Starting Out with Real Estate Investing LLC

Starting Out
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Starting Out with Real Estate Investing LLC

Arron Paulino
Rental Property Investor · South San Francisco, CA · Member since 2019 · 262 posts · 95 votes

I have just established my LLC and want to ensure I am on the right track. I plan to partner with another BP member and do mostly flips and add to my rental portfolio if the numbers work best. I plan to use the money I have saved up as seed funds to get this newly created LLC up and running. I will be reinvesting the funds and keeping a little as my LLC grows.

Do I need to go to my local bank to create a business account and put funds in from my savings to get this started? I live near a Wells Fargo and this is my local bank or should I make one online with another bank? My LLC is just in the starting phase and want to know the best practices to get it on the right foundation to partner with other investors and set myself up for success. I've noticed that lenders I've spoken with here suggest I create an LLC so they can lend to me.

I've already invested on my own and have properties under my name providing me with monthly cash flow as well as finishing my first flip I plan to sell at the beginning of the year.

Planning to start this upcoming year with traction with a new real estate investing venture and move upward in my journey. Appreciate the suggestions. 

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Jake BakerBusiness Member
Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
2y

@Arron Paulino

From my understanding, you have an LLC created with the state in which you intend to transact real estate.

1. You should get an EIN here if you haven't already. This is the social security number of your business. Be careful of scam websites when searching for the .gov website. You will need an EIN to open business accounts. 

2. Go to your bank and open up business accounts. It is best to separate all your business activity into your business accounts as much as you can. 

3. I recommend the Chase Business Ink unlimited card. 0% APY for the first 12 months. Go into the branch and apply with a banker. You will likely get a higher limit. They will grant you a limit based on your personal credit. Only do this if you feel you can be responsible with a credit card!

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  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
    2y

    @Arron Paulino

    From my understanding, you have an LLC created with the state in which you intend to transact real estate.

    1. You should get an EIN here if you haven't already. This is the social security number of your business. Be careful of scam websites when searching for the .gov website. You will need an EIN to open business accounts. 

    2. Go to your bank and open up business accounts. It is best to separate all your business activity into your business accounts as much as you can. 

    3. I recommend the Chase Business Ink unlimited card. 0% APY for the first 12 months. Go into the branch and apply with a banker. You will likely get a higher limit. They will grant you a limit based on your personal credit. Only do this if you feel you can be responsible with a credit card!

    [email protected]
    BookkeepingRE - Bookkeeping for Real Estate & Service-Based Businesses52 Reviews
    WebsiteView Page
    1Reply
  • Arron Paulino
    OP
    Rental Property Investor · South San Francisco, CA · Member since 2019 · 262 posts · 95 votes
    2y
    Quote from @Jake Baker:

    @Arron Paulino

    From my understanding, you have an LLC created with the state in which you intend to transact real estate.

    1. You should get an EIN here if you haven't already. This is the social security number of your business. Be careful of scam websites when searching for the .gov website. You will need an EIN to open business accounts. 

    2. Go to your bank and open up business accounts. It is best to separate all your business activity into your business accounts as much as you can. 

    3. I recommend the Chase Business Ink unlimited card. 0% APY for the first 12 months. Go into the branch and apply with a banker. You will likely get a higher limit. They will grant you a limit based on your personal credit. Only do this if you feel you can be responsible with a credit card!


     Hi Jake,

    Thanks for the reply. I have made an LLC in California (my home state) and plan to do business in another state.

    1. I have already established an EIN once the LLC had been approved by the state via the state website. Are there any initial steps that still need to be completed? I am literally in the beginning phase.

    2. Yes, I will be doing my business and personal activity separately. The idea was to add seed capital from my savings into the business so it could have something to work with and then down the line, pay myself the extra funds not needed to be reinvested into the LLC. Is this the way to go? I was thinking of going to my local Wells Fargo or Chase to get this set up. Thoughts?

    3. I think now that you brought up that card I may just push through with Chase Bank. Have you established a relationship with them? What were your steps in the beginning of LLC creation? I am responsible for my credit as it plays a vital role in my real estate investing journey.

    0Reply
  • Katie Balatbat
    CPA and Attorney · San Diego, attorney · Member since 2022 · 302 posts · 219 votes
    2y

    @Arron Paulino

    Congrats on all your success thus far! You may find that you're at the level of complexity that talking to an attorney and/or CPA would be helpful. I'm especially thinking about you saying that you're considering partnering with a partner, but it seems that you have your own LLC right now, so I'm unclear if you're planning on starting a new joint LLC, or will be a partner via your solo LLC right now, or what your plan may be. When you get partners involved, you have to be more careful and protective of yourself and what you've built.

    *This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

    0Reply
  • Sean O'KeefePro Member
    CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
    2y

    @Arron Paulino Most real estate investors who are focused on flipping properties use an S-Corp or LLC with an S-Corp election. The reason has to do with self-employment taxes.

    LLCs are generally for passive income. As a result, you will see a lot of buy-and-hold investors with LLCs. 

    The tax impact of trying to move a buy and hold from S-Corp can be expensive. Make sure you have the right entity structure when you start. 
    .
    .
    .

    *This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

    [email protected]628-241-0888
    0Reply
  • Nate MeekerBusiness Member
    Real Estate CPA | California · Member since 2020 · 544 posts · 251 votes
    2y

    @Arron Paulino - I second what @Katie Balatbat said. It's a great idea to talk to an attorney when considering entity selection for flipping and buy and holds. You don't want to get stuck with paying a fee on CA gross receipts. 

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  • Arron Paulino
    OP
    Rental Property Investor · South San Francisco, CA · Member since 2019 · 262 posts · 95 votes
    2y
    Quote from @Katie Balatbat:

    @Arron Paulino

    Congrats on all your success thus far! You may find that you're at the level of complexity that talking to an attorney and/or CPA would be helpful. I'm especially thinking about you saying that you're considering partnering with a partner, but it seems that you have your own LLC right now, so I'm unclear if you're planning on starting a new joint LLC, or will be a partner via your solo LLC right now, or what your plan may be. When you get partners involved, you have to be more careful and protective of yourself and what you've built.

    *This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.


    Thank you! I agree. I think I'll get more clarity by talking to an attorney and/or CPA about LLC creation. I have found a BP investor who will be providing the deal, rehab team, and agent to sell the property and I would have to obtain the property in the LLC before we fix and flip the property. I am just starting with this LLC as I have done my deals myself without an LLC. I think I need to see this all played out in a scenario to completely understand how this all works.

    0Reply
  • Arron Paulino
    OP
    Rental Property Investor · South San Francisco, CA · Member since 2019 · 262 posts · 95 votes
    2y
    Quote from @Sean O'Keefe:

    @Arron Paulino Most real estate investors who are focused on flipping properties use an S-Corp or LLC with an S-Corp election. The reason has to do with self-employment taxes.

    LLCs are generally for passive income. As a result, you will see a lot of buy-and-hold investors with LLCs. 

    The tax impact of trying to move a buy and hold from S-Corp can be expensive. Make sure you have the right entity structure when you start. 
    .
    .
    .

    *This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.


     Hi Sean,

    I think I've heard of this reasoning for the LLC with an S-Corp election. Do you mind elaborating on how this relates to self-employment taxes?

    How are LLCs generally used for passive income? I've spoken with lenders and they say I am qualified for a good amount of funding by using an LLC to purchase properties.

    That's exactly what I am trying to figure out. My plan with the LLC is to fix and flip properties to generate capital to scale up my real estate investing and keep properties that make sense to buy and hold when they come up.

    0Reply
  • Arron Paulino
    OP
    Rental Property Investor · South San Francisco, CA · Member since 2019 · 262 posts · 95 votes
    2y
    Quote from @Nate Meeker:

    @Arron Paulino - I second what @Katie Balatbat said. It's a great idea to talk to an attorney when considering entity selection for flipping and buy and holds. You don't want to get stuck with paying a fee on CA gross receipts. 


     That's what I want to make sure of at the beginning since I want to ensure I have a great foundation so I don't have to worry about things later on. What do you mean by CA gross receipts?

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    2y

    It seems like you are successful on your own building your real estate portfolio.

    What does this BP member bring to you to help you with your investments?

    I personally think a partnership should have people bring
    Experience
    Time
    Money / Resources

    Of the above, which do you bring and what does the other BP member bring?

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  • Arron Paulino
    OP
    Rental Property Investor · South San Francisco, CA · Member since 2019 · 262 posts · 95 votes
    2y
    Quote from @Basit Siddiqi:

    It seems like you are successful on your own building your real estate portfolio.

    What does this BP member bring to you to help you with your investments?

    I personally think a partnership should have people bring
    Experience
    Time
    Money / Resources

    Of the above, which do you bring and what does the other BP member bring?


     Thank you!

    He can share his experience, boots on the ground, and acts as a lender to fund the project. I essentially put skin in the game and am informed the whole way up until the property resells.

    That said, I think I'll be able to learn how the project is structured from start to finish and learn how I can do this all better in my journey.

    0Reply
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