Should I Apply for an LLC before I buy my first property?
Hi All - new to investing wondering if I should open an LLC before I purchase my first investment property. Thanks!
@Debra Mazzone no, you don't need to. This is a very common question. Later on I would think about it, however not for your first property.
Originally posted by @Nathan Barshinger:@Debra Mazzone no, you don't need to. This is a very common question. Later on I would think about it, however not for your first property.
Hi Nathan - thanks for your reply!
@Debra Mazzone although you do not need to open an LLC prior to your first purchase, I would recommend opening one. An LLC provides protection and some tax benefits that you will want to take advantage of. Being that you will definitely need one in the future, and you only have to gain by opening one now I would absolutely go for it.
@Debra Mazzone you can always move the property into an LLC later on if you choose via a quitclaim deed. I am in the process of doing this right now for the first property I bought. LLC's are really good protection for liability exposure. I actually set up a trust which has all the LLC's under it. Each one of my properties has its own LLC which limits the liability of each property to just that property. If I sell the property I kill the LLC and in so doing all future liability forever. The reason my LLC's are under a trust is because just opening an LLC does not shield you completely. People can see who opened the LLC and could still in some instances find a way to go after you. I also wanted complete anonymity so if its owned by a trust there is no way to pierce that veil. This was described to me as the Cadillac of protection but just some information for ya. It can be overkill for where I am at right now but I have plans to aquireany more properties.
Best of luck to you,
-
Developer
- 830-446-3847
- https://heathshepard.kw.com/
- [email protected]
Originally posted by @Heath Shepard:@Debra Mazzone you can always move the property into an LLC later on if you choose via a quitclaim deed. I am in the process of doing this right now for the first property I bought. LLC's are really good protection for liability exposure. I actually set up a trust which has all the LLC's under it. Each one of my properties has its own LLC which limits the liability of each property to just that property. If I sell the property I kill the LLC and in so doing all future liability forever. The reason my LLC's are under a trust is because just opening an LLC does not shield you completely. People can see who opened the LLC and could still in some instances find a way to go after you. I also wanted complete anonymity so if its owned by a trust there is no way to pierce that veil. This was described to me as the Cadillac of protection but just some information for ya. It can be overkill for where I am at right now but I have plans to aquireany more properties.
Best of luck to you,
Hi Heath!
Thanks so much for your reply! I will plan on transferring the property to the LLC once purchased.
Originally posted by @Yitz Parnes:
@Debra Mazzone although you do not need to open an LLC prior to your first purchase, I would recommend opening one. An LLC provides protection and some tax benefits that you will want to take advantage of. Being that you will definitely need one in the future, and you only have to gain by opening one now I would absolutely go for it.
Hi Yitz,
Thanks for your reply!
Originally posted by @Nathan Barshinger:@Debra Mazzone no, you don't need to. This is a very common question. Later on I would think about it, however not for your first property.
I read some info that said it would cost about 1500-2000 per year to maintain an LLC. Is this true?
@Debra Mazzone you may have heard wrong. A majority of fees are the initial filing with yearly filing for earning. This article should help depending on your state https://www.upcounsel.com/annual-llc-fees-by-state
@Debra Mazzone that’s not true, I believe the annual report that you have file every year are $75.
Debra, keep in mind that if a major problem arises concerning your tenants and/or the property or a major lawsuit, the courts can take your personal bank account and hold you accountable, if you don't have an LLC or your insurance doesn't cover it.
Every state is different, when it comes to the costs of setting up an LLC. Incfile.com shows Pennsylvania costs anywhere from $131 to a little over $400. Here's the link.
Incfile seems to have some of the best prices out there, but it doesn't hurt to shop around! You can also have an attorney set one up for you and it would probably run somewhere in the area of $1000 to $1800. I suppose it depends upon the state and each attorneys costs. Someone else mentioned that you can buy the property and as soon as you have an LLC set up, you can transfer the property into the LLC. That's correct. Best of luck.
@Debra Mazzone as other posters mentioned it is always wise to set up an LLC but not necessary to start your investment journey. I'd recommend setting the LLC simultaneously while you are getting started and then you can focus on getting your full scale protection put together later. It can take time and effort to get the property under your LLC.
What state will you be doing business in?
Instead of paying hundreds or thousands for an attorney to set up the LLC it is easy to find requirements for your state online and in books. That way you'll only pay state registration fees (typically a few hundred dollars) and an annual renewal.
I recommend the following books:
Your Limited Liability Company
An Operating Manual
By NOLO
Form Your Own Limited Liability Company
By NOLO
Both will give you the ins and outs of this type of business structure and guide you in formation. Once your LLC/portfolio grows or more LLC members come into the fold I do find it prudent to work with an attorney to further refine your articles of incorporation and/or other LLC docs.
Very grateful for all of the great responses! Will be using all of the resources provided to take my next steps! Thanks all
@Debra Mazzone depends on your state as well. In Texas if your LLC makes less than, I believe $1.1m you pay no franchise tax. I paid my attorney $1200k to set up an LLC and due to every property being in its separate LLC nothing comes even close to that figure.
-
Developer
- 830-446-3847
- https://heathshepard.kw.com/
- [email protected]
@Debra Mazzone. You can if you want but your financing from the lender will be in your personal name. Then you can look at options to move the asset into your LLC.
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#3 Commercial Real Estate Investing Contributor
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Lots of good and inaccurate info in this thread. I suggest you talk to a lawyer who can form it.
I usually recommend learning your market and learning to market as the first step. Most other steps are tedious and a waste of energy .
So this has been a big issue for me. When I bought my duplex I bought it in an LLC and got a portfolio loan with terms that were not great. 4.5%, 5 year ARM with a 20 year amortization. I was able to find a lender that would give me, Heath Shepard, a 3.25% 30 year fixed note so I tried to refi my duplex but because its in an LLC I can't. What I have to do is do a quitclaim deed and put the property into my name, get a loan in my name, then I can quitclaim the property back into the LLC. The lender is fine with this. So going forward I will buy properties in my name to get a good 30 year loan, then do a quitclaim deed and put the property into an LLC. Hope this helps.
-
Developer
- 830-446-3847
- https://heathshepard.kw.com/
- [email protected]
@Debra Mazzone
I use to do property management. A few of the owners would have an LLC but most of them did not. It's up your decision but I think either way works just fine.
@Debra Mazzone I did not open my LLC until I had three properties so don't make that a reason to hold off. Keep going towards your goals
@Debra Mazzone My LLC requires an $800 tax return filing fee Even if they also made no money. So that's why I didn't open it until I absolutely have to which was when I had three properties