OfflineI looked for hours on the forums to see if this question has been talked about by others, but didn't see any discussions on this in particluar. I'd really appreciate if someone could help me out with this.
When I attended one of Deans real estate workshops in Newton, MA...they covered LLC's and what the recommended structure should be so that most investing strategies/activities would be appropriately covered legally as well as for balance of tax advantages. The instructor recommended the following structure:
LLC partnership with a 1% owner being a C-corporation. So, for example, if myself and another person are 2 of the partners, then we'd be at 49.5%, 49.5%, and the remaining 1% to be owned by a separately set up C-corporation. The instructor was always emphasizing "anonimity" and tax benefits. I'm currently as we speak setting up my LLC with my attorney, but don't whether the 1% c-corporation portion is necessary at this time. My investing focus for the near future are wholesaling assignments, purchase and quick flip (no rehab), and purchase for rehab and resale...I don't anticipate hold/rental properties yet until I build up some more capital...
Anyone else wondering this or have any further information on how this 1% c-corporation piece comes into play?? and whether it's a piece I should be worrying about now or later?? Does it have anything to do with IRS views of "dealer" status versus "investor" status....confused, please help!! Thanks!!
Keep it simple. Do the deals. It's too easy to get stalled without peripheral thoughts that don't pertain to you.
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It sounds like they want you to protect your interests by having the 1% C-Corp (which I assume is owned and controlled completely by YOU) is to make you a majority partner in your LLC, without necessarily having a majority liability if you ever lose a lawsuit.
Best advice anyone can give you starting out is: You don't need a corporation, or even a partner, for that matter. There is absolutely nothing a partner can do for you that you can't do yourself. Don't worry about legal entities until you want to buy long-term hold properties, because it's not smart to have those in your personal name. Doing so makes all your personal assets potential lawsuit targets. That's where your "asset protection" comes into play.
But if all you're doing right now are quick flips and reassigns for "here and now" money and experience, just have a great attorney with awesome docs ready to fill out and sign. Make sure you have a great accountant also to limit your tax liability. Get 10-20 deals under your belt for $2-20K each. THEN focus on your asset fortress and know your route before you embark on it. Bottom line: Don't sweat that stuff right now. You have plenty to learn and do between now and then. Best of luck to you...
Paul: "I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when my fear is gone I will turn and face fear's path, and only I will remain."
Duke Leto: "I'll miss the sea, but a person needs new experiences. They jar something deep inside, allowing him to grow. Without change something sleeps inside us, and seldom awakens. The sleeper must awaken." - "Dune."
Thanks so much for the advice....that makes complete sense to not get too caught up on this until I've gotten to the point where I would have long term holds in my portfolio.....thanks so much for the quick reply!
Since you are already using an atty, you may want to ask a RE Tax adviser and an Asset Protection Atty why the 1% C-corp makes a difference.
For now- do it! No worries. With an LLC you can easily add members.
PS when you do find out, let us know. It's got to be a loop hole and it's intriguing. Hmmmm
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Sounds good....for now, I'll just stick with the straight LLC....but I will try to find out otherwise just to know for the future, and I'll let you all know....
Thanks for your input!!!!
for that very informative information. It is all making sense now. Tammy
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https://tvallc.isrefer.com/go/RehabLite/reigirl/ FREE SOFTWARE FOR WHOLESALERS, REHABBERS AND AGENTS! Present professional looking deals to buyers and lenders as well as run your numbers and get the ROI.
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For asset protection and which to use for your business find "The Father of Asset Protection", Jay Mitton. Look him up(google)
Mike
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I read something about this in one of Robert Kiyosaki's (author of Rich Dad, Poor Dad) books.
If I recall correctly, the corp holds all the voting shares. If the LLC ever lost a lawsuit and gave majority interest to another party, the corp could use it's voting power to make the new party pay all of the taxes and divert all the profits to the corp. Essentially driving them to either bankruptcy and/or to sell their portion of the LLC back to the corp.
I'm sure I'm leaving a lot of details out but that's the main gist of it that I remember.
Mark K.
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How many deals have you done? I think you're making it too complex right off the bat. All you're doing is paying out a lot of extra money to the lawyer & then to the CPA to do all 3 corp. returns & 2 personal(that could be 4 to 5 K alone per year). Keep it as simple as possible.