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Sunday, July 27, 2008

LLC or INC for Flipping Houses?


As a real estate investor, I am repeatedly asked this question: “Should I buy property in my name, or in the name of an LLC or Incorporated company?” I have an LLC under which I own properties, but feel I should let an expert address that question.

I posed the question to Annette Coker, a licensed broker/realtor, and good friend.

Annette’s response:
“I have houses in an LLC and here are the downsides:
Financing is impossible to get, so you buy the home in the individual’s name and quitclaim at closing to your LLC.

There are other disadvantages, too. If you want to get a line of credit you will pay a higher interest rate. Also, homeowners’ insurance will be higher. As soon as you put real estate into an LLC, it becomes commercial and I personally think it’s a pain.

However, if you ever get sued, apparently the person suing cannot get your personal assets. I question that, too, as with the Internet and other technologies a person can find you even if you hide behind the umbrella of an LLC. It would all boil down to liabilities and the "corporate veil". An attorney could provide more insight into this…

No, I do not think the LLC is the best way to flip. It is questionable in my mind whether it is the best way to even hold long term; a Land Trust is another vehicle that may be more attractive than an LLC.

The primary difference between the INC and the LLC for real estate is that there is less accounting involved with the LLC, and tax reporting is easier (far less complex). Most people do LLC’s for real estate.”

Thanks to Annette for taking the time to answer this question. She can be contacted through her company, Chapman Hall Realtors Premier at http://www.chrpremier.com/

JM Kelly, The IT Entrepreneur

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