Start an LLC in California

10 Replies

I am a newbie and I am planning on investing in real state and starting fix and flip, and buy and hold. Currently I live in San Francisco, California. Any suggestions/recommendations on how to set up my LLC in California before getting into the weeds. Do I need to get it done through a lawyer? Many Thanks!

@Sipan Y. It's up to you, and your situation. If it is very generic, and there is not much to do, LegalZoom is a quick down and dirty way to get it done. If you are going to partner in that LLC with another investor/person you know, then for sure get it drafted by a lawyer because they will get you a bulletproof operating agreement and that is what you want in an LLC that is a partnership. Legalzoom cannot give you something super in depth where if the partner or you step out of the LLC they can turn around sue you, or take the whole business.

So, LLC that is for one rental, or maybe two rentals use legalzoom all day. An LLC that will be used for flipping, JV, partnerships, or a lot properties use an attorney.

@Sipan Y. If you have to ask, then yes you need a lawyer, and possibly an accountant. The lawyer and accountant will came at the question from different perspectives, legal and liability vs taxation.

But do you even need an LLC? A lawyer can advise you on this but may simply say to get one so he will get the fee for creating one. I suggest you read here and also check out the books by Nolo Press. They have books on creating your own LLC. I am not suggesting necessarily that you create one yourself, but you should be aware of the issues and questions that come up over the issue.

@Sipan Y.

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.

Any lawsuits would be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. If you're going the umbrella insurance route, make sure it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California would cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation.

You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Sipan Y.

You have some excellent advice in this thread. Any time you wonder if you need an attorney, you likely need an attorney! Here's a pretty good article regarding when to find a real estate attorney. Additionally, there are a few questions you want to ask any prospective attorney to ensure you're getting the best advice. Finally, since you're going to be flipping, check out this article about how to assess calculations when flipping.

Best of luck and welcome to BP!

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