What Type of Corporation is Best?

One key aspect of real estate investing is figuring out what type of legal entity is best to hold assets in for tax and ownership purposes. There are a few general rules designed to address this issue that will be outlined in this article.

1. Limited Liability Companies (LLCs) are generally the best way to hold rentals and most lease-optioned properties. These are cheap to start, allow you to sell at favorable capital gains, generate depreciation deductions, can be part of a 1031 exchange, and may generate low-income housing credits among other things.
2. S-Corporations are usually the best way to flip properties. Since flipping houses is more of a group project, an S-Corporation is the best way to get started while not suffering from double taxation. All employee benefits are tax-free to you!
3. C-Corporations are best for high-income individuals with self provided benefits. Those who have a high income and would like to have shareholders and not take money out of the entity (and pay double tax) can appreciate the benefits of a C-Corporation.
4. Always incorporate in your home state. The margin benefits of incorporating in Delaware or Nevada are often offset by the inconvenience of mailing paperwork, setting up the corporation, and handling lawsuits through a different state.
5. These rules may vary from person to person.

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