Recently, I formed a single member LLC to invest in real estate. Initially, I want to cashflow and wholesale properties as much as I can.

Eventually, I'll be keeping some properties for the long-term.

With this in mind...here is my question:

As a single member LLC, which tax status is more beneficial?

1. Keep the standard IRS classification of a disregarded entity
and file taxes as a sole proprietor...or

2. Request to be taxed as a corporation...

I understand that I need to submit for 8832 to IRS within 75 days of having formed the LLC...

Thanks in advance for your help.

Robert D.

Did you find any particular company that you liked to help you establish your credit for your company?

Hi Anita,

From my research, my understanding is that if I flip or assign, having a S corporation is better than LLC because then I can write off my business and marketing expenses for tax purpose. My question is, did you use a lawyer to set up a Nevada corp or can you do it by yourself?

To Success!
Carl

I travel between states and thus have opted to purchase property in a different state than my primary. I would like to open an LLC now, but have no idea which state to start it in. Any advice?

If you are rehabbing and flipping property then you should have your LLC in the state that you are doing the flipping. If you are buying and holding and your state offers better advantages then have the LLC established in your state. Just remember that if you flip more than 4 properties a year you will be considered a business in that state and will have to register as a foreign entity. If you have to do that then you might as well establish the LLC in that state.

I've investegated LLC's and found that you will have to get credit first under the LLC and this can take several months but it can protect your personal credit. If you have other businesses you can keep them seperated. The first two deals should be in own credit to improve it and then invest money into LLC to get credit started.

What are the names of the companies that will establish a "shelf" LLC? that is a LLC that has established history? With established history and cash flow from the previous business and history you should be able to get a line of credit from the LLC and aquire more property. I hear this is possible. Has anyone heard of this?

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What are the names of the companies that will establish a "shelf" LLC? that is a LLC that has established history? With established history and cash flow from the previous business and history you should be able to get a line of credit from the LLC and aquire more property. I hear this is possible. Has anyone heard of this?

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You all have great advice, Dejor Properties, I like your approach. and think I will use your concept. Anita, again you have givrn alot of good advice. So once again thanks to all you dger's, this is a great forum.

Thanks again Eric Willis

In one of the online classes, I learned that the civil jury typically awared ONE.FOUR MILLION DOLLARS ($1.4 million) to the injured parties. Not just the lady with hot coffee in her lap. That is the average. Plus, 90% of all lawyers are located in USA. They all need to eat and pay off their education loans. No insurance can cover all that and they'll try to avoid paying for the lawsuits too.

Carl

You can sageintl.com or Pre Paid Legal or go to your Staples stor and get the forms and fill them out and take them to a lawyer to read over.

After doing my research, I am strongly leaning toward forming a c corporation. Why? Allow me to put forward what my non-lawyer brain is able to understand. First of all, I am pursuing two business interests other than real estate, one which is in manufacturing. So a holding corp seems like a better way to do this. Two, I am planning to pursue wholesaling for the first two years before switching to holding income properties. For wholesaling, I would need to hire good experts, such as lawyers, general contractors, etc. Corp seems to provide a better write off for this team. Three, corp would allow me to look professional which is very important if you're starting out. Fourth, it would allow me to set up medical reimbursement plan with pretax money and salary so that I don't pay too much taxes on what I am paid while leaving the rest of pretax money reinvested into my business. Fifth, I can use pretax money to pay for car and office rent. Sixth, one important note I learned is that a single-member LLC is the most audited entity by the IRS and a lot of people seems to hold this type in very low regard. Seventh, when forming an LLC, you must publish a legal notice of formation. That mean even if you put your income property in a legal trust inside your LLC, that public record will compromise your privacy and expose the rest of your holdings to a lawyer's fishing. Making your corp as one of the two or more members of your LLC might help protect that. Ask you lawyer about that.

Why not S corp instead of a C? From what I can understand is that you have to form a C corp before you can select S status. Two, S corp is a lot, I mean a lot, like an LLC but with more restrictions and requirements. In other word, you get the same benfits with twice the headachs. Plus, S corp is not so popular now as it was in the past when LLC was new-fanged idea. The flaws I meationed are the reasons why. If you want S corp advantages, then form an LLC instead.

The main advantage of LLC is this: the charging order. If someone suit you in a court and you lose, the creditor (again, ASK YOUR LAWYER FIRST) cannot force you to sell off your LLC's properties and other assets, it can only demand a share of profits (the charging order for dividends). But if you don't want to pay out the profits, no one can force you to do so otherwise (a single-member LLC MIGHT be forced because there is only one member, again check with your lawyer). And the creditor would have to pay taxes on unrealized profits. In other word, he lose twice over, making an LLC less appealing target for a lawsuit. So an LLC is good for holding properties as rental properties tends to bring in more people (government, tenants, buyers, contractors, etc) and also tends to make people think money when they see that nice apartment building while looking for legal thiefing.

So, I am leaning toward forming an C coporation for business of trading and making it one of the members of an LLC for holding long-term income properties. I hasn't made my decision yet because my homework is only the first step before I talk with a lawyer to see if he can find any hole in my plan. He is one of the must-have key member of my team. The fee I plans to pay will be worth it because it will insured me from years of major headachs. Just saving on the pills will pay for itself!

are the worse structure for real estate unless you are a huge operation and plan on offering stock to the public. You do not need to form a C corp first to get an S corp. A good structure is forming an LLC and then requesting to be taxed as an S corp. You do a couple of things here. 1. You don't have to follow all the strict rules that pertain to a corporation because technically you are an LLC who has asked to be taxed as an S corp 2. You can start out as an LLC (which is cheaper to form)do a deal or two and then used your profits to convert to the S standing.

Note, LLC's are good for holding property not flipping. You can get away with flipping about 4 properties in an LLC before the IRS will see you as a dealer. That is why after a few deals I am telling you to convert to an S taxation if you are going to be turning out a lot of properties. If you are holding property, it is a good idea to keep your assets at no more than a million per LLC. This way if one of your LLC's get sued they can only go after what is inside that LLC and not all the property in your other LLCs.

Any good tax guy who is familiar with real estate will tell you an LLC is the way to go. Of course, that is why you always go seek a professional is this matter.

First, thanks to all members who share their knowledge and expertise here. I was wondering whether anyone has a similar circumstance or can share a recommendation concerning my/our situation.

My husband and I have a home that we rent, our old residence. (it's underwater but not by much, we're trying to keep it) We took out a landlord's policy and asked the renters to secure a renter's policy as a condition of the lease. According to what I've read here, we may still have liability exposure should something awful happen.

We have an s-corporation. Currently there is nothing in it. No accounts, no homes, no investors, just expenses. We have been preparing to do this for awhile and are ready, we think, to roll. Should we move our rental into a trust owned by the business/s-corp? If we do, will we expose any other assets that the business holds too, in the event we are unable to keep that property afloat?

When we get our first deal, we intend to buy it in the name of the s-corp. If the s-corp holds the shaky rental and it goes bad, are we risking the wholly owned property too?

Thanks~Paula

Dean's posts of late have been so relevant for me. Everything seems to take presidence, but persevere! It'll happen.

One post directed us to "Eat that frog". That's when I realized my biggest obstacle and decided to do what I could and forget the rest. Now I tell my kids to tackle the thing that's keeping them from their goal, whether it's homework or chores, because the reward awaits (in their case, time with friends). I try to go another round with that dumb 'frog' everyday! I can see my reality is changing.

Organize your notes. Remember, you don't have to know everything, but knowing where to find it when you need it will give you worthwhile peace of mind.

"God knows the plans he has for you, plans to prosper you..."

Wishing you prosperity,
Paula

I would keep the pre-existing s-corporation but as the manager of the rental property but transfer the title to an LLC for the asset protection during the holding. The charging order that I has mentioned in above post will go the long way toward discouraging legal thieving, provided that it is NOT a single-member LLC. One seminar I has been to mentioned that an LLC can have two members of either husband and wife or one of the couple with your corp as the second member. Any creditor who win the case against you cannot force an LLC to sell the property or other assets but can be entitled to a share of profits, that is assuming there is any dividends. He cannot assume the management of the LLC. If you don't pass on the profits, he get NOTHING and he also have to pay taxes to IRS on unrealized profits too! That's the real beauty of an LLC for holding properties.

Beware, if you are behind on the payments on your property and might face foreclosure, the court might set aside LLC because it consider the LLC formation as a illegal avoidance of legally enforceable debt. For this case, ask your lawyer to ensure that whatever protection you use can survive the legal challenge.

Can you use a P.O. Box for your LLC address?

Very informative posts. Thanks a bunch!everyone. I wondered why you would sell an LLC ( that you purchased to protect your assets) to your End Buyer.
Doesn't one LLC cover ALL your real estate purchases?? Why would you purchase one LLC for each property?

There are many advantages to a LLC. The best underlying one is for tax reasons. In a LLC, each members profits are taxed one time as personal income.

In a Corporation, you have what is called a corporation as well as a foreign corporation and some other types such as a S corp, etc.

When you form a corporation in your state, you are saying to the state that you want to organize your business to conduct business professionally in my state. You would want to have a broad based operating statement, such as "To conduct business in any for profit opportunity". If you were a electrical contractor for example and your statement read "To conduct business in the licensed electricl trades", this would not be a broad operating statement and is what is called a limited statement, meaning that your telling the state that your corporation does one type of business category.

Now when you form a corporation in your state, it is for that state only. Now if you wanted to open a location in another state, you would need to file in that other state as a foreign corporation and pay taxes in what is known as multi locations.

The real advantage to a corporation is that it is perpetual, meaning that it is ongoing for life. If you pass away or become incapacitated, the corporation continues business operations, because it is a state chartered business entity.

In a LLC, there are not owners per se, there are members and each members liability tax wise and other wise is limited to the percentage of membership they own.

So for example, lets say there are two members and member one invested $60,000.00 and member two invests $40,000.00, such as in a real estate investment. Member one is the majority member and they own or direct60% of the
LLC and member two has 40% of the LLC. Member one is commonly known as the Managing Director.

I do not advise setting up a LLC yourself. There is alot to it. Setting up a LLC is setting up a business in itself. There are services out there such as Legalzoom.com, Bizfilings.com, etc that charge you the states registration fee and their fee for service. Many will also charge what is known as a registered agent fee and it is a yearly fee.

A registered agent is the person on record that receives your legal mail and mail from the state pertaining to your LLC. This is also available for corporations. These services also can form a corporation for you as well.

Now you can also get an attorney to form a LLC as well as a corporation. I like to tell people that the attorney will charge you more money than a service to do the same thing, however, the advantage to using an attorney is that he/she can answer specific questions for your individual state and especially when it comes to using either entity in real estate.

You should keep seperate records if you have a LLC or not for tax purposes. I would not recomend keeping your business and personal expenses together. The LLC will protect your personal assets if something would happen.

you can use your P.O.Box as the address for your LLC; I have one with a private mail company, not with the U.S. Postal Office, so it does not say P.O. Box, but 'suite' number. You do need, however, to have a physical business address or a registered agent (i.e. Legalzoom) that's open M-F from 9-5pm.
Every State requires that an LLC have a 'formally appointed' Registered Agent in the state of formation. Without a proper Registered Agent on file with your state of formation and any other state where your limited liability company is registered to do business, your legal entity will not be in compliance with the law and will be at risk for cancellation.
The Registered Agent is a person or entity who is the LLC's statutory administrative agent for accepting official legal service papers. This means that it is the official agent who is authorized to accept legal papers and tax documents on behalf of the LLC, who in turn, forward it to you (or your P.O. Box).

Valerie

Very well put. Now to add to that. KEEP watch on the resident agent if it is a hired/paid entity.
I had one run off/leave a state. The state didn't inform me that they closed up shop and left, my business was suspended there do to that. Hence one of my trucks and drivers were held until I got a new one. Plus of course the fines and penalties.

Its so great that on DG.com you can find the exact answer you are searching for. I just got off a webinar where the young lady kept saying you need to set up an LLC, so I didn't know if it was something to do immediately. This thread has helped me to understand the benefits even more. Thanks to everyone for sharing the wisdom.

Great Thread and there are some post that are dead on in their recommendations/statements and some that may need to research a little more. Just a suggestions. PLEASE.... check out (as a start):

http://www.irs.gov/businesses/small/article/0,,id=98359,00.html

There are minor as well as major variation between each entity. To include but not limited to: Taxation, Income, Losses, Capital G/L, Liability, Accounting and Record Keeping, Qualifications, Advantages/Disadvantages for each, Filing Requirements, and Filing Deadlines vary with each entity

Please consult a professional as to which will best suit your needs for your intent and business structure.

Just be careful to make sure you know who you are take advice from and they are well qualified is all I'm sayin....

Are the LLC and/or Corps. The same as a shelf corporation? And can't you purchase them already seasoned? I also was reading a few posts up that you can't obtain a loan to purchase property under your business. I always thought that the business would give you leverage to purchase property. However, lets keep in mind that I am a 'Newbie' to this.

love this!!!! especially the link...

very nice article.

I'm wondering, reading Deans book right now. I'm not sure about the no money down I mean I know it can be done just a little confused. Say you find a deal at 40% below MV, where do you get the money to purchase. I mean I know hard money all that stuff. I want to do this very badly, I am a very motivated individual. I am active duty military I retire next year. I have to be honest I don't have any start up capital. You say to advertise by the phone message got it, understand it. When say we get a seller from message and a buyer. Say we have it under contract, do we just put that buyer in the house before it goes to closing so we don't have any money out of pocket? We would have to structure the contract so we have an exit strategy so we could just walk away from the deal so we don't have to pay any money out of pocket right? Ok like right now I rent a home and my landlord is going to have to find another renter or sell. Would love to be able to buy and resell it myself or rent it out but not sure what to do, I think it would be a great way to start because the property is out in the country. He told me himself he would like to get rid of it so he would not have to drive so far to deal with anything with the home. Haven't asked him but not sure if he would be interested in seller financing the deal. I could ask him but I still would not want to do anything like that before I had a buyer. Main reason is my wife and I are moving closer to town. Any ideas, I thought about putting an ad on craigslist before I asked him to see if I had any takers. Any information would be greatly appreciated.