All
Members
Companies
Blog
Forums
Podcast
Webinars
    User Log in  /  Sign up
  • Forums
    Newest Posts Trending Discussions Followed Forums Real Estate News & Current Events General Landlording & Rental Properties Buying & Selling Real Estate Deal Analysis See All
  • Education

    Read

    BiggerPockets Blog BPInsights: Expert Analysis Guides Glossary Reviews Member Blogs

    Watch

    Webinars Video Library Financial Independence Blueprint Intro to Real Estate: Rentals

    Listen

    BiggerPockets Real Estate Podcast BiggerPockets Money Podcast BiggerPockets Business Podcast Real Estate Rookie Podcast Daily Podcast (Audio Blog)

    Topics

    Business Operations Finance Finding Deals Property Management Property Types Strategy
  • Network

    Recommended Vendors

    Real Estate Agents Mortgage Lenders Companies Hard Money Lenders Contractors Investment Companies

    Search

    Members Events Jobs
  • Tools

    Calculators

    Rental Property Fix and Flip BRRRR Rehab Estimator
    Wholesaling Mortgage Payment 70% Rule Airbnb

    Services

    BPInsights: Property Insights Tenant Screening Property Management Lease Agreement Packages

    New Feature

    BPInsights (beta)

    Quickly analyze a property address or ZIP Code to compare your rent in your neighborhood.

    Analyze a property
  • Find Deals
    Real Estate Listings Find Foreclosures External Link Ads, Jobs, and Other
  • Bookstore

    Real Estate Books

    Profit Like The Pros Bidding to Buy See all books

    Featured Book

    BiggerPockets Wealth Magazine book cover
    BiggerPockets Wealth Magazine

    Written by financial journalists and data scientists, get 60+ pages of newsworthy content, expert-driven advice, and data-backed research written in a clear way to help you navigate your tough investment decisions in an ever-changing financial climate! Subscribe today and get the Oct/Nov issue delivered to your door!

    Get the Magazine
  • Pricing
Log In Sign up
User
Quick search links
Podcast Hard Money Lenders Books Washington
BlogsArrowReal Estate Elevated BlogArrow Should Your Investing Business Have an LLC?

Posted over 4 years ago

Should Your Investing Business Have an LLC?

Author

Christina El Moussa

Christina El Moussa
Flipper from Salt Lake City, UT

Previous Post

Habits Holding You Back From Better Real Estate Deals

Normal 1477434495 Shutterstock 192058409

As you’ve gotten into the world of real estate investing, you’ve no doubt learned a little bit about liability. After all, if you personally borrow funds for one of your house flip projects, then you’ll be responsible for paying that money back, even if the house you borrowed it for doesn’t sell. In most cases, that kind of loan—either through a private lender or a hard money lender—will be a secured loan, so the property itself will be the collateral. However, if the property doesn’t cover the amount of the loan, the lender may come after you and try to seize your income or assets.

The threat of being held liable for the capital put into a failed deal is enough to send a lot of people running to form an LLC, but is it really a good idea? Or should you stick to investing as an individual? To understand which way to go, it’s helpful to first understand exactly what an LLC is.

What Is an LLC?

LLC stands for limited liability company. Basically, with an LLC, you’ll have pass-through taxation, so as far as your taxes go, you’ll still basically be an individual who’s the sole proprietor of your business. The big difference when forming an LLC is that you’ll limit the personal liability you have for your business’ actions. That gets us to the pros and cons of forming an LLC for your real estate investing business.

Pro – Protect Your Personal Assets and Grow Your Business

With an LLC, you can keep your personal belongings, assets, and funds separate from your real estate investment business. That way, if something terrible happens to the business, your personal assets will be largely left alone.

At the same time, there’s no limit on the number of owners an LLC can have. That means, if you decide to partner with another investor, you won’t have to go through the process of dissolving your LLC and creating a new entity. Instead, you can just add them as an owner, and you’ll both be protected under the company.

Con – You Have to Have Separate Accounts for Personal and Business Funds

If you’re operating as an individual investing in real estate, you can just use your personal bank account for your capital. If you form an LLC, you’ll have to open a new business account specifically for your company. This can get a little bit more complicated as far as dealing with your finances, and you might end up owing your accountant more at tax time, as well.

Pro – It’s Cheaper and Simpler than Incorporating

Another option would be to incorporate your business, but that comes with a lot of changes that you might not be a big fan of. And it’s more expensive than forming an LLC, too. An LLC is probably the most cost-effective means to protect yourself and your business.

Not only is forming an LLC cheaper than incorporating, but it also involves a lot less paperwork. In general, if you’re looking for the fast and easy way to get the benefits you need from incorporating without actually going through the hassles of incorporating, then forming an LLC is the way to go.

If you’re only flipping houses to make extra money on the side, forming an LLC may not make sense. However, if you’re planning on turning your real estate investing business into a full-time job with multiple simultaneous flips each month or each quarter, you might want to consider it.

For more information about real estate investing, visit Real Estate Elevated's BiggerPockets blog. 


Related Posts

October 20, 2017 5 Tricks for Cutting Costs on Paint Projects
November 3, 2017 DIY Home Improvement Projects for Beginners to Try Their Hand At
June 6, 2017 5 Upgrades That Will Net You a Higher Price for Your Flip

Comments


Log in Sign up

Log in

Forgot password?

If you signed up for BiggerPockets via Facebook, you can log in with just one click!

Log in with Facebook

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Let's get started

We just need a few details to get you set up and ready to go!

Use your real name

Use at least 8 characters. Using a phrase of random words (like: paper Dog team blue) is secure and easy to remember.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Why create an account?

Receive a free digital download of The Ultimate Beginner's Guide to Real Estate Investing.

Connect with 1,000,000+ real estate investors!

Find local real estate meetups and events in your area.

Start analyzing real estate properties, we do the math for you.

It's free!

Explore

  • Membership
  • Community
  • Education
  • Marketplace
  • Tools
  • FilePlace
  • REI Resources
  • Perks
  • Glossary
  • Reviews
  • iOS App
  • Android App

Company

  • About Us
  • Press
  • Advertising
  • Careers
  • Stats
  • Contact Us

Important

  • Editorial Guidelines
  • Terms of Use
  • Rules
  • Privacy
  • FAQ

Social

  • Facebook
  • Twitter
  • YouTube
  • Instagram
© 2004-2021 BiggerPockets, LLC. All Rights Reserved.