Business Entities, Stage II - Posted by John Katitus

Posted by BRnBA on April 03, 1999 at 07:23:51:

John, seems to me John Hyre said you should NOT use a C-Corp as a mgmt. company. If you choose to form a mgmt. co. for that purpose, fine but it need not be a corporation. You should form one for flips and such, but I think it should be completly separate from rental activities. Please correct me if I’m wrong.

Business Entities, Stage II - Posted by John Katitus

Posted by John Katitus on April 03, 1999 at 01:55:56:

The general consensus appears to be that rental and long-term holding properties should be held in separate Land Trusts with an LLC as Beneficiary and C-Corp as Trustee. I am also going to designate same C-Corp as property manager at a cost of 15% gross rents. Please let me know of any objections.

Stage II - Lonnie Deals and Flips
Classic Lonnie Deals and Flips, title transfers from seller to me to buyer. Short-term gain is difference between my buy and my sell. Future annual gain of interest on note.

  1. If we take title, is it best to take it in corp name? Same corp as rental management if under 50K total annual profit? Should corp also be lien holder? Interest income to corp?

  2. If we don’t take title but pass it directly, what changes?

Thanks and Happy Springtime to all.

Re: Business Entities, Stage II - Posted by JHyre in Ohio

Posted by JHyre in Ohio on April 05, 1999 at 06:09:25:

Hi John,

From a tax standpoint, using a C-corp isn’t fatal or anything, I just don’t see much reason for it. If it’s the same corp that does your flipping, you’ve decreased the amount of flipping that can be done at 15% rates. Also, the corp is now conducting seperate businesses (flipping & management), making it a little harder to justify seperate corps down the road for other RE related businesses. If the C-corp is seperate from flipping business, I do not see much advantage either. No reinvestment at high rates of return is occuring, so there is no present value advantage from low rates to offset double-taxation and admin. Thus, I prefer LLC/S-corp as manager.

Tax-wise, I don’t think presence of trust changes anything for corp. I’ll have to double-check, because tax-treatment of trusts is not an area I deal with very often. My assumption is that you are using the trusts to preserve privacy.


John Hyre