Having an eye for location and the ability to negotiate the best deals in town is only part of being a successful real estate investor — you also need to plan ahead and organize your real estate ventures in the smartest way possible. If you're looking for the best way to legally organize, protect, and manage your real estate investments, one of the best approaches is to form an LLC.
There are several reasons real estate investors should consider the option of creating an LLC. The tips and steps outlined in this article are not meant to take the place of professional legal or tax advice. However, it is important to understand some basic concepts about LLCs for real estate investors before you begin buying properties.
How to Set up an LLC for Real Estate Investors
Aside from the tangible benefits that come with forming an LLC, the simple process of setting one up makes this decision appealing to most investors. Here are the steps to setting up a real estate investment LLC:
File articles of incorporation with the state in which you will purchase investment property
Keep the LLC in good standing by having a Registered Agent in each state where you form an LLC
Pay the appropriate business formation fees — these vary by state, but are typically minimal compared to the benefits of forming your LLC
In addition, whenever you form a new LLC, it’s a good idea to find and compare your options for business liability insurance that will protect your investments.
As you complete the startup phases of your real estate investment business, keep in mind that you also need to keep your personal and business financial activities separate. This includes maintaining a separate business bank account, as well as using credit cards and loans that are in the company’s name (not yours). By not co-mingling your personal and real estate finances, you'll add an extra layer of protection between your investments and personal property in the event a tenant sues you.
Common Questions Real Estate Investors Have About Setting up LLCs
Now that you know how simple it can be to set up several LLCs for your real estate business, let’s take a look at some of the common questions investors have about this process.
What Is the Biggest Benefit of Forming an LLC for Real Estate Investments?
Two words: limited liability. It’s right there in the name for a reason! The number one reason to form an LLC is to provide legal separation and protection between your real estate property and your personal property. This could help you protect your personal assets in the unfortunate event of a lawsuit from a tenant or other event that could lead to litigation. Separate LLCs for each property will also protect each holding from the liability of another.
Can Real Estate LLCs Also Include Multiple-Member Entities?
Yes. In fact, you may want to create multiple-member LLCs for some of your properties, while maintaining your single-owner status on others. You might decide to go in on an investment with a partner, while pursuing another property completely on your own. LLCs offer unlimited flexibility for owners who take both approaches to investing.
Should I Set up Multiple LLCs for Multiple Properties?
If you’re like most real estate investors, you likely have your eye on multiple properties. Many investors do choose to set up an LLC for each property they own or manage, as a way to reduce the overall liability of any single business. If you live in a state that allows series LLCs, you can even set up multiple LLCs under the umbrella of a single business entity.
In this case, using a cost-efficient LLC formation service can save you hours of time. This can net you the time you need to evaluate your next deal or focus on other areas of your investment business. The cost for these filing services can range from $50 to $300 per business entity, plus the appropriate state filing fees. While we can’t speak for other services, Incfile includes lifetime customer support, online access to incorporation documents, and many other benefits as part of our business formation packages.
Should I Use an Online Service to Form My Real Estate LLC?
Chances are, you found this article because you're interested in forming an LLC for real estate investments, but you aren’t sure about the best next steps. There are many simple-to-use services like ours that make forming LLCs in any of the 50 states quick and easy. You'll also have extra peace of mind knowing that you didn’t overlook a detail or deadline that would have been caught by a trusted incorporation service.
Are You Ready to Form an LLC for Your Real Estate Investments?
There is no better time than now to protect your personal and real estate assets from liability. Talk to Incfile for advice about the business formation packages we offer for investors like yourself who want to organize their real estate holdings to minimize risk and maximize profit.
We have an A+ rating with the Better Business Bureau, and have helped form over 150,000 companies since 2004. After all, the steps you take now to form and protect your real estate business could save you hours of time and thousands of dollars down the road.
Are you ready tostart a business, form an LLC, or reorganize your business structure to take your real estate investment business to the next level?Talk to Incfile today! Our incorporation experts can help you evaluate your options in forming an LLC for real estate and make the best choice for your real estate business.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.