What is the best legal structure to set up for my investments?

General Real Estate Investing
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Hello Everyone,

I am totally new to the Real Estate Investing business. I am doing my research before going forward with my first deal. I attended a seminar last week where we were advised to first open a Roth IRA, then to create a LLC and Land Trust. The IRA is to protect the investment from taxation, and the LLC and Land Trust is for asset protection I think. How does this all work together? Does anyone know what I am talking about and how I should proceed?

Thanks for your help.

Tom

2

Welcome aboard. There is a lot of very useful information from very knowledgeable and helpful folks on these boards. Be sure to ask your questions and do not shy from doing so.

The entity structure depends on your intentions. Are you concentrating on flipping homes? Buy and hold? etc. While I don’t know much about the Roth IRA (in terms of Real Estate), the corporate entity coupled with a land trust is a solid foundation for protection both your asset(s) and identity.

Check out the articles on the left hand side. There are several regarding protecting your assets. In addition, there are a multitude of threads here (or you can use the search function for something in particular). If you continue to have specific questions, someone here will chime in with advice and/or an answer. Good luck!

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Thanks for the input Eric. I have been reading over the tons of links and papers out there. It is a bit overwhelming! My interest is in flipping and rental units (small). I have very little capital and almost no equity. On the upside, I have pretty good credit. Do you have any pointers for the best place to start? I am looking for a succesful strategy to find and flip properties, or to find rental properties with little down. I have been looking at seminars, reading books, and spending hours and hours on the internet. It is a bit confusing to the novice. I would love anything from a success recipe to a mentor. I guess many others would also.

Thanks again,
Tom

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LLC for holding and C corp for flipping. hold on the IRA until you get more assets

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Thanks for the advice Manny

Tom

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I think a C corp is too much for someone starting out. The costs would not justify itself. An S-corp is perfect for flipping in my opinion :slight_smile:

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cost is the same.

Forming a S corporation begins with a C Corporation. After formation, S corporation form 2553 is filed with the Internal Revenue Service.

Instead of being taxed at the corporate level, the income “passes through” to the individual shareholders. Any income or loss generated by the S corporation is reported on the individual tax returns of the shareholders. Making a subchapter S election by completing and filing federal Form 2553 with the IRS is a method of distributing the profits from the corporation to the shareholders without being taxed at the corporate level. Thus, the S corporation election is a popular choice for most small businesses. In this case the corporation cannot have more than 75 shareholders. There are restrictions regarding who may and may not own stock. Generally, non-resident aliens, trusts, other S corporations, C corporations (with few exceptions) may not own stock.

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Note: Individuals who benefit from the lower tax rate paid by C corporations should not apply for S corporation status.

Passive income is income generated by investment; i.e. stocks, bonds, equity-type investments, real estate, etc. Active income is generated by services rendered, products sold, etc. It is important to make sure that your S corporation’s passive income does not exceed 25% of the corporation’s gross receipts over a consecutive three year period; otherwise your corporation would be in danger of having its S status revoked by the IRS. A better choice if your business is expected to have substantial passive income may be an LLC.