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Forums » General Real Estate Investing » Forming an LLC

Forming an LLC Subscribe to Forming an LLC

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I am looking to start an investment company primarily dealing with rental properties at first and then I want to expand further from there with flips, commercial, and so on. I live in Ohio but plan on starting rentals and flips out of the state. I really want one business and one name. So do I start it here in Ohio and do business out of the state or do I start an individual LLC for each state I do business in. That sounds kind of crazy. Unless I could start a company in Ohio and have divisons in each state. Not sure how that would work.

Any help on this would greatly be appreciated.

Thanks!



You can contact the sec. of state's office in Ohio and the other states you are going to do work in. They usually have kits that answer many questions. My experience is that you may have to have residency requirements. That may be fulfilled with a mail drop. The various states can answer that. You may be able to search out many of the answers on the states web sites. Detail questions may have to be answered by an attorney in each state. You will also have to get various business licenses for each state. good luck


Residential Real Estate Agent · Moriches, NY


ja,

i'm not quite sure how accurate svnightwatch's response is. i'm not an attorney.

if you start a business in Ohio, you can register as a foreign company in the state you want to do business in. however, if you're going to be buying real estate, talk to an attorney/CPA, registering with the state may not be absolutely necessary.

now, if you're going to offer some kind of service like a property management service in another state, then that's different.

as far as " licensing" goes, there really isn't a need for that (again check with an attorney of course). licensing is only needed if you're doing work that requires it and buying real estate, that your company owns, will not require you to have a license to do anything. building permits perhaps and variances and such, depending on what you'll be doing to the property - but you will not need a license per se.

any person or entity that buys real estate - owns it and can do whatever they want with it - (as long as any deed restrictions are followed if any and as long as no code violations result).

so registering in each state with a new company for business you'll be doing there is ABSOLUTELY not necessary.

registering as a foreign limited liability company may be a good thing to do, but best to check with an attorney.

remember KISS

keep it simple silly....

why do you want to live in ohio but do business in another state? how will you manage the investments?


Real Estate Consultant · Somerville, Massachusetts


I don't think it's a problem at all to live in one state and operate rentals in another -- I've been doing it for years. Either build a system or build a team that can support it. It's very easy and getting over the non-existent mental hurdle of " it can't be done" or " it's hard to do" will open up your potential investment portfolio to " the best investments" , instead of " the best investments right by me."

I do, though, absolutely agree that you don't want to open an LLC in each state. Aside from the hideous amount of paperwork you will incur (city, state, and federal tax, license, reporting, and certificate requirements), it will take Herculean efforts to make them operate like fully functional businesses enough to prevent courts from " piercing the corporate veil" if ever sued. Plus, each one has to establish its own credit if you intend to buy through the LLC; not easy to do if you're starting from scratch. Ask yourself this: how many successful business owners simultaneously run 8 large and successful businesses? None, right? There's a reason. Just get one company up and running and do it well.

You can invest in multiple states, but they do have requirements, especially if you're buying yourself (license requirements if you are agent). Also, some states have licensing requirements for property management companies. Not a problem if the company owns the property AND does the management, but could be a problem if you bought the property and the company does the maintenance...or if company A buys and company B provides...And, each state taxes these operations differently.

My suggestion: Start looking for deals. If you find one in another state that's a great buy, then figure out how best to make that purchase--whether through a company or buy it yourself and later sell to company...



So you are saying just form a company(LLC) here where I live and do business through my company wherever I want. That is what I want to do but I heard because of liability reasons I might need to form that LLC in whatever state I am doing business in. I most likely will have already done deals by myself before forming a LLC. What happens when I actually form my LLC, how can I put them under my company?


Real Estate Consultant · Somerville, Massachusetts


Like noobdog said above, you will have to register your LLC as a " foreign corporation" with each state in which you do business, but you don't need to form new LLCs. In fact, the paperwork nightmare is prohibitive to do so if you're in several states. Think about this: Ford motor company doesn't incorporate in every state but they operate in every state--pretty much every major company deals with this. They do, however, have to register in each state, so that the state can get its grubby little hands on the tax revenues for business generated within its borders.

To transfer properties to your LLC, you simply " sell' the properties to the LLC. If you own the property outright, then it's a snap. Sell for $100, re-record the deeds, etc. Find a real estate attorney / title company that will close it for you. If you have mortgages, then it's not as easy. Banks don't like their mortgages going to things (LLCs) that don't have any assets or proven track record of revenues. You will certainly have to personally guarantee the mortgages, which keeps you personally on the hook for them which, I'm guessing, doesn't protect what you'd like. What you're looking for is to get your personal assets separated from any lawsuits against the company; but if you're personally guaranteeing everything the company owns and the company gets sued...guess what? You're still on the hook. Having draw the murky connection to you personally (a person guaranteeing the assets of a company which owns only assets guaranteed by the person) it becomes exceedingly difficult to prove to a judge that in fact the company is truly a separate entity and not a dumping ground for your property, in which case your personal assets are still attachable.

Second, mortgage companies will charge a company higher interest rates than an individual, especially if the company has no track record.
[b]
Most likely you're now asking, then why the hell does everyone talk about putting property into an LLC? [/b]A few reasons: 1) the people promoting this often have dozens of properties, many of them owned outright, and use LLCs to insulate against personal liability and also to circumvent different state or local laws monitoring owners with more than a certain number of properties. 2) many people don't know what they're talking about and get excited about how easy it is to " start" an LLC which takes about 90 seconds and a $100-$500 filing fee in most states; their assets are not protected unless several requirements are met and most newbie investor LLCs don't meet the proper requirements. 3) People misunderstand how much liability protection you actually get with an LLC. 4) Lawyers, accountants, and " start your company" companies all get paid if you start an LLC whether or not it protects you so they have a vested interest in promoting their creation.

-Jeff



I think you can avoid that whole thing if you incorporate. Corporations have more mobility with conduction operations in multiple states. Plus there are better tax bene's. If you incorporate as an S-corp, you are basically an LLC that reports income as an individual 1040. take a look at IRS.gov, they break it down in more detail


Residential Real Estate Agent · Moriches, NY


ask a real estate attorney the following question:

what is the difference between owning real property with an LLC or Corporation (what type of ownership)?

What are the liability protections of owning real property (investments) in my own name or in an LLC or Corp?

What is the difference between a DBA and LLC or Corporation - liability-wise?

Then find an insurance agent and find out the following:

if you plan to rehab and sell ask this:
What type of insurance can I get for my company if I'm rehabbing and selling residential houses?

if you plan to hold and rent ask this:
What type of insurance can I get for my company if I'm renting SFH's?

ask the insurance agent about their errors and ommissions and how flexible they are in providing insurance. you can also ask if they offer insurance or have affiliates that offer insurance in other states (where you may do business).

you need a good attorney who actually works with you, a good CPA to discuss the financial strategies of each entity and an insurance company to cover your business - insurance agents are very particular and like to know exactly what your business is so that they can best cover you...and themselves...


SFR Investor · Cincinnati, Ohio


I just placed this answer in another forum, but thought I would do it as well since you are in my backyard. Feel free to PM me.

We are a avid fan of using LLCs to hold our property for a number of reasons: 1) The liability issue, so we hold about $5 million (approx 20 to 50 SFHs) per LLC as a way to place a firewall between all of our holdings; 2) We use it as a way to concentrate our holdings for easier tax filings (ie, our FL LLC only holds FL property); 3) Investor ownership to allow each investor to be segregated in what they actually own. (When we raise funds from investors they know what and where they are buying)

Hope this helps


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