I will be purchasing my first property in the next month or two so I want to set up business accounts with my bank to keep all of my REI money separate from personal money. I've read all the arguments for and against forming an LLC this early and I don't think it's really necessary for me, but I'd still like to open accounts using a business name rather than my personal name.
Is there a way I can open accounts under a business name, use a business name on business cards, etc. without filing a formal business? It seems like using an umbrella liability policy will be sufficient for me until I have accumulated several properties. At this point, I will probably open an LLC. Until then I'd like to use a business name until I can formally file for an LLC, then use the same business name for my LLC.
The bank will not let you open a business account if your business is not registered with the state.
Some regulations differ by state. In NY, at least in our county, you can file a "DBA" (doing business as) with the County Clerk and request an EIN number from the IRS - with those documents, you can open a business checking account at the local bank. Well, you will also need some money to deposit ;)
Ask at your local REIA, they will know the local procedures.
I would suggest to set up your llc for the one home. It may be early and will cost a little bit (generally there is no need to pay a lawyer to do it) but you will stay focused on keeping the expenses seperated from personal expenses and learning the utter most basics of having an LLc and filling the correct paperwork.
Go ask your bank what they require.
@Harriet Baldwin I had read about the DBA option, but I was hoping there would be a way to use that for a business name without getting a separate EIN for taxes. I'm thinking you are probably right that I need to speak with a real estate attorney to get the best information for my area. Thanks!
@Steven J. Initially my plan was to open an LLC even though I was only starting with one property, but after reading about it for a while I talked myself out of it. It doesn't seem like there is any substantial drawback to starting one now, just that it isn't really necessary if I have proper liability coverage. It sounds like you think the experience of operating under an LLC would be worth it even if it isn't a necessity this early? I think it's $35 to file for LLC in my state (Indiana), so it isn't a big hassle or anything.
I think the biggest issue is that I would be buying property with my name (my lender doesn't loan to LLCs) and then I would have to transfer to the LLC after closing. Seems like it makes it more complicated and might have some legal implications I'm unaware of.
oh... yes that would have implications. They could call the loan due when it transfers hands intI the llc. On one hand I say go for the llc registration for $35 (it's 150 where I am) and get your eine number (which the bank wants) but if it risks having your loan called due then I think you just leave it where it is.
Hi. I've posted numerous times about LLCs on here (I'm sure you can probably search them). I've never understood people's anxiety or consternation over them. Some people seem to have a huge bug up their crawl about not using them with no legitimate reason. Start it now. If you're serious about investing, take your business seriously. If you're owning a rental property there is substantial protection (despite what the naysayers say). Yes, you'll have to get a loan in your personal name and then transfer to the LLC. No, that's not a pain. It's done with one document that can be signed at closing and pretty much SOP. Just tell your title co/closing attorney that's what you're doing. Yes, there's due on sale clause. I've posted a ton about this, too. It also seems to spark a nasty debate, again usually without legitimate reasons.
But for what you are looking to do, you will need a formal entity established with an EIN. Otherwise everything is still attached to your SSN. If you want to do it yourself, that's fine but all you are getting is a name for the bank account. You're not getting any protection. You'll need a lawyer to draft the operating agreement.
My recommendation is talk to a good asset protection, real estate investing attorney and sophisticated investors to understand what you are doing and the risks and the protections--part of just being educated. Keep this forum for what it is, just an opinion forum. If you want some freebies, I've got a ton of education on my website.
@Ken Van Haitsma Jr File a fictitious business name with the county and pay the fee. They will give you some documentation that you have file. Take that to the bank and open your business account. They will use your SS# you don't need a EIN.
This is the process where I'm at. It should be similar in most states.
@Jeffrey S. Breglio Good information. From the sound of it, speaking with a real estate attorney in my area would be the best action item for me at this time. Appreciate the information.
@Paul Bojinov Using a "Doing Business As" name for the account does seem like it should work if I go that route. I'll bring that up as an option when I speak with a REI Attorney. Thanks for the tip.
@Ken Van Haitsma Jr . Check out my website for the education. It'll really help. I'm also happy to spend a few minutes chatting with you. :)
@Paul Bojinov is correct - - been there done that. The DBA is associated with your SSN.
Yep, the DBA is associated with your SSN, one tenant or a tenant friend has an accident at your property and suddenly everything you personally own is now part of the liability and discovery of assets. Is that really worth it?
As to lenders, spend a little more time finding one that will do it in the LLC. This is a business, not a hobby. Best to treat it as one from the start. Just as when doing a rehab on a property you will own for a while, cutting corners will only cost you more to get it right down the line. So spend the extra now to save yourself later.
BEST ADVICE I EVER RECEIVED! So now I share it with you!
Something else folks overlook about business entities (LLCs, S-Corp.'s, etc.) is that you can build credit in the business separate from your personal credit. So, if your personal credit sucks, you sort of get a 2nd chance - just don't screw THAT one up, too.
In that case, the sooner you start, the sooner your business can graduate from Net-30 and trade lines to actual credit cards and lines of credit. Yeah, a year is long time, but remember: the clock doesn't start until the date your business is established as a legal entity.
As to liability, ask an attorney about some good ways to buffer yourself against litigation against an entity you control.
Remember: control everything, own nothing.
Great information from everyone, I really appreciate the posts! I'm setting goals for myself to take action on the suggestions here, so thanks!
If anyone from Washington State is reading this forum, the state has a good beginners guide to starting a business.
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