Table of Contents
Written by : Fausto Dutton
Current : 2125
Write a comment
Write a comment
in today's video i'm going to share with you how to start an llc for rental properties and in addition to that i'm going to share with you another business entity that you should use in addition to your llc to offer yourself more privacy as a real estate investor coming up hey what's up everybody it's jamelle gibbs welcome to another video listen in today's video i want to share with you how to start an llc for rental properties so there's a couple of things that we're going to go through in this video we're going to talk about what is an llc we're going to talk about the benefits of setting up an llc we're going to talk about when you should set up an llc and then i'm also going to talk about the steps that you need to take in order to get your llc set up but if you stay on to the very end as i've mentioned i'm going to share with you another business entity that you need to use in order to offer yourself maximum privacy as a real estate investor in this way you have another layer of protection in your real estate investing business now before i jump into all of this content do me a favor go ahead and hit that like button share this video with a couple of your friends and also leave a comment let me know what questions you have in regards to setting up an llc if we don't cover it in this video now another thing i want you to keep in mind is i'm not an accountant i'm not an attorney i want you to check with your local state professionals to get tax and legal advice from them i'm just providing you with information that works for me in my real estate business and telling you exactly what we do in my business so with that being said let's go ahead and jump right in so what exactly is an llc well an llc stands for limited liability company that's where the name llc comes from limited liability company now you can set up an llc by yourself you can set up an llc with a partner or you can set up an llc within a group and when you own an llc you're considered to be a member of that llc so when i sign my name on the dotted line under my llc i'm signing as jamelle gibbs and then i'll have member within parentheses that's basically the way that i personally like to do it now a couple of things that you want to keep in mind when it comes to an llc basically an llc is regulated at a state level so what that means is each state will have a different way of getting your llc set up so you definitely want to check with your local state municipalities in order to find out how they want you to structure setting up an llc for your business so what are some of the benefits to creating an llc for your business well there's four key points that you want to keep in mind when it comes to structuring your llc first and foremost what it does is it limits your personal liability so when it comes to limiting your personal liability if you own a property under your personal name and someone were to come and file a lawsuit against you not only can they come after you personally for everything that you own but they can also come after all of the property that you have under your name as well when you set up an llc and you have a property under that llc the buck stops right there so if someone wanted to file a lawsuit against you in this case basically they can only go after what's under your personal name they can't go after what's under that llc because it has no ties to you personally now likewise if someone were to visit your property and get injured and that property is under an llc's name if you only have one property under that llc they can only go after the one property so it stops right there now in addition to that another benefit of having llc's set up is it will keep your rental properties separate from each other we just spoke about that just a minute ago where i talked about having multiple properties under one llc i want you to keep in mind that when you have more than one property under one llc your risk factor goes up on those properties again if someone were to file a lawsuit against that particular llc they can go after everything that's under that llc so the least you have within that llc the better what most investors do is they'll put a different property under a new llc so if they had 10 properties they might have 10 different llc's and one property under each llc but there is an easier way as i mentioned keep watching this video until the very end and i'm going to share with you what that method is it's definitely a killer strategy and will minimize your workload all right so keep watching now another benefit to having an llc is pass through taxation typically with an llc you get the benefit of the company's income passing through your personal income tax when you file taxes at the end of the year again talk to an accountant about how that works i don't want to provide you with any legal advice or any tax or accounting advice on this particular video again check with a local accountant to see how this works and what the benefits of that is but that's definitely a benefit when it comes to having an llc set up for your business pass through taxation keep that in mind so we spoke about what an llc is we also spoke about some of the benefits of having an llc like it limits your personal liability it keeps your rental property separate and also you have that pass-through taxation situation another benefit can be it separates your business expenses from your personal expenses again there's a ton of different benefits to having an llc set up what i recommend you do is talk to your local accountant to see what the other benefits can be when it comes to your real estate investing business so who should set up an llc who should create an llc well first and foremost let me tell you a little story i made a lot of money in real estate before i ever set up any type of business entity so what i recommend you do especially if you're low on capital right now focus on money making activities an llc is not necessarily a money making activity it's a protection activity okay so what i recommend you do first and foremost is get some money generated into your business get some income generated or at least start the process of getting the income generated into your business so do you need an llc right off the bat probably not again your focus needs to be on generating income without the income you don't have a business anyway now on the flip side of that if you're going to be holding properties long term and you're not focused on let's say wholesaling real estate then i would say yes definitely get a layer of protection for yourself right away so you should create an llc immediately if you're going to hold properties long term again you want to limit your liability which is exactly what this is this is a limited liability company and you want to limit your liability that you have with owning real estate in order to prevent someone coming in and trying to file a lawsuit against you and everything that you own and if you own 10 properties under your personal name basically what's going to happen is if someone were to ever follow a lawsuit against you not only are th
Thanks for your comment Marcellus Garavelli, have a nice day.
- Fausto Dutton, Staff Member
you know perhaps the most common question I receive from BiggerPockets members is should I set up an LLC for my real estate business it's a good question because I'm sure you've heard the horror stories of landlords and other investors getting sued by tenants and losing everything you didn't spend years learning about real estate growing your portfolio and figuring out how to be an effective landlord only to lose it all to some deadbeat looking to gain the legal system right however LLC's are also highly misunderstood in the real estate space because they're just so darn complicated what works for one person might not work for you and what works for you might not work for me well I could give you like the simple answer of talk to an attorney I wanted to have a little bit deeper so you understand this of course I am neither an attorney nor CPA so please take what I'm saying as my own personal opinion and get a qualified person to help you with legal discussions all right well my name is Brandon Turner author of the book on rental property investing and a host of the BiggerPockets podcast and in this video I want to walk you through the world of real estate in LLC's of course if you like real estate content be sure to subscribe to our Channel and click that little thumbs up button below this video letting the world know that this here is a good one all right now this video can be divided into really like three general chunks first I'm gonna explain what an LLC is and why they're so popular second I'll explain the downsides of an LLC and why you might not want one and third I'll walk through some other options you have for protecting your assets okay first let's talk about what an LLC is and what it isn't an LLC is not a get out of jail free card you can be sued with an LLC and you can lose everything an LLC is not designed to prevent you from ever being sued an LLC is designed to help you manage and contain the fallout from that lawsuit so according to the United States Small Business Administration SBA a limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and attacks efficiencies and operational flexibilities up a partnership according to the definition and LLC's benefits are threefold first limited liability if you were to get sued your liability then nor the damage to your wallet may be contained to the assets within the LLC not everything else you own in other words if an LLC is set up right and you get sued and lose the creditors problem won't be able to come and take your personal house to your car or garnish your w-2 job wages of course there are way as a judge might pierce the protection of an LLC and go after those things if every Iowa's not dotted and every T was not crossed all right the second part of the definition tax efficiency the LLC is fairly easy to handle during tax time especially if it's a single member LLC which basically means you own it or you and your spouse LLC's are known as pass-through entities which means the income and expenses flow magically through the LLC and are instead reported and paid by each individual member on their personal income statement there is no like corporate tax like a corporation may pay this can definitely make taxes easier and less expensive then let's say a big you know C Corp that's said while a single-member LLC does not require its own business tax return a multi-member LLC with partners does don't make that mistake now third operational flexibility an LLC is fairly flexible in terms of running it you don't need a thousand documents you don't need a bunch of stock issued it's fairly easy to set up fairly inexpensive depending on where you're at so it's easy to see why an LLC might be advantageous to a real estate investor I mean let's just say a tenant slips on the stairs BAM and broke their hip right the tenet decides to sue that landlord for neglect and the court sides with the tenant for whatever reason let's say your insurance doesn't cover all the legal penalties and you as the owner are required to pay five hundred thousand dollars out of pocket to the tenant ouch well if you own the property without an LLC the tenant could have your wages garnished and force you to sell all your properties and drive you to bankruptcy you probably end up eating cold beans out of a can under a bridge while pigeons sit on your shoulder it's not a fun place to be on the other hand if the owner of that property was Mainstreet Investments LLC then the LLC is the owner getting sued the courts could make you sell that property but they likely won't going to make you sell the other properties owned by other LLC's they won't take your primary residence you will be eating cold beans of course this example is a bit overdramatize and unlikely to happen and I actually don't mind eating cold beans but it does illustrate the fear that drives most investors to want an LLC however even though it sounds like it might be I might be encouraging you to go get an LLC right now hold your horses there are some other important factors to consider so LLC's can be awesome but let's talk about the problems with an LLC and real estate all right so LLC's are great I'm not gonna deny that however it might not be great for you there are some fairly important considerations to make before you jump into the LLC bandwagon that could affect your decision for example and maybe most importantly lending on an LLC is almost impossible for residential properties that's right if you plan on using a loan to acquire an investment property like a single or duplex triplex four-plex it's unlikely you can have an LLC on the property most residential lenders simply will not lend on a property inside of an LLC that makes you have to go to a commercial lender has higher fees higher rates shorter terms something you probably don't want to do now many investors simply transfer the ownership of the property into an LLC after purchasing the property in their own name but that does present some risks as well if the bank finds out and they probably will due to insurance reasons they get updated to that they might call your notdo because of the due on sale clause of course you didn't actually sell the property but you did transfer the title from one entity to your name to another your LLC now in the past this has never really been a problem as banks generally turn a blind eye to this but it seems it could change in the future and it's really only expected to get worse as interest rates go up so if you plan to go that route just I recommend speak with your bank get permission in writing to transfer the property into an LLC this is really the only way you'll be truly protected from that dreaded due on sale clause transferring from you to an LLC all right one other issue with an LLC will ask yourself what are you really protecting and spending all this time and energy doing new investors automatically think they need an LLC to protect themselves but when you're first starting out how much wealth do you really need to protect right then I mean think about it you've got a proper
Thanks Eliseo your participation is very much appreciated
- Fausto Dutton
About the author
I've studied mythology and folklore at Alice Lloyd College in Pippa Passes and I am an expert in early childhood education. I usually feel bittersweet. My previous job was automotive body repairer I held this position for 30 years, I love talking about amusement park visiting and tattooing. Huge fan of Jeff Goldblum I practice shooting and collect classic cars.
Try Not to laugh !
Joke resides here...