Three Company Structures
A typical real estate investor should be looking at a three company structure.
The first of these companies should be a buy and hold LLC. The buy and hold LLC is going to be for your long-term rentals. It’s going to hold a number of different properties that you will be holding for longer than a year.
The next company that you’re gonna have is your fix and flip LLC. Those are properties that you’re gonna be holding for less than a year. The reason that we need two of these is because they have different tax treatment. Your buy and hold is going to be a long-term capital gains taxation, your fix and flip is gonna be short-term capital gains.
Your third company that you’re going to want to have is gonna be your operating company. Your operating corporation or your operating LLC. Typically we use corporations for some instances and LLCs for other instances. What the corporation’s gonna do is that shields you from any personal liability in conducting your business. If you run your business personally, you’re collecting the rent, you’re negotiating with contractors, entering the contract, etc, that can mean a lawsuit against you personally. And even if you were smart and protected all of your assets inside of the LLC, what will happen is that a judgement against you gets recorded onto your credit score. Once it is recorded it impacts your credit score. The lower the credit score you have, your less ability to have financing. And that means real dollars out of your pocket.
Protect yourself. My name is Scott Royal Smith, I’m an asset protection attorney specializing in real estate. I’m a real estate investor myself and I’d like to help you.