Should I establish an LLC before making any real estate investment deals? Is it safe to operate without one? Thoughts on establishing a trust that owns the LLC?
Most experienced investors will say don't worry about it until you've done a deal. I didn't have one when I did my first deal but now I'm working on my second one and I just sent off my paperwork to get it registered. I think it's a personal preference but you will eventually need it if you plan to be making money.
I chose to form a LLC right away. In IL it costs $500 to form and $250 annually, but it makes me look more professional to my tenants, and gives me some basic asset protection according to our attorney. We also increased our liability insurance to $2 million. It's not that expensive to do.
Dawn, Ask your Real Estate Lawyer.
I am no expert. here forming an LLC is $50, can be done online in about 30 minutes. annual taxes are $150. I currently have 3 of them. All different businesses. One is in the form of a trust and then the LLC.
Now for the importance of: If for some reason you get sued. The LLC gets the brunt of the legal action. Not you personally. although they will try to sue you personally. I have been on both side of the legal action. One i won case against llc. judge kicked out personal suit.
The other action was against me. I wasn't covered by a LLC. lets just say 25K later (legal fees) . selling of personal assets to pay those legals, refinancing a home . Do I need to say more. $50 bucks was a very cheap insurance policy. I sure got an expensive education.
Again Let me say
I AM NOT A LAWYER, DON"T REPRESENT A LAWYER. AND DO NOT GIVE LEGAL ADVISE.
I wouldn't bother for a single-family home or condo, mobile, etc. Having the residential property in an LLC causes lots of problem with financing and insuring. That one in a million horror story or being sued or podcast 109 has many people running scared, but if one is referring to an LLC as a corporation, one needs more education and information. They are very different. Talk to a professional who doesn't benefit from the hassles this will cause (tax people love these) or refer to one of the many threads posted here on BP of the pain LLCs cause when dealing in small numbers with little houses.
I have seen too many people devote so much time to getting their entity set up and pay lawyer fees before they have done a deal. It is important to set up your business correctly but don't let it prevent you from getting out there and finding deals at the same time.
This is a complex question. Partly it depends on what kind of deals you are going to do. Your risk profile while wholesaling is very different than if you hold rentals.
An LLC will give you SOME asset protection but not near as much as you might think. It will increase costs for accounting and make it more difficult and more expensive to get financing.
Also an LLC is a Limited Liability Company - not Limited Liability Corporation.
Thanks for all the responses. The information is VERY helpful!
I plan to start out in wholesaling so my initial thoughts are to do a few deals then establish the business especially since I don't have alot of extra money of my own right now. Any other thoughts or comments? Any thoughts or advice on wholesaling to get my feet wet and in the door?
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