LLC, Insurance, & Networking

12 Replies

Hello Everyone,

Long time follower, first time posting, exciting stuff! I've been doing a lot of reading and researching on real estate investing and I'm ready to make my first deal. I'm planning to start with a flip and will continue to do that same strategy for my first 3-5 properties then want to grow my portfolio by holding single family residential homes. I've taken some of the initial steps in forming my crew (agents, lawyer, accounts, contractors) and wanted to get some insight on LLC's, insurance, and networking.

- LLC - I'm going to be investing for years to come and want to have my personal assets protected as well as all transactions to be done through a separate business account. To do this I wanted to form an LLC but wasn't sure the best time or method of doing so. Would it be prudent to do this online on my own or should I pay someone to do this for me. My main concern with doing it on my own is that I won't cover all the bases and leave myself exposed to unnecessary risk. Additionally, I'm not sure if there is a best time to do this, would it be wise to incorporate prior to my first property or should I wait until I have more of an operation running.

- Insurance - With my flips I plan to do most the work myself and contract out any bigger jobs outside my abilities or that require a permit. Since there will be people working on my property I wanted to see what kind of insurance I should carry to make sure I'm not liable in case someone were to be injured. I'm assuming this won't be an issue with the contractors but of the jobs that I'm doing myself I'll have friends and family helping who are going to be paid under the table in cash (unless there is a better/safer way to compensate these type of workers). So, I wanted to know what type of insurance I should have above and beyond regular property insurance so that I'm not stuck paying medical bills if someone does get hurt on the job. 

- Networking - If anyone has any networking opportunities for newbies in the greater Seattle area, please share! 

Thanks in advance for taking the time to read and response, I appreciate the help and look forward to your responses!

Tim

Tim,

Welcome aboard. Nice to see someone local. I would get in touch with a good CPA that understands real estate and an attorney that understands entities. LLCs are good to use but a good CPA will likely recommend a pass through entity as opposed to holding any real estate in a corporation. LLCs can of course be taxed in any way you choose.

Best of luck!

Sean,

Thanks for the words of advice!

You said you're local, would you happen to know of any good attorneys or layers I'm the area?? Also, any popular clubs or events?

There have been a BP meetup about 2 weeks ago in Lakewood. Had a good time to meet some good people from our area.

I would recommend you to set up keyword alerts so you know what's going on Seattle area. This is also a good place to keep your eye on - http://www.biggerpockets.com/forums/521-events-and...

Welcome to community!

@Tim Mangold   I recently hosted an Official BP meet-up with Brandon Turner on July 8th. This is the event @Viktor Stakhov  is referring to:

http://www.biggerpockets.com/forums/521/topics/133549-washington-state-offical-bp-meetup---south-sound---july-8th-2014

  The meeting was both laid-back and friendly while critically focusing on networking. The meeting was a great success and I am thinking of making it a monthly event.

   I strongly believe that the knowledge we need to succeed in real estate is within our own community. It is my mission to bring like-minded people together so that we can all succeed.

   In regards to forming any kind of business, you need a great lawyer and CPA on your team. Personally, I have an accountant who is also a tax attorney. He makes sure I do everything right and by the book, while still ensuring that I get every legal allowance possible. He is slightly more expensive than a CPA, but well worth it.

Hire professionals, even if they are more expensive. An ounce of prevention is worth it's weight in gold!

Hi @Tim Mangold , my husband and I are also newbies. We recently shelled out $300 for an LLC, and I think it was the next day that I read on the forums that it was probably an unnecessary expense, at least initially.

The problem is that if you put a property under the ownership of an LLC, a bank won't loan you money on it (initial mortgage or refinance). Supposedly, your LLC hasn't established credit yet, so the bank won't loan it money. I haven't yet researched how exactly the LLC would go about establishing credit.

An alternate suggestion I saw was to carry a large umbrella insurance policy (perhaps $5 million) to protect your assets from lawsuits.

Also, I know it's different in each state, but in my state (Texas), it would have been a total waste of money to pay an attorney or a legal website to set up the LLC. It's just an application form that you fill out on the state's website and give them your credit card # to pay for it. What you do once you have the LLC is another matter, of course, and expert advice could be very beneficial!

Hey @Tim Mangold  welcome to the site! It's always great to connect with local investors. My #1 tip for you: Set up some "keyword alerts" for the word "Seattle" and "Kirkland" so you'll be notified when conversations in the forums are taking place about your local area. This is the best way to find out about meetups and such! 

Originally posted by @Leigh Ann Smith:

Hi @Tim Mangold , my husband and I are also newbies. We recently shelled out $300 for an LLC, and I think it was the next day that I read on the forums that it was probably an unnecessary expense, at least initially.

The problem is that if you put a property under the ownership of an LLC, a bank won't loan you money on it (initial mortgage or refinance). Supposedly, your LLC hasn't established credit yet, so the bank won't loan it money. I haven't yet researched how exactly the LLC would go about establishing credit.

An alternate suggestion I saw was to carry a large umbrella insurance policy (perhaps $5 million) to protect your assets from lawsuits.

Also, I know it's different in each state, but in my state (Texas), it would have been a total waste of money to pay an attorney or a legal website to set up the LLC. It's just an application form that you fill out on the state's website and give them your credit card # to pay for it. What you do once you have the LLC is another matter, of course, and expert advice could be very beneficial!

 Leigh Ann,

After financing is completed and you close on the property you quit claim into the LLC. You don't need to worry about building credit for the LLC. It is best to have the LLC professionally created and the Operating Instructions are important.

@Brandon Turner thanks for the info, I'm new to this and wasn't aware of the keyword tool, I'll set these up now. 


@Leigh Ann Smith   thanks for the info on your experiences, its too bad you found out that after you spent the $300! 

I'm personally not looking for bank financing since I don't qualify for a large enough loan due to my income. I'm planning to seek out some private lenders and possibly do a profit share to make the investment really attractive for them. 

However, in regards to the comment you made in the post, the article below outlines how LLC's can build credit. I've been doing research on the topic and this is one of the articles I have saved, short and to the point. Its all basic/common sense stuff but sometimes it helps to see it spelled out.

http://www.bizfilings.com/learn/small-business-cre...

Thanks again!

Tim

Gurus will teach you to quit claim it into the LLC, but they don't tell you that the lender can call the loan due. An LLC will not protect your assets, but a good insurance policy will. I did click on the link, and this had to be a Guru who posted this.

#5 Opens a business credit file. Open a business credit file with all three business reporting agencies: Experian, Equifax and TransUnion.

The above is false and misleading.


Experian business credit, Duns and Bradstreet are the only 2 that lenders used. Equifax Trans union no lenders used them. Be careful what the Gurus teach or post.


Joe Gore

@Tim Mangold  

Welcome to BP. Nice to see another local join the community. We investigated the idea of an LLC early on but decided on an umbrella insurance policy for our rentals to begin with. Hope to see you around the forums.

@Tim Mangold  Hey I'm new too and I set up my keywords on what I think would be appropriate....... BE CAREFUL. I set up things like seattle in my keywords and WOW I get A ton of info a day. Gotta keep up on it if you set up words like that. Just my 2 cents.

Joe Gore an LLC won't protect your assets? It may not protect the LLCs assets, but it will likely protect those held directly by the individual or in other entities.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.