LLC Benefits

Each State will deal with the LLC fees differently. Some as you have will do a charge every couple of years and some do a fee each year, such as mine. Registered agents can be greater than one agent in an LLC.

Hello again..

I posted earlier on this and asked a similar question that has not been addressed yet but have since learned a little more information.

I have 3 rentals in my name..with 300K in liability that extends to each property from a main policy. It doesn't seem like enough, right? I was convinced 1 week ago after reading these posts that I should set up a LLC. Have talked to more people and then did some legal reseach yesterday. I read that protecting these 3 units (worth about 400K total) by setting up a LLC and quit claiming them could backfire on me. I have mortgages on all three which were obtained when I lived in them as I bought, lived in and fixed up, and rented. It seems I may risk the bank calling the loan if I transfer them (even though I have an exceptionally high credit score and an awesome history with each loan..it would seem banks would want to keep me..) to a LLC.

I have an offer in on another home that I may purchase with a (80K) loan from my mom. (if Fannie Mae ever responds!) NOW, I really want to make sure her investment is protected so I am thinking if I buy this atleast setup a LLC for this new one.

QUESTIONS for the savvy

1. Is my train of thought correct?
2. Any suggestions on further protecting those first 3 properties?

Thanks so much!!

Kate

I good site for registering corporations is www.mycorporation.com. They offer great services. I have them in the past as well.

I received some great advice from CBR that I'll paste here for others "Just call your bank and tell them you are going to move the properties into an LLC. They shouldn't have a problem with it if you personally guarantee the loans. If they still say no then create a land trust then move the property into the land trust instead (which they can not stop you from doing) and add an umbrella policy of 2 million dollars (very cheap) to cover all of your policies."

I sent in my form to my state for my LLC which cost $125 (not too bad. I can atleast put this property I hope to finally get after countering back and forth 3 times and then work on the others, either transferring the others or getting more insurance.

I established an LLC, with the intent of segregating personal and business liabilities. Good idea. I went though legal zoom...easy and not too expensive. I'm in the middle of my first deal and tried to introduce the LLC into the P & S documents...no go. The mortgage broker I am working though said that no one would make a loan to a company without a track record of 2 years. the obvious question is how do you gain a track record is no one will allow the LLC on documenation???!!!

The above posts illustrate the main problem with taking title as a LLC (or L.P.). Of course, if you buy it with cash, there is no problem. Until you get to that point, however, you need to search harder for a lender that will loan to an entity when buying a "residential" property.

The problem seems to grow from guidelines and rules set by lenders. Four or fewer units is considered a "residential" property. Ownership as an entity is considered "commercial." That gives you a modern-day Catch-22. The well-known lenders (low rates) probably won't mix the two, but many areas have local banks that will. Whether they would lend just on the basis of the entity's record is unlikely, and you will probably need to personally guarantee the note.

Of course, get 5 or more units and everybody is talking commercial, so there is no problem. However, a commercial lender may not make even a 75% loan. They may make 80% loans to their appraisal, which may be 70% of value, so you may end up with a 56% loan to market value. I borrowed more on 3 units (residential) than I did on 6 units (commercial), in the same month and with the same lender, even though the value per unit was equal. Go figure.

The protection that LLC title will give is probably well worth the hassle, though, which is the main point.

cactusbob

LLC

Hello All!
I just wanted to write to everyone including the Dean Graziosi's Team to not only thank them but to compliment them on an outstanding job. The reason I felt the need to write out to everyone is not only to encourage everyone and let them know that if you chose Dean and his team of experts to help you with your financial destiny, not only are you blessed by our great Lord, but you are in great hands! I have found that they are personable, friendly, very helpful, as well as truly the real deal in wanting to make us the next big success, so I share why. Here is my story.

Yesturday, a person from The Tax Club contacted me about a free 30 minute consultation about starting my business the right way and taxes. First let me start by saying that as I got to know the person I was talking too, I found out through him that what The Tax Club loves about PMI (Professional Marketing International - Deans Team) is that they went through every step necessary to research, find, and set up the best strategies to ensure our success! In fact they even went as far showing us how to structure our business the correct way, starting with corporate structure and taxes! The Tax Club said they work with a lot of other educational businesses and they have found that Dean's is the best client they have! So kudos to you PMI! PMI has set up business with The Tax Club so that when you sign up for The Success Academy you get a free 30-45 min consultation on corporate structure. "What is the point of being IN business and making money, if you can't control the money coming in?" is the question my tax advisor asked me. He said a good business has a sound foundation, from the people they do business with, to the marketing, to the products and services, as well as how the business is structured. If you are making a ton of money, and spending a lot on advertising but could only write off 30% of your expenses and not to mention have uncle Sam take anywhere btw 30-60% on taxes, due to capital gains taxes, self-employment taxes, & personal taxes, you mind as well stay in a job! Now what does all this mean?

Simple, why I loved my phone call is that my rep was able to explain all the different kinds of corporate structures and their benefits. He explained, LLC's, S-Corps, C-Corps, etc. As I said before, PMI's goal is to set us up for success, and I can see they are willing to go the extra mile by putting us in good hands with people who know business structure and tax laws, because I was able to understand it all. I asked what the difference btw an LLC and S-Corp, and trust me guys, the difference is so staggering that it makes me wonder why anyone would ever use an LLC with out an S-Corp. W/O being too technical, an LLC according to the IRS will not be recognized as separate business entity. It will in terms of protecting you, by separating you from your assests, however it would still be subjected to taxes based on a sole proprietership. And so "BOOM" here comes the capital gains taxes, self-employment taxes, personal taxes, etc. BEFORE expenses are paid out. In an S-Corp, it acts as an umbrella company in which it is a managing company where you can have mulitple LLCs. In this situation, each LLC that generates money is managed by the S-Corp and there for you are qualified for 330 tax deductions, but the most important part is you get to control where the money is going first, BEFORE taxes. So let me give you an example:

Suppose your S-Corp makes $250,000 this year. In this type of structure, you are allowed to have budgets in which you are allowed to put money back in to the business w/o paying taxes on that money. So lets say you have: A Salary Budget, A Promotional Budget, and An Equipment Budget.

Salary Budget:
- pay yourself a fair and reasonable salary
= $50k/yr

Promotional Budget:
(Marketing, Advertising, hotels, airfare, rentals, etc.)
=$75k

Equipment Budget:
(computer, fax machine, internet, phone, company car, etc.)
=$75k

$250,000-$50,000-$75,000-$75,000 = $50,000 as company profit! After it is all said and done, THIS is WHERE the IRS takes their taxes from!!!!!! Capital Gains, any other taxes, etc. are taken from here and whats left over is profit. BUT notice you spent all the money first and kept it in your company! There increasing the value of your company and helping you pay less taxes!

Now if it were an LLC, you would have to pay taxes on the WHOLE $250,000 profit!

There are so many benefits from the distinction of the two, but thats not the point. The point that I am trying to make is that by trusting in Dean and doing what he trains us to do and listening to the advisors and taking action you are guaranteed to be successful. I STRONGLY recommend Registering for Deans Success Academy and STRONGLy recommend using the free 30-45 consultation that comes with it. Like I said, Dean and PMI wants us to succeed and they have gone to every length to make sure EVERY aspect of starting business for ourselves has a strong foundation and succesful. Again whats the point of making money if we don't know how to save it as well right? Anyways, hope this is inspirational and imformative. What I have shared is not expert advise so don't take it as such. Get in contact with a rep from The Tax Club immediately for more info!! Thanks PMI, and thank you Dean!

Sincerely,
K.B.

Thats some great info.

If you create an LLC and use that as REI vehicle, you certainly can deduct RE related marketing expenses. It all goes on Schedule E.

Basically, ANYTHING that is related to your REI IS tax deductible. Examples: postage (to mail offers, pay bills, contact out of state owners etc), travel and meals (to view properties to buy, inspect properties you own, hold open houses).

All these deductions are deducted from the rent you collect from the property.

As for equipment... it needs to be depreciated but IS 100% deductible over time, even if you use a LLC.

Rental INCOME appears on Schedule E (all kinds of expense items avail to write off) and IS NOT subject to self employment tax on the bottom line from that number. Agree Mark? I just want to clarify that the statement above that you would be taxed on the 250,000 above if you are not a S Corp, might not be accurate..

I have a different business which appears on Schedule C (Profit or Loss of Business). This one IS subject to self-employment tax on the NET earnings from self-employment income. So if your gross sales are 20K and your net (after all the expenses in part II on schedule C which includes things like Advertising, equiptmemt etc) is only 10K..you only pay self employment AND income taxes on that amount.

So I am unclear how a S Corp would save for purposes of self-employment taxes and income taxes as you can deduct those items (advertising, equiptment depreciation, contract labor and fees, etc on both a C and E).

Does anyone use both a C and E for one real estate business. It seems to me that a E is all you need but I am not an expert in this. Kate

Rental INCOME appears on Schedule E (all kinds of expense items avail to write off) and IS NOT subject to self employment tax on the bottom line from that number. Agree Mark?

Correct.

Does anyone use both a C and E for one real estate business. It seems to me that a E is all you need but I am not an expert in this. Kate

Schedule E is all you need.

I was beginning to think I was really missing something.

However, I should have asked, do you still not need a the schedeule C if you are a LLC. (Although, I have filed for a LLC, I have yet to do business in it as all my properties have mortgages in my personal name and not sure I want to raise any flags and quit claim them to my LLC. So, I purchased some extra insurance for some extra protection even though I realize that is not as good as separating them from me personally in the event of a lawsuit.)

Appreciate your clarification! Kate

I like the answer you gave for this answer,you answered my question pretty detailed. So your saying once i get a few credit cards and keep paying them off for aproxinately 6 months i should br good to get mortgage loans through my LLC business name?

When using credit cards to build business credit make sure that the only credit pulled is the business EIN number. If a credit card claims to give your business credit but asks for your social security number I can tell you that you will probably never see any increase on your business credit.

Most cards like American Express, Visa and Mastercard will not build your business credit simply by getting a business card.

Most cards you will want to use will be local. Radio Shack is a great example. They will give you a line of credit on your EIN number or D and B number whichever you have in the amount of what you have in your business checking account. If you do this they do not pull your personal credit.

I understand that being a new investor and not really having any assets that I don't have anything for an LLC to protect. However, my credit is bad so wouldn't it still be a good idea to start an LLC simply to get some business credit?

-- Mark

What if you are a young married coupled that's very new to starting a business , new to real estate, and wants to start of with doing "Assignments"? What type of company should we go with? We were about to run with "general partnership" . Why no one mentions that type of company?

BTW thanks to all for the great info.

We are new to RE and new to starting a business, too. We registered an S-Corp because we wanted to make sure that our family is protected and separate. Our accountants recommended an S-Corp, as opposed to an LLC, because of the tax benefits and because we can have LLC's underneath our S-Corp if we want. We have 3 little kids and I'm a stay-at-home mom while my husband supports our family. We have very little, in the way of assets, but still wanted to protect what little we DO have! It's been a real pain trying to register this S-Corp in California, though. Three times the state of CA has accepted our corporation name and later rejected it. It's really been frustrating, since we've ordered business cards with each name!! I'm still glad that we have done it, though. I think it's better to be protected, in this lawsuit-happy country!!

LLC's or S Corps aren't just for asset protection guys. They're GREAT for building business lines of credit too! You can use these lines of credit for investing without using your own personal credit, you can also fix your personal credit once you have established your LLC's credit. So don't think that because you have NO assets you don't need to incorporate. The benefits go far beyond what you may think. Research it, read the posts and see why others are using this 'rich man's secret' to expand their business! Many successful business men/women have MANY LLCs and have business lines of credit with each one of them. Now that's smart business!

God bless you richly,

Thanks for the post Elena! Great info! Would you recommend forming an S corp and then establishing the LLC's under the S corp umbrella?

-- Mark

So I just finished reading Dean's book, "Profit from Real Estate Right Now" and I am slightly confused by the Purchase Agreement. I get that I am locking up rights to sell the house for potential profit, but what happens if I can't find a buyer in the 14-30 days? This may seem silly but does the contract just expire with no obligation to me, or am I then obligated to buy the house at the agreed price?

I would open an S-Corp. I have found out that it is much better for your personal taxes and in general for you personally.

Hi. Just like to ask this question. What's the cost difference between the LLC S- Corp. I live in Massachusetts and to start a LLC it's $520. And I'm trying to find out how much would cost to a s-cope if there's much difference between the two.

tj

i wuld first lock the property up for 30-45 days to give yourself time, especially when just starting out. Next that is where escape clauses come into play. This is how you walk away. Look up on the search feature "escape clauses" there are quite a bit of info on them in here. Also, you should have already started setting up your buyers list prior to making offers. You can do this by posting ads on craigslist and sites like that. Also look in forum for "marketing for buyers". I hope that helps

Hi Mac

We must stop meeting like this...lol.

Hey go to http://www.legalzoom.com I am sure its a whole lot cheaper and it explains the difference in both extremely well

thanks for the info. Just went to LegalZoom.com. Now if am doing this right it says $149 plus state fees and then I scrolled down to the bottom select my state in the comes up with $520. I am going to continue to look through the site and find some more information.

Again thanks for the info you rock. And when I grow up I want to be just like you. LOL

Hi Mac,

I live in Massachusetts as well. An s-corp is actually cheaper than a LLC.

I have 2 S corps. One I set up a few years ago and I did the whole thing myself online. It did take me a while to figure the whole thing out.

I just had the Tax Club set up one for my REI business. It is $275 to file the paperwork. The Tax Club charged me $175 and then I'm financing the remaining $675 with them. ($34/mo)

I think the Tax Club is awesome. They have many different programs. I went with the Bronze package which is the least expensive. They set up a business plan and did my Articles of Corporation. They got my EIN # and my D & B number. They are also like a coaching staff that you can call anytime. Check them out:

www.myessentialplans.com

Good luck!

Hi. Thanks for that information I will definitely check them out. Can you answer one question for me though you say it's $275 for the paperwork. and then the tax club charged you $175 that's $450 total. And then you say you're financing $675 with them can you tell me where the other $225 came from.

Thanks Mac

I am even more confused now after reading the last posts. The guy at tax club quoted me about $1300 to set up my S-corp with LLC underneath it. He did say that they are there for you all year but pay a monthly fee of $20. Sunshine seems to be paying less for the same service. Legalzoom seems to charged you around $500 for the gold package ,which sounds like the same service as tax club. I like tax club's customer service but legalzoom's prices. All this confusion is making me want to start of as a sole proprietor since I will be assigning properties at first. Then once I have my foot in the door then upgrade my business to an S-corp.

If you foreclose on an investment property that is in your name and not an LLC can the bank come after your pesonal home or assets.