I was told by an investor that it is better for one to have every real estate deal to be its own seperate entity by creating a company for it. As in every house should be attached to its own LLC.
I wonder if the investors on this site think this is a good strategy? and if it is how can one go about creating one, what will be the process? Will it be better for one to start the company before the house is bought or after?
Also how can one get unsecure business lines of credits with banks or other financial instutions to help finance real estate deals?
I will be grateful if my questions can be answered.
Could you post a link to the other thread to help those of us out that would like to see the response to this question?? If this would be a violation of any kind, then could you PM me instead…
What can I say, I am a newbie and trying to make sure that I have all knots tied before I get into this real estate business. I know I am getting there though. Just a little scared of analysis paralysis
personally I think the strategy of 1 property per LLC is overkill. while all properties in the LLC are at risk to issues arising at any one of the properties, this risk is manageable. Meaning:
your personal assets are safe,
assets in other LLCs are safe,
and while other assets in the target LLC may be tied up in court for a while (can’t sell), charging order “protection” makes it unlikely that you’d lose the assets, only exposing the income from them. Even then, charging orders are easily frustrated by the LLC, and there are plenty of other ways to get money out of the LLC.
selling one property or unit has no effect on other properties in the LLC. it’s no different than selling one house that you own. you certainly don’t have to liquidate all of them to sell the one.
Thanks,
when I had 2 properties in a Florida trust, and sold one at a loss, my accountant said I couldn’t liberate the loss until I sold the other one.
Thank you all for your replies. From my investigation, I am thinking of creating LLCs for my rental properties until they have between $150 to $250k equity in them before creating another LLC or just getting a series LLC and putting each rental under each other the series. I will have to investigate more in the tax aspect of series LLCs.
As per my wholesaling and flipping deals I will put does under an S-Corp. What do you guys think of my strategy.
One Property per LLC: As with all things, it depends. If the property is a mobile home park or commercial building, 1 LLC per property makes sense. On the other hand, with leveraged SFH’s, there are two issues:
a) Most small investors will not properly maintain that many LLC’s, inviting piercing of the veil;
b) Piercing due to under-capitalization, meaning that each LLC has so little equity that a court will disregard it. This a major issue with “equity stripping” strategies. General rule: Little piggies get fat & hogs get slaughtered. Trying to make a Limited Liability Company into a “No Liability Company” will backfire.
S-corporation makes sense in you are exposed to social security taxes. They will generally reduce but not eliminate such taxes, which are 15% on @ first $95k of earned income (including salaries & flipping income) & 3% on earned income > $95k.
what you said really doesn’t make sense. if you’re asking if you can enter a lease option (as a buyer) and then rent it out (sublease) to someone else as another lease option (now u are seller)…
no…because you don’t own the property. you have rights to it - a lease option is considered a sales transaction, but you don’t own it…the person who rents from you, if they have half a brain will realize the risk of renting to own from someone who is…well…doing the same thing with the same property.
