LLC BEFORE or AFTER my First Deal?

Question

Hello-

I currently reside in Maryland, and my first rehab project is in PA

Curious which state I should form my LLC, and if I even need to at first?

Should I just file as a Sole Proprietor until I get a few deals under my belt?  Along with some cash !

Thank You for any help !

Michael

Matt Motil · Answer

Sole Proprietorship provides you no asset protection, so there is no point in my opinion. For the time, energy and money it will take to do SP, you might as well do LLC. Easiest to setup in the state that you are going to operate in. If you think you'll get over the 40k/year mark in profits, then filing the S-designation is worth it.

Samuel R. Harden · Answer

Thanks Mike, but fortunately/unfortunately I'm a Raiders fan. Don't let that affect your opinion of me though, I was born into it.Once you go the LLC route, you want liability coverage in the state where the property is located, and you want to title the property in the LLCs name. To best achieve both of those, you either need to have an LLC in each state, or file a foreign LLC in the second state. So if you're planning on having several properties in one LLC, then which state you want to choose will be a factual decision. Just be aware that some states require yearly fees and/or taxes for LLCs (with California being the worst), and you'll either have to find someone in any state you're not located to be your registered agent or hire one. There are a lot of companies that offer that service, and typically range from $50-100/yr. across the country. I've also heard some larger property management companies will offer that service, though I'm not involved in that side of real estate enough to have seen it myself.

Jim Keller · Answer

Matt

I like your advise, it's correct from my point of veiw.  I started 2015 hopping to do a few deals 2014 was good but just a few deals and that turned in to $100,000's of profit in 2015.

We chose an S-Corp and I would recommend any person thinking they will do more than one deal in a year to do the same.  This surety will help you succeed and stop negative thoughts from stopping you from acting.

Good luck

Jim

Chris Soignier · Answer

If you're absolutely sure you're doing this long term, go ahead and set it up.    If you're testing the waters, just buy adequate insurance to protect yourself until you have a proper legal structure.

Michael A Rytina · Answer

Thanks Mr Harden for the helpful advice!

I'm forming my LLC now online thru MD... do you see any benefit to adding my wife's name to the business ?

No more questions (for today at least) after this !!

TY

Mike

Michael A Rytina · Answer

Thank You Mr Harden- So if my office and LLC are located in MD, I can still have properties I am working on and selling in PA?  Would it be best to file the LLC in PA is 95% of my properties are located there, even though I reside in MD?

Sorry I know I have a million questions !

Thank You for your help

Can send you a Free Browns Flag :)

Mike

Samuel R. Harden · Answer

@Michael A Rytina, I'd suggest filing an LLC in your state. You can go the insurance route, but you are not personally protected if the liability exceeds your policy coverage. There are advantages to filing in other states for some businesses and circumstances, but your average real estate property holding LLC should be formed in whatever state the property is located in. Maryland seems to have pretty low filing fees comparable to other states at $100. NV is really beneficial if you are a large corporation or are trying to hide assets from someone, as they don't report to other states. Delaware is great for a lot of different scenarios, but not typically in the area you are looking at.

Also, S Corps may be great for operational businesses, but you should generally avoid them for anything that holds real estate due to appreciation issues.  If the operations LLC with a S Corp tax designation sounds appealing, remember you can always have an LLC for operations and one for holding the property.

Matt Motil · Answer

Exactly! My opinion is that if you go into investing as a hobby or part time, you will make hobby or part-time money. Start out and run your business like a business and plan to make millions and you will. 10X from the start! Plan for success and it will find you.

Michael A Rytina · Answer

Thanks all for the info!

Mike

LLC BEFORE or AFTER my First Deal?

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