What legal entity should I form for this deal - Posted by JR

Posted by JHyre in Ohio on November 15, 2002 at 06:25:56:

General rules of thumb: LLC for buy and hold (including most L/O’s), Corp for flips. Whether S and/or C depends on many personal details. Home state is usually the place to form entity.

John Hyre

What legal entity should I form for this deal - Posted by JR

Posted by JR on November 14, 2002 at 18:06:01:

I posted a copy of this message in the regular forum, so you may have already read these questions. In this deal the home is an REO and is listed at $57,000. There is a current tenant (Long Term) and for some reason, or another she cannot purchase the home, which appraises for just under $85,000. If I was to purchase the home, but at the same time either L/O, or Sell on a wraparound, what type of legal entity should I use to do this? LLC, or C-corp? I also have rentals that I want to put into an LLC, so should I form two different entities…one for selling/flipping/notes and one for holding properties for longer than one year? If so, then do I want a C-corp for the quick sales and an LLC for holding? Also, where is an affordable place to form these entities and what does it entail? Should they be Deleware corps. or is there a better type for REI? I would appreciate any help on this matter. Thanks.


Re: What legal entity should I form for this deal - Posted by Josh

Posted by Josh on November 15, 2002 at 09:18:18:

LLC all the way. C-corp will be too bulky for what you are looking to do. It adds another tax layer–and will increase your costs (legal/tax & accounting). LLCs give you the benefit of “pass-through” tax treatment, like a partnership. So you will have to file an additional LLC form with IRS, but your gains (losses) can be accounted for on your individual returns. Also, you will still have all the advantages of limited liability.

I am not sure what advantages would come from the corporate form, but would love to hear any reasons from JHyre or others as to why this would be a preferred form for certain transactions.