LLC For Flipping Houses
I have now removed CAP lock- that is a bad habit. I did not mean to look offensive.
I am in need of some guidance/support:
I am planning on setting up an LLC for flipping houses for profit.
In addition, I feel that as this is going to be ran as a business, I will fall under the IRS code of a Quick Turn Investor.
Was wondering if I am on the right track- or if any of you feel that it would still be beneficial to create a sepatate LLC for each "investment".
Any comments are welcome and appreciated.
PrestoneRacer,
No problem, you responded to the CAP LOCK issue in a professional manner.
However, your question may get more responses in the Taxes / Tax Strategies Forum so it was moved it over.
John $Cash$ Locke
[addsig]
I appreciate the input. I suppose I should have given additiona information- I was hesitant about exposing all of my investments to risks by creating an S-corp or even a C-corp for that matter. I have a PLLC for my real estate commissions and felt that an LLC was the way to go in an effort to minimize personal exposure to any possible lawsuits in the future. I feel that flipping houses may be a risky venture- and in the event I run into a person that may be "sue happy" I want to make sure all of my bases are covered.
Any additional input? I do respect the initial response and will take that advice to heart.
S-Corp and C-corp and LLC all provide asset protection from a lawsuit from within the business. Only the LLC protects your business assets from a lawsuit from outside the business -- that is when you rear end the family on the way to church and you are sued personally
I suggest you forget S-Corp and C-Corp. You can have an LLC taxed as an S-corp or C-corp if you feel you need a corporation.
If the LLC is sued, only the assets held by the LLC are at risk. If you are flipping property, how many properties will your LLC have in inventory at any one time? Having multiple LLCs for a property flipping business may be overkill.
Just how I see it. Nevertheless, you are now posing a legal question. Perhaps you will get a better response in the legal forum.[ Edited by NewKidInTown3 on Date 05/12/2007 ]
Thank-you for your response. I agree that it would be an overkill. I will start as an LLC and if I find that my needs change- I will then consider changing to a C or S at that point.
I will start with only one or two homes at a time- the area that I live is quite expensive and two flips might even be a push concurrently.
This is a great web-site - it is nice to network with likeminded people.
I guess I did not speak loudly enough.
YOU DO NOT WANT A C-CORP OR AN S-CORP !!!
Corporations do not shield your business assets when you are sued personally. An LLC does. As far as asset protection goes, the LLC is superior to the corporation for your real estate activity.
You must choose how you want the LLC to be taxed. Single member LLC is taxed as a sole proprietor or as a corporation. Multi-member LLC is taxed as a partnership or as a corporation. You make the choice when you establish the LLC.
If the LLC chooses to be taxed as a corporation, then you can opt for either C-corp or S-corp.
I appreciate your blunt reply. So you are saying an S-Corp is the way to go-- just kidding! Thank-you for all of your help. I truly appreciate your time.
He he he.... Yeah, I was pondering the same issue and was surprised to be cleared up on the asset protection differences between an LLC and Inc. Good thing too.
Thats what I thougth as well thanks
I would suggest talking to your CPA, assuming you have a good one that understands both business and real estate.
The only advangate I see to the plan is that all your "Risk" is now in one property. For example, if you lost your job and could no longer make payments on your credit obligations, you would only lose your investment property but would get to keep your primamry home.
I agree with the above poster, there is no real benefit tax wise (net taxable income remains the same) but conversely, there is no real disadvantage either.
JS.
smithj2,
The disadvantage to the plan is that the mortgage interest on the rental property refinance is not deductible when the loan proceeds are used to pay off the mortgage on your personal residence.