Please bear with my questions… as I searched all I could find about structuring multiple entities for asset protection and anonymity on this forum, there are some of my concerns still unanswered.
My REI strategy is to buy and hold rentals for cash-flow, capital appreciation and depreciation. I feel it’s important for me to structure this correctly because I am planning on having a Real Estate license to complement my REI business. Having a RE license can be a huge liability but I feel my pros outweigh my cons in this aspect. My RE license as an agent has E+O insurance on my transactions. That’s just the small part. I’d like to structure my businesses correctly right from the start.
LP to hold properties 99% and GP 1% as my C-corp.
C-corp is my property management company to pay fringe benefits to employees (me + spouse). Also, as I go collect rents, maintain properties, I will present myself to my tenants as an employee. “Any other concerns you may have, I’ll have to talk to my boss (spouse)”.
Land Trust (for Anonymity + Privacy) …
Hold title to property in Trust, with LP as beneficiary. Is this correct?
What I still dont understand is how all these (LandTrust, LP and C-Corp) tie into each other?
When I go out to purchase a property, I will use my own name (hard to get loans via corporations) , then transfer property into Land Trust? with LP as beneficiary? Then my C-corp collects rentals? Please clarify.
If I need to purchase more properties, can I show the banks that “these income generated by my entities are owned by me” so that my income qualifies for the mortgage?
Whether or not an LP is appropriate for keepers depends on your state.
C corp will likely not be appropriate as a second entity initially. In order to take advantage of fringe benefits, you’ll need to be running a serious amount of excess cash through it. You might want to consider an S corp or an LLC, but it would probably be best to talk to a knowledgeable expert in your area. Generally, unless you have big short-term capital gains, a non-flow-through entity is not a good choice as you may end up not being able to take advantage of paper losses.
Yes, this makes sense.
Yes, if you get a traditional loan in your name, you can transfer (sale) into the trust with the LP as beneficiary and have your management entity manage. Hard money lenders will loan to you in your company name if your docs are in order. Some may ask for a personal guarantee. Also, there are tons of ways to not get loans in your own name.
Yes, you will likely need to include your entire financial situation when applying for a loan.
Randi,
There’s no need to try and figure all this stuff out up front. Yes, if you happen to get good advice and everything works as planned, it does make some things easier like bookkeeping. It makes the transactions themselves a bit more complicated.
My advice would be to get started and figure it out as you go. Until there’s a serious chunk worth protecting, it’s not that big a deal.
Yes, you can have a separate entity operating as a trustee and/or management company. It potentially can help with asset protection and income shifting for tax purposes, but again, it’s not critical initially.