Brian Meara goes over the benefits of purchasing properties as a LLC or Corp, including tax benefits and liability protection.
Listen in as Brian explains why it can be good to purchase under a LLC or Corp and what can happen if you purchase under your name.
Mike: Welcome back to the FlipNerd.com REI classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now let’s meet today’s expert host.
Brian: Hey everybody, this is Brian Meara, host of REI classroom. In today’s topic we’re going to talk about using an LLC to buy your properties.
Mike: This REI classroom real estate lesson is sponsored by UglyOpportunities.com.
Brian: Okay guys, a lot of people want to know if I’m going to buy a property that I’m not going to hold very long, or if I’m just going to get in and out of a property, maybe doing some type of a release as we teach, why can’t I just buy it in my name? And there’s a bunch of reasons for that, but I just want to cover a few here today.
You always want to buy any type of an entity in an entity. You never want to buy real estate in your own personal name. Why? Because there’s many potential problems that could come with that. If you buy a property in your name, God forbid anything happens, it’s coming back on you. You want to have the corporate shield. You want to have the protection of, at least, an LLC which is actually the preferred way to do it so that your entity is buying the property.
So, for example, let’s say you’re going to buy a property and you’re going to rehab it. You’re working on a short sale which is one of the primary ways that we get our properties and our leads. And after the negotiations everything works out great, you end up buying the property, you say, “You know what? I’m going to put a little bit of a rehab into it. I’m going to put some paint, some carpet some, I don’t know, some curb appeal maybe, fix up the kitchen’s a little bit.” And then you’re going to add resale for a profit.
So while you’re owning the property, there’s a lot of things that could happen, liability-wise. A contractor could get hurt. Somebody could trip on the sidewalk out front, things that you could never imagine that we’ve seen could happen where lawsuits happen. Now, unfortunately in our society today there’s a lot of lawsuits, and you all know that. You’ve heard the stories about people dropping hot coffee on their lap making millions of dollars, right?
So it could be a very risky position to put yourself in. In fact, it is to own a piece of real estate in your own name because if a lawsuit happens, they’re coming after you as an individual. And that is absolutely not something you can afford to do. It’s not a smart thing to do. So always protect yourself by buying in an LLC.
Now, as far as your other advantage, you’re going to look at our taxes. The last thing you want to do in the United States of America is earn one penny in your name. You don’t want to earn money to your Social Security Number. Now, if you have a job, I would highly suggest that you advance your real estate investing career to the point where you no longer need that job, specifically as a W-2 employee. If you’re getting a 1099 as an independent contractor, never get it to your name. Form an entity, guys. I don’t care how you do it, you go to any of these online companies, there’s a million of them, right? Incorporate.com, MyLLC.com, you name it.
You go to and get your LLC formed to protect yourself and to save on taxes. It’s a very, very, very big difference. Now, as far as the actual structure, I’m not here to give you legal advice, and I obviously suggest you seek out a qualified accountant or attorney, but the way that we teach specifically is some broad overview topics is that you want to set your LLC up as a member managed multi-member LLC. You don’t want to be manager manage, you want to be member managed, and you want to be multi-member.
Now, you could say, “Well, it’s just me.” If it’s literally just you, well, obviously you’ll be a single member, but there’s advantages to having a multi-member LLC in regards to protection and, again, in taxes which we’re not going to get into today. But I would suggest you really look into that. The second thing I’ll share with you in regards to the formation is you want to form and have it taxed as a sub-chapter S. And that will provide additional tax benefits for you so that, again, as a pass through entity, you’re going to pay the least amount of taxes possible and, of course, legally.
So guys, I hope that helps. Look into that, it could save you a lot of time, a lot of heartache, and until the next one, we’ll talk to you soon.
Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.
Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate can be risky.