In starting out I am looking to buy my first of many rental properties and am looking to set up a couple business entities to keep myself safe. There seems to be a lot of costs involved with setting up multiple entities and hiring an attorney to set them all up correctly and a CPA to assist with my books and write offs. All these costs eat away at the little bit of cash flow I hope to have coming in from my investments. How do I go about doing all this in a cost effective manner and still make profits? Any suggestions?
Consult an attorney to draft the operating agreement of your LLC. It will be the same for all the other LLC you will open. You can open the LLC yourself. Also have a look at the series LLC that could lower your cost.
Regarding book keeping, once you learned how to do it with one LLC it is the same for the others. If your LLC are single member disregarded entity, they don't file any tax return as they are directly entered in your personal tax return. One or many does not really make that process more difficult, if you keep good books it is only a matter of adding the numbers together...
But it is true that LLC still have costs. Also they may limit your ability to obtain better rate mortgage as you may only have commercial rates available.
"couple business entities" why do you need a couple business entities for one rental property? that seems like overkill.
One other thing to be cognizant about is that California normally has a $800 minimum fee associated with most returns.
Asset protection is important and should be discussed with an attorney. With that said - you may want to discuss entity vs insurance protection with your attorney to see which route covers your concerns and overall costs.
Hi @Codi Clausen ,
There are a lot of different pieces that can come together when you are setting these entities up. One thing that can save you money in the long run is establishing a Delaware Statutory Trust (DST), which can offer you a unique twist on the liability benefits of the LLC and infinite scaling but does not hit you with the annual $800 franchise tax in CA.
In your situation I would recommending sitting down with an experience attorney and CPA to get their advice on your situation and future goals. Taking care of these issues earlier than later can save you money and tremendous amounts of hassle. Having worked with many CA investors, most of my recommendations vary drastically based upon what their portfolio and goals are.
@Codi Clausen , if you are still working on purchasing your first investment property, I would recommend that you purchase right, obtain sufficient insurance, and vet your tenants before you worry about setting up a couple business entities. If you still want to set up a business entity, one LLC should be sufficient for most purposes.
@Bryan Zuetel thank you!
@Scott Smith thank you!
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