I’m closing a couple deals and am wondering if there are any issues with purchasing the properties under my management LLC and then moving them into their own LLCs in a few months. Any tax or major cost implication? How about if I take care of deferred maintenance while the properties are under the holding company prior to moving into their own LLCs? Any problems here?
No problems. LLCs are ‘disregarded entities’ from a tax standpoint. You’ll owe the same taxes no matter which LLC recognizes the gains and losses. That said, it really is not difficult to establish the LLC(s) you’ll need to purchase a property. Most states charge around $100 to incorporate, and it can be done same-day if you go to the Secretary of State’s office. (As a side note, I advise taking title in a land trust and then having the LLC be the beneficial interest holder). Finally, you can always have a subsequent LLC bill your ‘current’ LLC for revenues and reimburse for expenses and transfer the economic activity from one LLC to the other at a subsequent date. -jl-
I see that all of the experienced owners go down the path of an LLC and it is to keep everything separate and for tax purposes. Could the same thing be accomplished using a DBA (s)? Danielle
Thanks Jefferson,My Google-Fu failed to explain the taking title in a land trust part. I’m a bit ignorant with the real estate stuff. Could you explain that further? So for tax purposes like dmaxwell mentioned, is it best to have a separate checking account/credit card for each LLC or is it reasonable to manage the park finances through the holding/management LLC? Me and the wife will be managing our parks for the foreseeable future so we don’t have that whole accounting controls/fraud issue to deal with.
What is the purpose of a LLC for an individual owning a single or a couple of parks? I see no advantage and only additional costs associated with what appears to be unnecessary from the research I have done.
Hi Greg,Jefferson sums it up here:http://www.mobilehomeuniversity.com/forum/discussion/comment/9606#Comment_9606It seems to make sense to me to manage ‘management’ expenses under a single LLC and also funnel up the profits through that entity to keep things clean. I think that would work well for me.
I read the post and still see no need for an individual to have to set up a LLC as opposed to simply buying a park (or any income property) as an individual and filing taxes as an individual.
Is the purpose of a LLC to allow the owner to evade personal liability or is just that the U.S. tax and legal system is so screwed up that it forces the use of smoke and mirrors simply as part of the “norm”.
I think to answer you question, it would be for liability reasons. Nobody would want their personal assets to be seized due to a litigation within the business. Even worse, attorneys like to target people who own businesses in as sole proprietors (aka suckers) because they get to seize all of your assets unrelated to the actual business.
It is absolutely insane to own real estate in your own name (other than your own home). Unlike buying stock in, say, IBM, where you are not actively involved in the management, you ARE the management for any real estate you own. That means all it will take is one ‘slip and fall’ lawsuit, or discovery of an environmental hazard, and they can come after you personally for whatever the jury awards.As regards land trusts and the basics of asset protection and tax and estate planning, Google-Fu for ‘Dyches Boddiford’ and ‘Peter Fortunato.’ Conveniently, both are speaking in 'Vegas this September at the ‘Legends of Real Estate’ conference: http://garyjohnston.com/registration-and-products/categories/legends-of-real-estate-and-the-bag-boy/I’ll be there. You should too. I’ve heard both speak before, and am returning for a refresher, and to network with other like-minded individuals who will be in attendance. MHU teaches you everything you need to know about MHPs, but nothing about asset protection. Boddiford & Fortunato are to the world of asset protection and tax and estate planning what Frank & Dave are to the world of MHPs. Learn from the experts in all the fields you need to know about.To your continued success,-jl-
What does Google-Fu mean?
Kung-fu or expert ‘like’ skills when using Google. In this post and in my particular case, it would be a lack of expertise
google-fu Function: noun Etymology: google.com (search website) gOngfu skill, art : the ability to quickly answer any given question using internet resources, such as a search engineExample: “My google-fu is strong this morning.” fyi: I had to google this to see if it was a typo or if he really meant to say it… new yuppie silicon valley slang…
Jefferson, I understand what you are saying is that the American legal system is at fault. In Canada as owners we take responsibility as the owners but only need to have adequate insurance to protect ourselves. We have no need to hide.
Your legal system of rewarding anyone that files suite ridiculously high awards equates to buying a lottery ticket.
Would it make sense to use a DBA as your initial holding company and then transfer the park to its own LLC once purchased? I understand the use for the LLC, but for the holding company, why go through the hassle when a DBA is much simpler and the DBA will not be holding any properties long term.
So here is what I do. I have one LLC that is just the ownership arm. If I have a patner- my LLC holds the part I own. If I own the whole thing, my LLC holds the part I own. I also have an S-Corp. This is what manages the parks, pays for my visits etc. Each park pays the management LLC to run the day to day stuff that goes on with the parks. Each park is in its own LLC. Each park has a home sales LLC as well.So- When I purchase a park, I put it under contract with my LLC that HOLDS parks.I then transfer the contract to the NEW LLC that will just hold the MHP in it. And, my holding LLC will be the managing member of the park LLC. The Homes LLC will buy homes, sell homes and rent homes in the park. The managing C-Corp will pay me to talk to the managers, to fly out and check on things, to do the taxes etc… It also- pays my health insurance, it might own trucks, tools, equipment etc… Because our legal system lumps everything into one bowl- like soup- and looks into the bowl to see what they might want to extract- we separate our soup into lots of bowls. So if a huge issue were to come up in one park, only that park is in that bowl. Because I hold the parks, I do not even own our house- it is all my wifes…
Thank you for the detailed breakdown, Jim. Could you clarify a few things?The home sales LLC is for seller finance or outright sales to customers? Does that also tie into a rent credit program somehow? You mention you have an LLC that holds parks. Does that LLC only hold a park or parks temporarily after purchase until they are transferred into their own individual LLC (one to one)? If that is accurate, why not utilize the LLC that holds parks temporarily vs the S-Corp. I believe there is some small tax advantage to the S-Corp so I assume that is why you utilize that. Do you pay yourself from the S-Corp or allow the LLCs per park to pass the profits through directly to you?It sounds like I’m in need of legal and tax consulting regarding structure.
It is always advisable to have both a lawyer and an accountant when considering operating any business.
The ‘Home Sales LLC’ does anything that deals with home transfers. We do not do rent credits. We sell homes on contract, we lease option homes, and in some cases sell them outright. This LLC does all that. The LLC that ‘holds’ parks is in essence- my name. So it holds them as a person might have the home they live in deeded in a personal name. So to clarify- say the park is called xyz park.We start a LLC- XYZMHP, LLCThat LLC will buy the mobile home park. If I am the only owner- I will own it as MHPholdings.LLC (that is my holdings llc) as the managing member of XYZMHP,LLCMHPholdings,LLC would put the property under contract, then transfer the contract to the XYZMHP,LLC prior to closing.lastly- I do not own real estate in my ‘corp’ name ever, because it is not a pass through (though it could be if it was a single member- talk to your accountant) so I would owe gain taxes at the corp rate- which would… suckGreg makes a great point- my set up was advised by attorneys and accountants (CPA) and this is a good guideline but you should have your team of legal people advising you…
Thank you Jim.
Jim,What is the purpose of your holding company actually owning the parks (well, owning the LLC’s that own the parks), particularly with parks you own solo? With each park in its own LLC, it already has it’s own “bowl” so to speak, so how would the holding company provide any additional protection? Obviously it makes sense if you have partners, but for parks you own alone it doesn’t seem necessary although I could be missing something!