Is it necessary to set up an LLC?

[Jay Black]

I am just starting out in investing. I have been reading in the forums and trying to figure out where to start for a couple years now. I have finally started taking some action. I got a list of some potential properties where I might be able to find some deals and sent out direct mail today. 

I am now wondering if I should have set up a business (LLC?) before I started actively searching for properties? I know that there will be differences of opinion in what the right way to go about wholesaling, but I would like to know if it is absolutely necessary, or can I wholesale as an individual, not as a business?

[Jenifer Levini]

Hi Jay Black, I'm a real estate lawyer & investor, in your neighborhood. I set up LLCs for investors. Although you might assume that I'm going to suggest that you set up an LLC, I'm not.

The reality is that a lot of potential investors never become investors for one reason or another, most of the time having to do with the high prices of real estate around here.

Forming an LLC in California with a great Operating Agreement & business practices that protect you from liability isn't cheap. It's better to save your money until you're sure you actually have a property to place in the LLC. Typically, closing takes at least 30 days. In that time you can form your LLC.

Right now the State of CA Secretary of State is processing applications in 2-3 weeks. If your business isn't too complicated, the rest of the paperwork including the OA, EIN, bank accounts... can be created in 2-3 weeks.

My advice is to wait until you have a property under contract that looks likely to close, then form your LLC.

When you make the offer, the buyer should be your name "or assignee." This will allow you to assign the contract to your LLC and close with title in the name of your LLC.