CPA vs Lawyer regarding whether or not to set up an LLC

Member since 2021 · 27 posts · 5 votes

I am under contract for my first rental. My only question is do I need an LLC and if so (or not), would I need to speak with a CPA, lawyer, or both, regarding this? Thanks In advance!

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Robbie Young

Member since 2020 · 70 posts · 49 votes

I'm an attorney so I feel I have more insight into this. The problem with professional CPA or Attorney advice on wealth protection is that it is going to be extremely conservative. An attorney or CPA does not want to tell you no you don't need a LLC and then you are sued and they are being sued for giving you bad advice. If you come in to my office and pay me for advice, there is really zero chance of anything negative coming back toward me by telling you to set up an LLC. However, there are a number of real world reasons not to use a LLC when getting started.

Second thing to keep in mind is that most attorneys only know the basics about wealth protection. Only attorneys who do this for themselves and attorneys who do wealth protection for multi millionaires really know this area. The problem with the multi millionaire representative attorneys is that their advice is usually always to millionaires and not those starting out.

Search my post from a few weeks ago and you can see where I and others gave advice on whether you should use a LLC.

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
You'll probably get better advice on here than asking local lawyers or CPAs. They may have their own biases....
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
4y
@Brandon Montgomery

Ideally both -
It may be worthwhile to spend $300 to get both on a call and take 15 minutes of their time to help answer your call.

Attorney will advise on the legal considerations
CPA will advise on the tax considerations.
[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
I've only got a dozen rentals so far so I haven't bothered with an LLC yet. But once you have a net worth over a few hundred thousand buy an umbrella policy. Until then you are just wasting money. You are 10x more likely to do something personally to get you sued than the rental is.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
4y
@Brandon Montgomery
If you search this forum for "LLC insurance" you will find dozens of threads where this topic has been debated to death. Yet it's not dead.
Everybody has an opinion. One investor on this thread already suggested to forego professionals and rely on peer advice. Sure, in the year where we trust random Facebook/Reddit people to find out about dieting, crypto investing and Covid treatment, why not ask about LLCs at the same time? With the same impeccable reliability of advice.
That said... You do not need to speak with a CPA about an LLC for your first rental. It will not change your taxes. Your taxes will be exactly the same with or without an LLC. In fact, an LLC can cost you more in taxes, depending on where you live and operate. California, for example, imposes a $800 annual tax on all LLCs.
The main reason to create an LLC would be for asset protection, and this is attorneys' area. Beware that attorneys notoriously disagree on asset protection among themselves, and that includes the need for LLCs.
Non-attorneys' opinions are worthless. An investor saying "I don't have an LLC, and I have never had a problem" is quite silly. It's like saying "I have this 100-club sticker on my car, and I have never had a problem with cops." The question should be: have you ever been pulled for speeding? Did your sticker save you from a ticket?
Same with LLCs. If you HAVE been sued and your assets threatened, and your lack of LLC did not present a problem - then your experience is relevant. If you have NOT been sued, then you can only hope that your no-LLC approach is good enough.
To clarify, I'm neither for nor against LLCs. I'm not an attorney, and my opinion in legal matters does not matter, either.
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Alfred Amponsah
New to Real Estate · DALLAS TX · Member since 2021 · 24 posts · 10 votes
4y
@Michael Plaks
Interesting and can’t wait to read more
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
4y
@Brandon Montgomery
Don't waste your time with one now..or ever. I got an LLC and went to an attorney to set one up to put 5 or 6 of my properties in it. Then I learned how they can be pierced so easily by any lawyer if something happened. I would just get extra liability coverage on them and keep them in your personal name. And there's no tax benefits by having them in an LLC.
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Robbie Young
Member since 2020 · 70 posts · 49 votes
4y
I'm an attorney so I feel I have more insight into this. The problem with professional CPA or Attorney advice on wealth protection is that it is going to be extremely conservative. An attorney or CPA does not want to tell you no you don't need a LLC and then you are sued and they are being sued for giving you bad advice. If you come in to my office and pay me for advice, there is really zero chance of anything negative coming back toward me by telling you to set up an LLC. However, there are a number of real world reasons not to use a LLC when getting started.
Second thing to keep in mind is that most attorneys only know the basics about wealth protection. Only attorneys who do this for themselves and attorneys who do wealth protection for multi millionaires really know this area. The problem with the multi millionaire representative attorneys is that their advice is usually always to millionaires and not those starting out.
Search my post from a few weeks ago and you can see where I and others gave advice on whether you should use a LLC.
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