Do we need to create a business?

Question

We currently have one property under our names (husband & me). If we are considering adding 1 property a year for the next few years, do we need to create a business/LLC? If not now, then in the future (~7 years) when we want to create an LLC is it difficult/expensive to move the properties from our name to the LLC?

Jon Holdman · Answer

The cost varies widely.  Here in CO, its $50.  In CA, its $800.

Now, if you have an attorney prepare the operating agreement, which is not required for the official filing in most states, that can cost you much more.

Kari M. · Answer

Thanks, guys!

Curt Davis · Answer

Kari,

If you create an LLC the average cost to do this is around $300-$500 depending on where your at.  It can be done quickly, just a bit of time on the internet.

One thing you will want to do is get an umbrella insurance policy for your investment homes.  Do not believe the myth that just because you have an LLC your protected from your renters. You need this policy in place TO protect you in any case of lawsuit.  I am with State Farm and for a 2 million dollar policy its about $24 per month.

Jon Holdman · Answer

The process varies by state.  Here in CO, its five minutes and $50 on the secretary of state web site.  Then, open a bank account.  Its more work to properly keep all the records, but nothing onerous.

Mark Yuschak · Answer

You don't need to create an LLC or some other form of corporation.  It all depends on your goals and tolerence of risk and income taxes.

I started out just like you with putting properties in my own name.  Then, I started quit claim deeding them to my corporation.  It's a very easy process, in the state of Michigan, to QCD a property to a corporation.

I have an investor friend who owns 30+ rentals in rough neighborhoods all in his personal name.  It's not how I'd approach it, but it works for him and he's comfortable with it.