My Wife and I are looking to move into our first House Hack soon. I have a general question as when is the best time to start an LLC. We will also be managing a family property and looking to grow our portoflio over the next decade.
Curious as to peoples thoughts on when the right time to set something up will be.
Also interested in how an LLC can shelter us from taxes in other investments.
We are from the same city. You're in luck, the LLC fees were slashed this year to a cheap price, in order to encourage business formations. I'd purchase the LLC sooner than later.
There is something called a "series LLC" which I think you should do. You can place all your properties in individual LLCs, but under an umbrella name, like Wnek Properties.
@Michael Wnek - I would say to open an LLC when you need one, I would not open one just to open one. Once you create it then you should have separate bank accounts and do. It commingle funds. In most states the paperwork is pretty straightforward and are done same day.
Please note I am not an attorney or CPA.
LLC is not required for house hack.
In general, LLC does not save you taxes. fFr eg, there are some tax savings when you can shift the SE income from the business to a spouse who is a high earner, but rental income is not subject to SE tax anyway. If you do flips, that would save taxes, but flips are better conducted via S-corp and there is no way to specially allocate income high earner. Sorry to confuse you but, bottom line is, LLCs are not tax saving vehicle, they are for asset protection.
Unless you can buy a house in cash or have a non-recourse loan, putting assets in LLC does no good if you are personally guaranteeing them.
You will eventually need an LLC, but dont worry about it while you are house hacking and more importantly dont let it stop investing. As you buy properties and built more equity, you will be in a position to need them.
Start your LLC when you have something to loose. It is primarily a way to isolate personal assets from business assets. It is a tool in the asset protection plan. It has its pros and cons. It may save on taxes as @Ashish Acharya talked about. It is harder to get loans, you must file a tax return, it costs something each year in most states, etc. it should be obvious when you need to start it.
This is perfect. Thank you taking the time to respond!
@Ashish Acharya Hi Ashish, I am also getting ready to house hack and have a question, not about LLCs but about tracking expenses. I plan to have 2 roommates, which will cover the expenses and then some.
But I will be covering utilities since I'll put them in my name and will keep account of future CapEx, vacancy, etc. Most likely, I will contribute to these expenses with my own money but I plan on opening a separate bank account for anything related to the house. How do you suggest that I track everything? And should I get software like Quickbooks?
For house hack, an excel is more than enough.
Opening a separate account is very easy with online accounts such as Citi 360. But remember it has nothing to do with no comingling the funds. House hacking by nature is comingling the asset with rental. It’s just for easy bookkeeping.
All the expenses that are directly related to the two rooms that you will be renting are 100 deductible, shared expenses are 2/3 deductible, in general, depends on how your allocate. But there are some limitations on over deduction of expenses too.
Create an excel, if you need help I can help you create one. Let me know.
Good luck brother.
@Rodney Reeves If you're looking for an easy spreadsheet to track your income/expenses in I like this one:
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