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Real Estate Investing (Creating an LLC, Partnership, Trust, or something else)

1,731 Views | 10 Replies | Last: 5 yr ago by Bmac832
HoustonAg2014
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AG
I recently invested in a commercial real estate deal with some friends and was wondering if anyone over here could enlighten me on if I should create any of the following (LLC, Partnership, Trust, or something else). The purpose of me creating one of these would be for Tax benefits. My objective is when I receive distributions, I would like to avoid being taxed at the personal income level. The distributions received will be directly invested back into new deals that we invest in for the future.

Ex. Invest $100k in a property. As distributions come back to you and you make up that $100k you want to put that money back to work in another property. Without taking a tax hit every year on your personal income taxes knowing that you will be investing it all back into another real estate deal (basically an account to hold the money until you reinvest it).
Martin Q. Blank
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Not sure how you would do that. You get taxed when you receive income, even from an investment. Doesn't matter what you do with that money after you receive it.

LLC is passive. You could set up a corporation, but then the corporation gets taxed on the growth and then you get taxed when the corporation pays you. Double tax.
gig em 02
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What did your lawyer say about the taxes before you invested in commercial real estate with your friends?
HoustonAg2014
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AG
There is a group lawyer but I don't have a personal lawyer. I realized half the investors have LLCs and some have partnerships. I wasn't sure if there was a tax shelter for either knowing I am 100% intending to reinvest the money in their future real estate deals. I figured there were some tax/real estate experts on this board that invest regularly in commercial deals.
Martin Q. Blank
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LLCs are there to limit your liability. Can't go after your personal assets if sued. They are not tax shelters.
aggiediehard10
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AG
I recently completed the structuring of a new company. If all of the members are licensed then you will want to form a PLLC, in fact because we're opening medical practices, Texas requires a PLLC Structure.

Word of the wise, start all of your affairs off with a CPA, if you need a good one call me. You can make some serious and costly mistakes trying to do something like this without CPA guidance. The CPA will help you protect yourself and your company from exposure to risk and that will depend on your Corporate Structure.

Our CPA assisted with guidance to the legal forms on the Texas SOS Direct website, and he was able to provide assistance with elimination duplicate documentation regarding future expansion, and Doing Business As.

The final piece on the CPA side was setting up an S-Corporation in order to protect each member of the companies individual and company assets, including risk aversion with taxes. Then we discussed our articles of incorporation, and completed paperwork EIN and other tax documents, and the documents to open our corporate bank account.

If you lack experience in any of these areas, or you haven't taken any of these steps. Stop!

I hope my contribution help and please know I am willing to assist where possible. Just PM me.
gig em 02
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Aggiesincebirth said:

There is a group lawyer but I don't have a personal lawyer. I realized half the investors have LLCs and some have partnerships. I wasn't sure if there was a tax shelter for either knowing I am 100% intending to reinvest the money in their future real estate deals. I figured there were some tax/real estate experts on this board that invest regularly in commercial deals.


Real estate in general comes with many tax benefits. You and your group will want to make sure you have a CPA help minimize your tax burden, you will want to get one yourself to help minimize your personal tax burden.

If this is something you actually plan on making money doing, you need a lawyer to help you get set up properly. Your groups lawyer doesn't count. There are far too many variables and ethical barriers to receive sufficient help from this board.

Good luck, I hope you make it big!
HoustonAg2014
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AG
Thank you for your input! I may reach out so i will let you know.

Thanks to gig em 02 as well. I will keep that in mind and I appreciate the kind words. This type of investing is new to me, but these guys have been doing really well so I figured I would throw my hat into the ring and give them a shot.

Thanks guys!
Tyroch07
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AG
Agree with the CPA recommendation. Being in mortgage I have clients that will transfer property into the LLC after we close as we cannot close a deal in an LLC if it's newly established. If you need a good CPA that works in CS and surrounding area my dad can help. My dad recently did this for his own investment property so he's very knowledgeable as to how to go about doing this. Hope that helps!

Jerry D. Tyroch, Jr., CPA
Financial Advisor-Partner
Lott, Vernon & Co. P.C.
20 South 4 th Street
Temple, TX 76501
(T) 254-778-4783
(F) 254-778-4792
ktownag08
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AG
aggiediehard10,

Can you email me at my texags handle at yahoo dot com? I can't PM and have a question about LLC formation and your services.
Agilaw13
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Just seeing this post. I've mentioned several times the Texas Series LLC for active real estate investors. Traditional LLC is also fine, but if you plan on owning many different assets, it can get pricey. Happy to discuss if need more information.
Bmac832
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@Aggiesincebirth, Been thinking about joining other investors as well. Email me at Brianamckinstry @yahoo dot com; would love to hear more
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