Do I start an LLC as my first order of business?

Question

I am just getting started in real estate investing in western Pennsylvania.  Should I start an LLC as my first order of business.  I have a full time job but will be investing in real estate full-time with in 5 years.

Anthony Dooley · Answer

@Bret M Rankin No. Don't get an LLC because that what "people say." Understand the purpose of the LLC. BTW, it is not a magic pill that protects you from being sued, as some like to believe. Acquire some assets, then work on asset protection. Not the other way around.

Nicole A. · Answer

@Duane Smith What, me??! Nooo. I'm much too nice for any of that. ;-)

Besides, I'm in the boat where I think a person that is starting out could go either way. I think one should really be honest with themselves though. Are they the type to follow through with goals, or are new ideas generally exciting for a little while and then you get bored (or frustrated/overwhelmed) and forget about them? You can also do your first deal or 2 to get your feet wet and later when you find that you are indeed growing quickly and you've learned a lot about the reality of it all, you could decide a business entity is best for you. I always suggest getting an umbrella policy though! And please!...if you're going to be a landlord/buy and hold, please learn the local rental laws BEFORE you run into issues. That way you're prepared and can react/respond properly to situations instead of set off into a frenzied panic.

Scott Smith · Answer

@Bret M Rankin It's never too early to have an asset protection plan.  Especially if you plan to grow within the next 5 years.  It may be more cost effective to have a foundation, rather than waiting down the line and having to complete several transfers.  Have you heard of a Series LLC?  It may be worth looking into, since you are planning to do fix/flips and house rentals.  Keeping active and passive income separate can be important.

You can read more about the nuts and bolts here and here.

A Series LLC can offer compartmentalization, which will separate your assets, and asset protection through anonymity.  Message me if you are interested in finding out more.

Best of luck!

Matt K. · Answer

Unless you have a high net worth or  valuable assets you need to protect probably not. If you're going to do 20% down and 30 yr conventional loan........ and have a mortgage or rent your primary then you're probably fine using umbrella insurance.

Now, if you had a million in the bank and paid off primary and were looking to buy up some 100 unit complex in the hood it'd be a different convo.

Megan R. · Answer

Yeah - i would sort of disagree with some of the comments around not going for an LLC.  Especially if flipping - it makes sense to have your personal assets protected if something goes wrong on a repair or disclosures, etc.

Dont let it hold you up - but it is definitely worth the pain to not put all your work under your own liability.

Matt K. · Answer

Be thankful you're not in CA... regardless of where the LLC is, you're paying the FTB 800 min (and per LLC for those in series lol).

Duane Smith · Answer

I would say yes, but then @Nicole A. would start calling me names lol

Jay Helms · Answer

Not a bad place to start @Bret M Rankin. Even if you don’t use it right away, banks will eventually want to see your track record and how long you’ve been in business.

Steve Vaughan · Answer

Aha. Was wondering what 'getting started investing in real estate' meant.

If flipping,  an s-corp or LLC taxed as one can help reduce SE taxes. Talk to a tax pro.

I hold commercial property in LLCs, but not little houses with debt. Too hard to finance among other things.

Either way, don't earn active income and passive income inside the same entity. My .02

Do I start an LLC as my first order of business?

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