Creating an LLC for multiple investors across multiple states (yikes -- hopefully not though...!)

[Andy M.]

Being new to Real Estate Investing, I'd like to mitigate my risk as much as possible out the gate. I decided to pull in a group of friends (none of us have a whole lot of money individually, but together we have more than enough money to get started.)

Something we're taking into serious consideration is the option to create an LLC to use as a means of acquiring property.

1) Is this a good idea?

2) Is there a way we can shape this LLC to be flexible towards other investments?

3) Is there a way to form this without shelling out to much money?

[Nicole A.]

You'll open the LLC in the state that you'll be purchasing properties. Even though you guys are across states, had you agreed upon one state to invest? That'd make it easier as far as deciding which state to open the LLC in.

If you open the LLC for say Nevada, but do business (own properties) in California, you'll have to pay foreign entity fees/tax...and that's pointless.

Next, you need a very good operating agreement for your LLC. It needs to spell everything out from what business you're doing, how you're taxed as a partnership, how much of the LLC each person owns, what happens if someone wants to leave the LLC, how the LLC is completely separate from you as individuals, etc.

It's some money up front, but for a truly strong LLC setup, I suggest you look up Al Aiello's LLC Mastermachine. Also research LLCs and their formalities. If you're not running the LLC properly, it will not protect you.