How to start an LLC?

8 Replies

new investor here- just got my first of (hopefully) many duplexes. Would it make sense to put it and any future properties under an LLC? Also how do you go about starting an LLC?

Not a lawyer but I take it you are asking this question to know how to minimize your expense and interaction with the $cost of consorting with the legal community

If its just you as the one sole owner, then the answer is different that if its with a group.  

When its just me. I just go to mycorporation or legal zoom, somebody like that. Stick to the rules laid out in the bi-laws, $5-600. Keep it simple, keep your minutes and do not loose your documents

However, if its with a group. Anyone you share a ownership with is more of a potential advisory than even your customers (look at the history of all long term shared ownership scenarios) . Go line by line with a lawyer and you're spending close to 4 to 5 digits upfront. Have CLEAR well thought out rules and you will hold more friendships.  

We can't give legal advice, but you can start an LLC by services like legal zoom or filing yourself. An attorney may assist you in setting it up as well. The main thing you need to worry about is landlord insurance and or umbrella. This will cover the liability of managing rentals. The LLC in itself won't protect you.

Not legal advice, but the other factor to identify is that to gain any protection of a limited liability it must be treated as separate (counsel or interwebs could explain more). Basically, make sure you keep your funds from the business acct (associate w/ the LLC) and your personal funds separate. Something to keep in mind as you explore this option.

@Nam Trang What is your reason for creating the LLC? In my experience, people tend to feel like they need to create a complex legal structure when a relatively cheap umbrella policy would provide adequate protection. We waited until we had multiple properties before creating our LLC structure and still also carry umbrella coverage.

I would suggest determining if the costs of the LLC ($'s setup / maintain and regulatory compliance) makes more sense for your situation and an umbrella policy.

John

@Nam Trang I'm a lawyer and an investor. Set up an LLC- not through Legal Zoom or Rocket Lawyer since they simply charge you to use the state forms you can find on line. Go find a business lawyer and have an LLC set up with an operating agreement, your first set of resolutions and obtain your tax ID. Cheaping out on your investment protections could be far more expensive later on.

@Nam Trang

Troll around BP (since the search function isn't that great). The LLC question is posted daily. Here a couple of threads I've posted on.

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

Depending on LLC's are formed in WA State (remember, legal entities are formed by State), you may be able to just file it yourself online. Otherwise, you might need to submit an Operating Agreement. In which case, you really should get a qualified professional (a lawyer in this case) to draft one for you that fits your needs. Sure, you could get something from the internet for free or next to nothing, but chances are its not going to say what you NEED it to say for your circumstances and your needs.

Meanwhile, you may not really need a LLC. Its generally more expensive, because of the lending, and can cause more headaches than its really worth. If you are just holding smaller residential properties as opposed to a shopping mall or even a gas station (which usually has huge liabilities), property insurance with an umbrella policy is generally good enough. As you read through BP, you'll find many investors don't use LLC's, and there are many that do. It really depends on your personal circumstances.

Good luck.