When is the right time to have an LLC

Question

Hello,

I started my real estate investing in 2013 with my husband. Now we have 1 condo and 2 4plexes. My husband and I have a full time job and we do real estate investing part - time. We save and buy properties for long term hold. I am wondering if it's time for us to create an LLC and buy properties under the LLC instead of our trust. We don't have any immediate plans to leave our jobs as we love what we do and make 6 figure salary which means we can keep adding more properties to our portfolio with time.

Does anyone have any suggestions on the best course of action for opening an LLC? Should we just open a bank account, register an LLC and get a credit card so that the LLC can have some credit history? Can we take all the rent checks for the existing propertied on the LLC name and put it in the LLC bank account? Is there anything that we should keep in mind?

Thanks for your time.

Sukhwant

Sukhwant Kaur · Answer

Thanks to all who took time to write back. I appreciate the guidance. I guess I better find the right CPA/lawyer to ask all these questions. Protection is not the only reason for us to have an LLC. My thought is that if we are going to add more units in the future then it might be a wise next step to have an LLC. I guess I have to do more homework on this.

Thanks

Sukhwant

Richard Nguyen · Answer

Matt,

Thanks for the clarification.

Matt W. · Answer

Richard,

Sorry for any confusion, please take your CPA/Lawyer's advice. A single member LLC is treated as a disregarded entity, and it is also true that a husband/wife partnership may qualify if you both materially participate in the business and file as "qualified joint venture." This is an election your CPA will be able to advise you on.

IRS Link to Husband/Wife Partnerships

-Matt

Richard Nguyen · Answer

@Sukhwant Kaur

You sound like me and my wife. We had properties in our personal names for awhile then eventually put them in an LLC. My personal experience, the bank would not give us a business checking account til the LLC was registered so we did that first. We haven't thought about getting a credit card or developing credit history for the LLC. I'm not sure of the benefits and would like to learn more if anyone is willing to share. What Matt said about lenders out there that will finance for an LLC ring true for us as well. We work with a community bank for lending needs and do it all through the LLC without much difficulty (in WA state). My understanding is that they keep the loan in house so don't need to conform to fed requirements (my terminology may be inaccurate here).

@Matt Wallman

I had a quick question. My wife and I are both members of our LLC. When we set it up, both our lawyer and CPA said that it would be viewed as a disregarded entity. Your reply suggests otherwise. Is this something I need to review before the upcoming tax season? Thanks.

Jake Hottenrott · Answer

@Sukhwant Kaur  alot of the previous posters covered a lot of the main points you were asking for.  I recently wrote a blog post that discusses when an LLC is a good idea and when it's better to keep everything in your personal name.  Questions as Common as the Cold - LLC

Sukhwant Kaur · Answer

Steve,

It's just a family trust. I don't think having these properties under a trust provide any kind of protection. However I did get umbrella policy on top of the regular insurance for each building.

Thanks

Sukhwant

Steve Haight · Answer

@Sukhwant Kaur

Sounds like you guys are well on your way, good for you. You mentioned you have a trust what kind? I have always held my properties in land trust or LLC. Think some of the questions you ask would be good to take up with your accountant and see what his opinions would be!