LLC for 'subject to', C-Corp for flips/wholesales?

In developing our REI company, we ultimately went with an LLC for the company itself. Our focus is on subject to deals, and will be holding 3 subject to deals in each LLC, to be run by the parent LLC.

This being said, we are also looking to flip or wholesale the deals we find which aren’t specifically the subject to type deals we seek. I have been notified through local networking that this could make our company viewed upon as a broker, which is bad for the LLC. In response to this, I am considering setting up myself as a C-Corp and having my C-Corp as a partner in the LLC, and any wholesales, or flips would be executed through my C-Corp.

I also am developing a few other companies, and expect to have my corp as a part of these entities, too.

Am I setting myself up for possible trouble having my corp in multiple different entrepreneurial ventures? I am not planning on keeping funds in the corp, in case of any possible problems, but am I leaving myself open for a possible asset attack?

Thanks all!

In developing our REI company, we ultimately went with an LLC for the company itself. Our focus is on subject to deals, and will be holding 3 subject to deals in each LLC, to be run by the parent LLC.

How is your LLC to be treated for federal income tax purposes— Corporation, partnership, or sole propietorship?

What are you doing with the property your LLC is taking Subject To?

This being said, we are also looking to flip or wholesale the deals we find which aren’t specifically the subject to type deals we seek. I have been notified through local networking that this could make our company viewed upon as a broker, which is bad for the LLC.

If your company is buying for its own account and selling from its own account, then you LLC is not a broker. Could you have meant to say “dealer” instead. If so, then there is no stigma attached to being a dealer to real estate. There is nothing “bad” for the LLC that is a dealer to real estate.

Perhaps you can explain your concerns here.

Our LLC is to be treated as a partnership. The properties we are taking subject to are either going to be controlled by a land trust or an installment land contract. Each property, up to three maximum, will go to a separate LLC which flows the tax burden through to the over all LLC, I described in the beginning of the post.

My concerns are based upon the properties which we flip, or wholesale. There will be tax consequences from these types of exit strategies, and I am looking to limit the personal tax burden. Would an LLC set up to be taxed like an S-Corp offer me both the asset protection (no shares to be awarded in case of suit) and tax advantages I am looking for?

Sorry if I am being vague here, as I am researching this and learning constantly.

Because you are being vague, I can’t really answer your question without knowing your exit strategy for the Subject To properties. I will make an assumption here instead. The properties you plan to take Subject To will be “sold” on either a lease option or on land contract.

The LLC treated as a partnership is a pass through entity and generally tax neutral. That is, all the net income from your LLC flows through to your personal tax return, and the taxes assessed are the same as if the LLC did not exist. The partnership tax return you will file with the IRS is an informational return, since the partnership will not pay any income taxes in its own right.

For flip and Subject To properties, the profits are taxed as ordinary self-employment income. That is, you will pay ordinary income taxes AND payroll taxes on your profits. By the way, whether you are wholesaling, or selling your Subject To property, you are still flipping property. Property flipping is a dealer activity.

Having your LLC treated as an S-corp where you take a “reasonable” salary will let you minimize the amount of self-employment (payroll) income tax somewhat, but you can’t eliminate it unless you are conducting your flip activity within a C-corp, or an LLC treated as a C-corp.

Consult your own CPA for specific details.

Miles,

it appears as if you’re really complicating things to the point of confusing yourself.

dude, chill out.

Dave T is on the money in what he’s telling you and his last bit of advice is paramount - CONSULT YOUR CPA for the tax implications.

consult an attorney for the business entity issues.

reread your posts and look at how difficult you’re making life for yourself. i’m not discouraging you from planning - but it looks like you’re really complicating matters.

just so you know - MANY small businesses or start ups - elect S status for corporate structures due to “double taxation”.

when you’re just starting out - C’s are more complex and really do not make sense for start ups.

it almost looks as if you’re really reading alot and trying to make sense of all this LLC and S-Corp stuff, along with “Subject to”, “flips” and “wholesaling”, etc…

that’s cool. you’re doing the right thing by asking questions - now go and ask a CPA and attorney. will it cost money? yes, but it’s money well spent.

for a CPA - shop around - don’t go to a CPA that bangs you for every little visit and discussion - forget them. that’s ridiculous. get your free consultations and shop around. oh and it’s always better if they invest themselves, that can be HUGE.