real estate investing

[schu5]

Hi everyone. I have a question about the best way to set up a new business for real estate investments.

My wife and I are planning on investing in rental properties, such as 2-4 plexes in college towns, and vacation properties that we could use a few weeks each year, and rent out the remaining time so we can use other people's money to pay for them.

I have heard that an LLC is a very good entity to use for this. Is this correct? Also, is it best to form the LLC right now, before we actually start 'business operations'? Or should we just start as a general partnership for now, and form the LLC later when we have a property or properties purchased? Which makes more sense tax-wise?

Any help is appreciated. This is all new to us. Thanks.

schu

[Peter T Davis]

The biggest advantage of the LLC is protecting your personal assets. For example, if someone sues your real estate business and you have it in a LLC (that's properly setup), they can get the assets of your LLC if they win, but not your personal assets (such as your home). If you have a partnership, you can be sued directly, and everything you own is at risk.

[schu5]

Thanks for the reply, Peter. I am aware of the advantages of protecting personal assets with an LLC. I guess what I am wondering the most is:

We are going to have various up-front expenses, long before we see our first rent check, such as

1. Stage one planning expenses, such as purchasing business plan software, attending real estate investment seminars, etc.
2. Expenses for setting up an LLC (legal and accounting fees), etc.
3. Actual expenses searching for properties, setting up a website, etc.

Does it make more sense to set-up the LLC first, then apply all of the up-front planning expenses to the LLC, or to wait and take care of the planning and education expenses with personal funds, and set-up the LLC when we are ready to buy our first property?

If we wait to set-up the LLC, can we still write-off all of our up-front expenses that we took care of with personal funds?

schu5

Originally Posted by Peter T Davis

The biggest advantage of the LLC is protecting your personal assets. For example, if someone sues your real estate business and you have it in a LLC (that's properly setup), they can get the assets of your LLC if they win, but not your personal assets (such as your home). If you have a partnership, you can be sued directly, and everything you own is at risk.

[Peter T Davis]

I'd set it up now. When you're putting together your first deal you'll most llikely not want to be worrying about getting the LLC set up at the same time. In most states, setting up a LLC isn't too expensive.