Should you form a LLC immediately?

[Dean Mitchell]

Greetings BiggerPockets 🌎,

I am a newer investor in real estate and I am currently working on obtaining my next deal. In order to complete the deal I have to team up with a few individuals, which will be our first time working together. They are very trustworthy and we plan to do many deals together in the future. However, we are contemplating if a LLC is necessary at this point in time? I have spoken with several investors who advised me that a LLC is essential, however it is not needed, especially in the beginning. On the other-hand, I have spoken with a hard money lender who advised that I should have a LLC formed at the time of closing.

So my question is: should we form a LLC for our first deal (considering the expenses & the management factor of a LLC)? Or should we get a deal or two under our belts and then form the LLC once we've gained more experience?

[Jon Reed]

If you were investing alone then people can argue back and forth if an LLC is necessary. I always say get an LLC before you close your first deal and have every business expense and property in the LLC's name.

Since there are three of you then you REALLY REALLY should have an LLC. Even though you trust your buddies you should get an LLC which outlines everything about your business relationship. What to do if someone wants out, what to do if someone dies, what to do if someone stops contributing... all of this should be outlined in your LLC and articles of organization.

When you start investing/working with friends, family, or anyone then you can be guaranteed that something will come up and put stress on the entire relationship.. but if you have an LLC you can all point back to what everyone agreed on when everyone was giving high fives and chanting how great this partnership will be.