When should I set up the LLC?

10 Replies

Dabbler in rehab and other stuff, I need to get my investing back on track. BP, this is a wonderful place by the way! With cash being tight I must wonder, is it beneficial to pay now to set up an LLC, as if maybe lender I will be looking to work with might require doing business to business only or some other good reason, should I do a few deals and later set up an LLC or should setting up an LLC come first before any investing is done and acquisitions gained. ?Thanks! Its at least $600 to incorporate. Again cash is tight.

Very good question. Im in the beginning stages as well because I'm looking to purchase my first multifamily property hopefully within the next month. In my scenario I would set up a business address through UPS then the LLC and establish a EIN number then a business bank account. Its costly however it's best. I do not want nothing linking my personal home address or social security number. Also for liability purposes and protecting my personal assets I would recommend setting up and purchasing and investing through the LLC. The last thing you want is to be sued (in my case scenario) because of negligence on the tenants part I.e. Party at there unit and someone slip on the steps or lean on the railing and fall over. So I would say analyze the risk of what you are going to be investing in and have a safety net just in case.

That is very high for a single member LLC. The filing fee in your state is only $50. You should be able to file those on your own. At some point in the future you will want an attorney to draft your LLC an Operating Agreement, but it is not mandatory in Arizona. Just make sure you meet the Arizona publication requirement (publish your Articles in a newspaper of general circulation in the county where you do business, for three consecutive publications within 60 days of approval).

You can set up an LLC for just the filing fee if you get the form from your Secretary of State website. Then you can get your EIN in 5 minutes from the IRS website. Don't pay anyone any type of fees to do this. You can do it yourself in just a few minutes.

Also, regarding the LLC - having an LLC won't stop you from being held personally liable if one of your tenants slips and falls and sues you. If a judge finds you negligent, they can "pierce the corporate veil" of your LLC and find you personally liable. This is especially true if your LLC just has you as the only member. You are better off making sure your property is in good shape and by purchasing an umbrella policy.

There are hundreds of books, articles, blogs, etc that describe exactly what I am talking about. 

@Brenda Whittaker

There are good posts here. These guys are right with what they said. I would encourage you to LLC first then go forward so it's all under one entity and save you from more work later on to move deeds etc into name of the LLC. It will offer some protection/advantages. 600$ does sound very very high for what you are looking to do. In Kansas it cost me 200$ through my accountant simply because there was an issue with the state site at the time. It's very low cost and should be easy for you to do online. Good luck!!!

Also, how you plan on financing your properties will be a factor. If you are looking at conventional loans, then your property won't be allowed to be owned by the LLC. You will need to look into business loans to do that. If you are unsure at the moment on what to do and are worried about liability, get an umbrella policy. They are affordable and provide a million dollars of personal liability insurance.

@Brenda Whittaker - You have gotten very good advice so far, but, if you get a chance please listen to podcast 109 at the link below. It will be worth your time and coupled with that it's educational.

You Will Get Sued. Here's How To Survive With Attorney Scott Smith

  • Forming an LLC right off the bat
  • The ins and outs of Insurance vs. Assets
  • Ten things you need to know to protect your assets
  • What exactly an Umbrella Policy is and why it might not do what you think it will
  • Why you shouldn’t put all your properties under one name
  • What you should know about the Delaware Statutory Trust
  • Scott’s advanced strategies for real estate investors
  • Everything you need to know about LLCs vs. Trust Funds
  • Who you need as part of your team when investing
  • And SO much more.

Don't leave home without it.  Anything you do can cost you everything you have if you are not a separate entity from the business.  Everything I do is under the corporate veil for all businesses I am involved in.  File the papers yourself and save hundreds.  It is so easy in most states.  Florida was a little strange for a maintenance company we ran.

THANK YOU everybody!!  Doing it myself is one of those things I will put off forever because web things and technology make me crazy.  I'll certainly check it out, and report back here.  btw I did get sued, it was a disastrous court hearing, I wasn't even allowed to speak.  A really evil junk debt buyer bought a debt I already paid through a debt consolidation firm that has since gone out of business.  They said I failed to pay a $7000 debt 5 1/2 years ago and they won $26,000.  I spent a year on appeals and educating myself about the FDCPA, case history, etc., to no avail.  They found my houses and now I just want to pay them off before they steal anything from me.  Say, anyone know a lender who might lend me $15,000 on a free and clear rental that's worth $135,000 so I can make them an offer and save my equity?  

@Brenda Whittaker definitely get your LLC set up first. Do it yourself. I would also recommend you open the LLC up in whichever state you plan to invest in. If you invest locally than by all means set it up in Arizona.

I'm not going to restate the reasons you need to do this that have already been mentioned.   I'll add a few more reasons:

  • History - You want to start building a record of activity for your LLC as soon as you can. This will help build credibility which goes a long way in this business!
  • Credit - You won't be able to at first, but eventually you will want to be able to secure your investment debt with your LLC instead of with your personal guarantee. This is when the real protection of an LLC can really help! Start by putting thinks like your cell phone bill in the LLC name. Establish an address for your business (preferably not your home address). Use a UPS box if you need to but don't use a PO box. Set up bank accounts in the LLC name. Find a secure deposit credit card and set it up in the company name. Use it regularly and pay it off every month.
  • If your current rental properties are lien free, then get them moved over to the LLC ASAP! This is a huge priority!! A title company can do this for you for a few hundred dollars.

Lastly, if you have a property that is truly worth $135k and you have no liens on it, you will have NO problem finding a lender to lend you $15k against it.  Hell, I'll lend you $15k with that kind of security!

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