vicky
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Joined: 21 Jan 2009
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Posts: 211
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| Posted: 27 Oct 2009 at 19:39 | IP Logged
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C corp or S corp is the worst choice. Some states levy franchise taxes on everything held outside a GP or as a sole proprietor including LLC (like Texas). Because of PAL and my status as a real estate pro for several years, I
could write off my rental losses against my ordinary income. Can't do that with a Corp.
Why an LLC? Liability protection? A bank will not finance a property in an LLC unless you personally guarantee the loan. I find that a large umbrella, a very good knowledge of the law and taking care of problems offers me good protection. I might transfer my properties into a series LLC at some point.
Yes, the LLC will be on the title if that is how you want to purchase it. You will have the LLC registered with the state. You (and your partner) will be the members/managers of the LLC. You can also buy the property and quitclaim deed it to the LLC after purchase. Takes 5 minutes and $20 for recording. However, if you have a mortgage on it, it will may trigger the due on sale clause and the loan could be called.
Think long and hard before partnering with someone in real estate. The property will be in both names which means you can lose a lot if the other person does something stupid. What is your out if one of you wants out or your partner cheats or makes bad decisions? I just settled out of court with a partner that ripped me off in a commercial partnership.
If you have residential that you hold for income property, I would keep it as a SP or single member LLC. If it is a flip for short term profit taking, use an IRA preferrably a Roth unless it is debt financed because of UBTI.
I keep all my properties in my own name or IRA. Just closed on one last week in my IRA. That will go as a Roth conversion before I owner finance it or resell. Got another one under contract that I keep for income outside of my IRA. I have done very well and I know the business. However, the vast majority of people lose money in real estate, so be careful before you jump in. Good luck.
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Topic: Investment property
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