LLC first step to create them

18 Replies

Hello, I just bought my first SFH a month ago and I am researching in how to open an LLC. Are people do this all by themselves (online) using LegalZoom or Accountant? I am a bit confused. What should be my first step to make sure I am on the right track. Any advise would be greatly appreciated

I would suggest using somebody and then making sure that they will keep doing the filings each year.  You will need to pay them each year but it is much easier from everything I have read to have them keep track of everything that needs to be filed.

I opened one through my state's Secretary of State's website. It took about 30 minutes to fill out the information after I got an EIN from the IRS. Within 24 hours, the process was completed and it cost me around $130 (Louisiana). Other states vary. 

@Bob Okenwa   Thank you for the link, It will check it out!

@Eve Oliver To create the entity, yes. IIRC, There is a $25 annual filing fee starting on your first anniversary.

You can save yourself a few hundred bucks and set up straight from your state's website. If you were to pay someone to do it for you, that is how they would do it anyway. 

I'll be real blunt. If you are having issues with the mechanical aspect of filing to create an LLC, then I have to wonder what your Operating Agreement looks like. And if you don't have one, then I question what you are doing creating an LLC. Did you buy the property in the LLC before you created the entity? Or is the property currently deeded in your name? Are you taking on partners via new membership (hence the need for an LLC)? Are you just putting the property there because you like to file more IRS paperwork?

Unless you can answer 'The LLC provides me X benefit, that's why I acquire property in the LLC...' where 'X' is a real, tangible benefit... I really question why people use single member LLCs.

Originally posted by @Chris Martin :

I'll be real blunt. If you are having issues with the mechanical aspect of filing to create an LLC, then I have to wonder what your Operating Agreement looks like. And if you don't have one, then I question what you are doing creating an LLC. Did you buy the property in the LLC before you created the entity? Or is the property currently deeded in your name? Are you taking on partners via new membership (hence the need for an LLC)? Are you just putting the property there because you like to file more IRS paperwork?

Unless you can answer 'The LLC provides me X benefit, that's why I acquire property in the LLC...' where 'X' is a real, tangible benefit... I really question why people use single member LLCs.

Some people save thousands in transfer/recordation taxes by selling the LLC, rather than the property, to a buyer.

Others enjoy at least one level of asset protection... a judgment against the LLC is not a judgment against the member(s).

If you're creating an LLC to run your real estate business, I agree that the initial filing and structure should be handled by a professional such as a corporate attorney.

To set up an llc file articles of organization with the state--usually a 1-2 page document--and pay a fee.  Then pay an annual fee.  The operating agreement (and bylaws) is the document that sets the rules of the llc (keep in your files only).  If it is owned by just you and you will not have any employees (likely) then it will likely be a disregarded entity--no need to file a separate tax return or obtain an EIN.  

Since you own the property already you will have to quit claim the property to the llc.  If you have a loan the bank will have to approve it--some won't do it.  Get an attorney until you understand the process (it is straightforward if you do it correctly but the cost to correct errors may not be)

The llc will protect your other assets if something occurs within the llc that you didn't personally do--slip and fall, etc. You still need insurance so the property itself is not at risk.  It may be cheaper to get a large umbrella policy--depends on the state and costs.  An llc can also make things more difficult--you will need an attorney to go to court for an llc but not if you own in your own name, etc.  

The someone I am referring to is a lawyer or someone who knows everything that needs to be filed.  Minutes of meetings need to be taken among other things.  If you can do it yourself that it great.  I have just read stories of people that forget to keep track of everything and things get messy.

@John Akolt thank you so much for The input. It was an eye opening! I will look into more closely.

The first step is to realize that little houses with debt do not belong in LLCs.

Search - 'I am trying to refi my house but it's in an LLC and all I can get are crummy balloons and high commercial rates' or "I triggered the due on sale clause and jacked up my title chain quitclaiming my little house with debt to an LLC', or many others relating to insurance and filing taxes and not having any real liability protection anyway.

I use LLCs to hold my commercial 5+ unit buildings so am not anti-LLC, but this asset type with a mortgage is oil and water IMO.

@Chris Martin , A single member LLC can be beneficial for buying/holding a property/properties in when you have other assets outside of real estate that you want to protect from liability. Should someone sue due to a claim against the LLC, your other assets are protected.

Neither an LLC, nor an umbrella insurance policy are silver bullets providing be-all, end-all protection, but can be used in conjunction with other strategies to protect your interests.

These are my opinions.

Disclaimer: I am not a lawyer, don't play one on the internet, and didn't sleep at a Holiday Inn Express last night.

Thanks everyone for your input. It's greatly appreciated

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