LLC To start investing needed?

[Jeremy Cardenales]

Hello everyone I am in the process of searching to purchase my second property and wanted to know if it is too soon to get an LLC? Or to create a coporation or even both . Any kind i of input is definitely Appreciated thank you!!

[Mike S.]

It all depend on your risk tolerence.

Creating and maintening an LLC has a cost. It's like insurance: would you pay every year a $1000 premium to insure your cellphone that cost $1000 and that you expect to keep 3 years? Of course not. Would you pay the same $1000 if you cellphone was costing $10,000? Maybe. Also be aware that LLCs are not a set up once and forget about it. You will need to maintain them and operate them properly to avoid piercing their veil. It will also limit your access to financing and may increase some other administrative chores.

Using LLC is an excellent tool for asset protection. But what do you have to protect? Are you a magnet for lawsuit? Do you have already a good liability and umbrella insurance policy that will cover you fairly for a broad range of issue?

There are many school of thoughts on the subject. A few members here will tell you that you should consider LLC when the free equity on your asset is over $100,000. For some it may be lower, for other it will be more. It all depend on what will make you sleep better at night.

If you are expending your business and expecting to grow your asset over the next few years, it may be worth starting having the structure in place for it.

Using LLC to hold your properties should be tax neutral. It also may be good for estate planning and lowering your estate taxes. On the other hand, creating a C corporation for managing these LLCs and/or properties could have a lot of tax benefit and tax shifting strategies. It gives you also access to a lot of fringe benefits and open the door to many retirement plans options.