A popular topic I hear a lot about is LLCs. It’s talked about all over BiggerPockets and my YouTube channel. People pose questions like, “Should I set up an LLC? What Should I name my LLC? In what state should I set up my LLC?” …Just to list a few. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free People think of the LLC as overly complex. But in reality, it’s not. I’m going to boil it down for you in a step-by-step process —as well as a crash course on what an LLC is. Disclaimer alert! I’m not an attorney and I’m not a CPA (nor is BiggerPockets). I’m just a real estate investor dude, and the advice I’m giving you is my personal opinion on LLCs based on my own experience. Before we dive into the steps, let me break down what an LLC is. What Is an LLC? An LLC is a limited liability company. I’m not sure why they call it that, but it is the most commonly used vehicle for owning real estate. There are also other types of corporations you can use: a C corporation, a partnership, an LP, or an S corporation, and the list goes on. An LLC is when you are the sole proprietor of the company. You could also own it with investors, your spouse, a partner, etc. Say you own real estate that makes money for you, the LLC passes the money from that business venture to you. If that venture were to lose money—like a single-family home—you can claim a loss on depreciation of the home. LLCs allow the money to pass from the business to you, but shield you from liability. (I highly recommend you watch my video, to see me use my artistic skills explain this.) If you have a tenant who is unhappy with something that happened at your property, the LLC makes it more difficult for them to get a hold of you—aka sue you. The LLC is an asset protection vehicle that makes it so your personal finances aren’t at risk. An LLC also allows you to tack on expenses to your business, such as your cellphone bill or your car payment. If you can prove that you’re using these things for your business, you can make them business expenses. And then you can claim them as deductions on your taxes. Just be sure that you can prove expenses are business-related. One last thing is that if a mortgage is through your LLC, it wouldn’t show up on your personal credit report. LLCs can shield you from debt that you’re taking on. I own a bunch of properties, but they don’t show up on my credit report because of my LLC. Now, let’s get into how to create an LLC. Setting up an LLC 1. Talk to a CPA & Find a Lawyer No a CPA and lawyer aren’t operating for free. They may charge you this thing called money. This video (and blog post) are free, and I’m happy to do that for you. But a CPA and lawyer will want to get paid. Though it’ll cost you, you’ll want these two professionals in your corner—along with their expert advice. They’ll understand how to meet your financial needs, explain what your tax liabilities are, and what legal ramifications to look out for when setting up an LLC. If you are wanting to set up an S corp, which is if your business is fee-based, you’d definitely want to speak with a CPA and lawyer for tax-based strategies. This type of business would be for fix-and-flippers or if you’re charging fees to clients. But that’s another conversation for another time. (Comment if you’d like me to post a video on BiggerPockets about S corps!) Related: 4 Tips for Hiring the Right CPA for Your Real Estate Business 2. Pick a Name This sounds silly, but it has to be done. You need to decide what the purpose of your LLC will be. If you own one property and that’s all you ever plan to do, you can name the company the address of that home. Or name it something benign. But if you want to grow your company, be more mindful of the name. Make it catchy and easy to remember, but also have it reflect what your company does. Trust me, there’s more to a name than you think. 3. Choose a State I will typically register my LLC where my properties are. Some people pick certain states for tax purposes or to prevent tenants from coming after them. But to keep it simple, I set up my LLC where the property is located. You can also set it up in the state where you’re a resident. Next, you want to go to the state’s website to register your LLC. Make sure the name you want is available and then you fill out the necessary paperwork to get your LLC up and running. This will likely cost you some money, roughly $200-$300. FYI, the following step runs concurrently to this one. So if you do Step #4 before 3, that’s fine. 4. Set up an EIN Number Go to IRS.gov—and good news, this is free! When you’re registering your business with a state, it will ask for your EIN number but I do Step #3 first to make sure the name I want isn’t taken. And then I keep the state tab open on the page asking for the EIN number. To get the number, you’ll have to fill out a questionnaire on the IRS website, but it will only take about 10 minutes. Once you’re done with that, you’ll be given an EIN number that you can then fill out on the state page. 5. Find a Registered Agent This means that there is a primary contact who lives in the state where you want to do business. If you're investing in your home state, then you are the registered agent. But if you're not investing in the state where you live, you'll need to find a registered agent. There are registered agent services (that will cost you about $100-$200 per year) that can represent you if you're doing business out of state. They practically provide you an address and warm body that can speak on your behalf. I recommend talking with your lawyer when seeking out a registered agent out of state. Related: What You Should Know About Registered Agents for Your Out-of-State LLC 6. Create an Operating Agreement This defines the managing member, which could be you, a group of people, two partners—really any which way. The important thing is that the managing member is the one calling the shots. They are basically the president of the company. This agreement goes over the goals of the company, employee roles (if it’s not just you), and so on. Oddly enough, this agreement doesn’t get filed with the state. It is simply a legal document that you need to formalize the terms of the LLC. And now that we’ve gone over how to set up an LLC, let’s get into how to maintain one. Maintaining an LLC 1. Keep up with Annual Expenses If there is a change in the registered agent, this will have to be notified to the state. You'll have to send in your registration certificate. Or you may have to send in your annual report that states who the agent is, who's still at the company, where the company is located, and a feeâof course. Remember, if you're not the registered agent you'll be paying an annual fee to the registered agent service. 2. Pay Taxes You’ll have to pay federal taxes as well as taxes to the state that you’re registered in. If your business is located in one state and the investment property is in another, you may have to pay taxes for both those states. This is why I register my properties where my business is. Then I don’t want have to pay state income taxes twice. You may know some tax loopholes that I don’t. But this is also why you should hire a CPA because they will be able to guide you through this. They will, more than likely, no some loopholes in the tax code. That’s all I got for now. Remember, this was my personal opinion on LLCs, and please talk to a lawyer and CPA before you set one up. Bottom line, LLCs are great when you own property and not as complex as people make them out to be. Do you have any questions, or is there any steps I left out? Share with a comment below!