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Should I create LLC for real estate

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  • Craigy
    replied

    If it's any substantial amount of money at all, you should be hiring your own local attorney to at least review the contract/operating agreement/articles/pship agreement.  Someone in the estate planing, contract, business arena.  Should just be a few hours of time, max.

    Leave a comment:


  • AR
    replied






    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.


    Click to expand…



    Yes, an LLC should always be formed to own real estate. If your state allows “series LLCs” and you will own multiple parcels, that is what you need. I see no reason for each investor to be inside an LLC, but there are many facts I am not privy to at this point. You definitely want a good attorney and a good CPA and an air-tight operating agreement. The OA will determine dissolution, what happens if a partner dies or divorces or wants out (can s/he give her share to someone else or do the remaining partners have first right of refusal?), who makes the decisions, what if there is a tie, how much insurance do you carry, who is responsible for making sure the bills are paid, how do you decide what and when to buy and sell, how much $$ is distributed to partners annually and how is that determined, how much $$ are partners responsible for putting in if there is a shortfall, how much time are you expected to spend in the venture, and so on and on and on.


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    Is this just for investment real estate or does it include residence as well?

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  • Asher
    replied

    I would explore an LLC as the legal entity for the investment group.  Rather than the original poster him/herself as the member of that LLC, he/she might form a family limited partnership (FLP) to be the member of the LLC, with he/she as a partner in the FLP.  From a tax perspective, the LLC would issue a K-1 to the FLP as member, and the FLP would issue a K-1 to the individual partners in the FLP.  Asset protection would occur at the LLC and the FLP level.

    Leave a comment:


  • jfoxcpacfp
    replied









    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.


    Click to expand…



    Yes, an LLC should always be formed to own real estate…


    Click to expand…



    Can you expand on this? LLC asset protection is nice, but you’d lose some tax benefits https://www.biggerpockets.com/renewsblog/2016/07/07/ten-reasons-corporations-real-estate-ownership/ .


    Click to expand...



    Such as?

    Leave a comment:


  • Ryan
    replied






    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.


    Click to expand…



    Yes, an LLC should always be formed to own real estate...


    Click to expand...



    Can you expand on this? LLC asset protection is nice, but you'd lose some tax benefits https://www.biggerpockets.com/renewsblog/2016/07/07/ten-reasons-corporations-real-estate-ownership/ .

    Leave a comment:


  • mobilehomegurl
    replied
    Aside from what others say, if the property is making a good amount of income you may also want to look into a Limited Liability Partnership (LLPs). In my state (TX), there's a special franchise tax on LLCs on the gross (not net) which may cut into profits. If you're not making a lot, it's not such a big deal. LLPs don't have this special franchise tax. Hope that helps!

    Leave a comment:


  • Kamban
    replied


    I agree about the OA and most importantly, how/when to get out, much like my medical partners contract, is usually the most important. One of the partners is an attorney, so hopefully the contract will be good.
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    Look out for your exit clause very carefully. There might be rules that you can sell only to the managing partner, and then other partners, before selling to outsiders. There might be restriction on which outsiders can buy that share.

    Also look for the exit purchase price. Some may have clauses that evaluations might be done only at 5 year intervals and if you want to sell at year 9, you might get only the year 5 net worth price.

    Most importantly make sure that the philosophy behind owning these investments is shared by all partners. Otherwise the disagreements will arise quickly and you guys might be suing each other.

    Leave a comment:


  • jfoxcpacfp
    replied


    One of the partners is an attorney, so hopefully the contract will be good.
    Click to expand...


    I know at least one partner it will be good for.

    Leave a comment:


  • IRdoc
    replied
    Thanks for all the great replies and apparent interest.

    For clarification, yes there will be one main LLC with the 4 of us in as partners.  I was curious if I should have my own personal LLC for dividends/etc to flow into, but from the sound of things that doesn't sound particularly needed.

    I agree about the OA and most importantly, how/when to get out, much like my medical partners contract, is usually the most important.

    One of the partners is an attorney, so hopefully the contract will be good.

    Leave a comment:


  • Kamban
    replied
    I own properties with my spouse and we have formed an LLC for those which gives out k-1's.

    I am also a partner, but not the managing partner, in other commercial real estate ventures. Each venture is structured as an LLC but the k-1's come to me directly. No LLC is opened by me just to receive that.

    Leave a comment:


  • jfoxcpacfp
    replied




    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.
    Click to expand...


    Yes, an LLC should always be formed to own real estate. If your state allows "series LLCs" and you will own multiple parcels, that is what you need. I see no reason for each investor to be inside an LLC, but there are many facts I am not privy to at this point. You definitely want a good attorney and a good CPA and an air-tight operating agreement. The OA will determine dissolution, what happens if a partner dies or divorces or wants out (can s/he give her share to someone else or do the remaining partners have first right of refusal?), who makes the decisions, what if there is a tie, how much insurance do you carry, who is responsible for making sure the bills are paid, how do you decide what and when to buy and sell, how much $$ is distributed to partners annually and how is that determined, how much $$ are partners responsible for putting in if there is a shortfall, how much time are you expected to spend in the venture, and so on and on and on.

    Leave a comment:


  • Complete_newbie
    replied













    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.
    Click to expand…


    I would worry less about the LLC (although I agree the group needs to form one with you all as members) as about the partnership itself. Dave Ramsey likes to say the only ship that won’t sail is a partnership.

    I would recommend you figure out how the partnership ends and have a written plan/contract for that before you start.
    Click to expand…


    True, but I believe he is asking if there is one master LLC and each partner in it is actually an LLC. I have structured it that way FTR IRdoc. Makes everything smooth (so far).
    Click to expand…


    What’s the point of the extra layer? Confuse potential creditors?
    Click to expand...


    If that floats your boat sure.

    For me it is having family/spouse in my LLC that then can pool money and invest as an LLC in the bigger investment LLC. Works for me. Larger investment groups also made this way. Gives me flexibility.

    Leave a comment:


  • The White Coat Investor
    replied










    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.
    Click to expand…


    I would worry less about the LLC (although I agree the group needs to form one with you all as members) as about the partnership itself. Dave Ramsey likes to say the only ship that won’t sail is a partnership.

    I would recommend you figure out how the partnership ends and have a written plan/contract for that before you start.
    Click to expand…


    True, but I believe he is asking if there is one master LLC and each partner in it is actually an LLC. I have structured it that way FTR IRdoc. Makes everything smooth (so far).
    Click to expand...


    What's the point of the extra layer? Confuse potential creditors?

    Leave a comment:


  • Complete_newbie
    replied







    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.
    Click to expand…


    I would worry less about the LLC (although I agree the group needs to form one with you all as members) as about the partnership itself. Dave Ramsey likes to say the only ship that won’t sail is a partnership.

    I would recommend you figure out how the partnership ends and have a written plan/contract for that before you start.
    Click to expand...


    True, but I believe he is asking if there is one master LLC and each partner in it is actually an LLC. I have structured it that way FTR IRdoc. Makes everything smooth (so far).

    Leave a comment:


  • The White Coat Investor
    replied




    Myself and a couple partners are forming a small investment group which will distribute a K1 for profit sharing.  Should I form a personal LLC for which distributions to flow into, mostly for taxes and and asset protection?  I’m new to all of this.
    Click to expand...


    I would worry less about the LLC (although I agree the group needs to form one with you all as members) as about the partnership itself. Dave Ramsey likes to say the only ship that won't sail is a partnership.

    I would recommend you figure out how the partnership ends and have a written plan/contract for that before you start.

    Leave a comment:

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