I’m going to give real estate investing a try and want to setup my entities correctly. From 10k feet my idea is as follows. I currently own another LLC (non related to real estate) that will make capital investments in a real estate entity (what kind c-corp,llc, what state?). I’ll probably buy 4-5 properties (low cost junkers) using leverage from a local bank with everything in the name of the real estate entity. Now I’ve heard of LLC per property (which really seems crazy if my homes on average are 40k) and all sorts of other complicated structures. What is the most straightforward way to get started that gives me some level of protection, but also does not screw me up if things go well and I want to expand to more properties.
To do that, you need to sit with a qualified planner who will evaluate your situation. I can think of a dozen reasons to buy real estate in a c-corp and another dozen to avoid it. The same goes for LLCs, partnerships and trusts. They are nothing but tools. Hire someone who knows the tools to pick the right one for you.
Most of the stuff you have heard comes from gurus and others who have no courtroom experience defending or attacking these plans. Their ideas are junk unless they have been successful in court. That is when your planning is used. Planning doesn’t prevent a lawsuit. If the case is legitimate, you will get sued and probably lose unless you settle. Your choice is to settle on your terms or theirs, which means pay now or pay later. All that being said, advanced or complicated planning doesn’t make much sense unless your net worth is in the millions because you can insure it. Even with a large net worth, plaintiffs usually settle for the insurance limits.
Insurance provides good protection at a reasonable cost without changing the way you do business. You will find financing and taxes to be more of an obstacle than a plaintiff’s attorney.
Now the million dollar question. How do I find a “qualified” planner that knows what he is talking about. Would it be best to ask how many actual lawsuits had been filed against his clients and then evaluate the outcomes?
however, be aware that LLC is NOT a taxing decision - the LLC can be taxed as a corp, S-corp, partnership or sole proprietorship, depending on circumstances.
the LLC decision is an asset protection planning decision, based on costs and benefits of the different entity types.
other entity types are “locked in” to taxation for that type. LLCs are much more flexible.
First choose your entity type that works best, then choose how to tax it, if it’s an LLC.
BLL gave you the answer but I think you missed it. He is telling you that you don’t really need a business entity until you have at least a seven figure net worth a couple times over. Until then, buying in your own name with adequate liability insurance is sufficient.
No need to spend time and money on a business entity until you have significant assets to protect, and then make sure you get the right professional expertise to set it up for you.
If you are planning to buy 40 houses and hold them long term, you would probably want multiple entities to hold title. If you are just flipping houses or doing a lot of sub2/wraps, you can probably just use one entity for all of that activity.
If you are just starting and don’t have any assets, don’t waste a lot of time worrying about “asset protection.” Make offers, do deals, build capital, then worry about it. Perfectly fine to take title personally and tack on liability insurance on each property.