setting up your real estate business

4 Replies

can someone please help me out, i have come to a completed stop in how to set up my first investment property.  Its a 3 family do i need to set up a legal entity, business acct, or do i make all expense/profit go into my personal acct. 

@Isuf Aruci

It’s up to you if you want to create a legal entity, it would give you a greater level of protection for you and your finances later down the road if ever you get into some type of litigation. The business account would be good because you can start to create this business as a business and not a hobby. I say it will create a business not a hobby because you can have way better accounting, you will not have any commingling with any of your personal funds.

You can create an entity beforehand (this is preferred) because if you try it after you bought the property the bank tends to get a little weird about that and could call the note (make you pay in full within 90 days, or refi).

Thanks , okay if i want to open a Business Acct do i still need a LLC or can i ask the banker to name the Acct (ex; abc properties) or does it have to be under my name ? so i guess the LLC is out the question due to the Note call.

@Peter Mckernan

@Isuf Aruci

Since you do not have an LLC setup I would just establish a DBA (Doing Business As) in your county and you can open your account under that name (i.e. Aruci Properties DBA). This is will get you started in the right direction, and then after that I would form an LLC after that and put each property in that LLC for more protection. There are many rules of thumb for how many rental properties should be within the LLC, I would ask your CPA for that direction.

@Isuf Aruci I opened a checking account (free) with my personal accounts. A separate checking account is helpful to reconcile taxes at the end of the year (keep receipts too). Since i dont have much equity in my property, I dont have a LLC. If you have a lot of assets, I would recommend using an LLC to limit your exposure. Hope this helps!

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