when to start an LLC

Question

At what point should a newbee start an LLC at X number of properties, at $x net worth.  Or asap regardless of the numbers?  And including Why would greatly help :)

Nate Tanner · Answer

Hi Robert Fabian,

I do not do much rehabbing, but I spoke with my attorney and accountant.  For liability reasons, I would use an LLC. In my state LLC setup is very easy and inexpensive, the only drawback is filing another tax return (but I pay my accountant to do that anyway). From a tax perspective my accountant said it would not do much to save me on taxes, but because of the protection for my personal assets my attorney recommended I use one.  People sue for stupid things, a contractor doing work could have an accident and think it is a good idea to sue me.  In that case, I would not want to put my personal assets at risk.  Your situation may be different than mine, so you may want to consult your team (attorney and accountant).

Robert Fabian · Answer

Nate,

If you were to buy a property to rehab, would you do it under your LLC or your name?

Thanks,

Rob

Nate Tanner · Answer

Hi William,

I am not an attorney, but I can share my experience. I have several LLCs and the whys for me are protection and tax benefits. As a sole proprietor all your personal assets are at risk if you get sued by a tenant or anyone else.  With an LLC, the assets of the LLC are at risk, not your personal assets.  Secondly, you get a lot of tax advantages, but talk to a CPA and an attorney for more information on those advantages.

To address your question about $x or x number of properties, the question is how much do you want to be at risk?  Anything owned by the LLC is on the table in a lawsuit. If you hold all your assets in one LLC, they are all at risk if that business gets sued.

Again, talk to a trusted attorney and CPA, perhaps one will reply to your post here.

Good Luck