I created an LLC, now what?

Question

Hey Yall, so Im a new investor in South Jersey and I just created an LLC through the government website and I have my EIN number. What are the next steps i Need to take so Im not taxed as a sole proprietor and that I have everything set up right? If someone could get back to me that would be greatly appreciated!!

Matt Nico · Answer

Quintin,

Your next step is to end the LLC so you don't have to pay money for a business entity with nothing in it. Buy a few houses under your own name. Learn the business of real estate and establish yourself first. Then worry about being sued when you actually have something to lose.

Sorry the advice is kind of harsh and blunt, but its the truth. No point lying to you or saying "Good Job"

Good luck,

Matt

Joe Splitrock · Answer

@Quintin Green setting up an LLC is not necessarily the first step in a new business. If it is a sole member LLC, I believe you are going to find taxes are no different than as if you were a sole proprietor. A business is defined by your activity, not your entity and taxes are defined by both.

It would help if you could explain what type of business you are planning to do. The term "investor" covers a wide variety of businesses. The type of business is what determines the entity and tax strategy. Other personal factors play into this too.

Kevin Gray · Answer

@Quintin Green

LLC's (especially when starting out) are truly only there for liability purposes, but as others mentioned above, until you have significant equity and assets to protect, they don't offer much.  A single member LLC is disregarded as an entity all together for tax purposes.  If there are any other partners, you would need to file a partnership tax return annually which can be expensive.  If there are significant profits (mainly from flips or short term rentals) there could be some tax planning strategies to reduce your overall tax bill, but you're moving in the right direction.

Mitchlyn D. · Answer

@Quintin Green

If it was me, I would keep your LLC open. It can be used as motivation for you.

Plus, from experience, banks like to see that your LLC has been open for a certain amount of time before they would loan you money. You will also be taxed differently(I’m not an account or tax advisor) and there are certain perks but do your research.

Robert Kiyosaki speaks of this not to mention, it’s really in expensive to maintain annually.

Just my opinion.

Cal Dunagan · Answer

@Quintin Green

Have you considered speaking with a RE attorney? I'm not sure where you are in your investing, but having a professional team to help you is important. You can do hours of research on how to legally protect your assets, and you may even succeed at first. But there are a ton of pitfalls you won't even know about because you won't even know where to research. If you do decide to look for an attorney, this is a good article regarding the types of questions you need to ask the attorney before you decide to hire them.

Erik W. · Answer

A few thoughts...

1) Banks don't loan money to LLCs without recourse.  You will sign a personal guarantee so that if your LLC fails to pay, you will be personally on the hook.

2) LLCs in my state require no annual maintenance fee, so you can set one up and forget about it for 10 years, then start doing stuff in it and there is zero difference than if you just opened the LLC yesterday.

3) LLCs can be useful asset protection strategies, but be sure to layer that strategy by having sufficient umbrella liability coverage.  That way if one layer gets "pierced" you have a back up.  Liability insurance does cost, but it is relatively inexpensive to get a half million $ policy when starting out.

4) LLCs may also offer some anonymity, at least with your residents.  You can truthfully claim, "I'm the property manager for ABC Rentals, LLC" if that is how your Operating Agreement lists your title.  However, don't expect it to throw a litigation attorney off for any longer than it takes him to check your Secretary of State's website to find out who filed the papers of organization.  In my state, you can use an agent (and I did!) to complete this step, which adds some additional protection from probing eyes.

Step 1 now is to ask yourself, "Why did I create an LLC?"  Did some guru or podcast tell you to, but they never bothered to explain why other than "that's what great real estate investors do?"  Keep in mind few (if any) of them have actually had their LLCs tested in court to see how robust they are in protection from law suits, which is the main reason for having one.

Also, keep in mind Robert Kyosaki got rich selling books on how to get rich, not by any particular noted business dealings of his own.  He claims to have owned dozens of businesses and rental properties, but I have never seen where he provided specifics that can be verified.  Seems like a pop culture investing icon with a lot of fluff advice for beginners.

Daniel Vaccaro · Answer

@Quintin Green:You will need to close out any bank/credit accounts you opened for your LLC, and then because I am assuming you are the only person in your company, you can file online with the State of NJ here...https://www.njportal.com/DOR/A...

Quintin Green · Answer

@Matt Nico No no no, i actually need that. Honestly thank you so much, i need people to tell me the truth more often so i really appreciate it for real. To disolve the LLC i have now, i would just type something like "How to disolve my LLC?" Or something like that?

I created an LLC, now what?

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