Need Help: Should I start an LLC?

Question

Yes, I used the search feature and read countless posts from previous people asking similar questions, but nothing that related to my situation.

On Tuesday I will be closing on my 5th house. All are owned 100% free and clear. These are low to middle class houses that I have no plans of ever selling.

I have no idea if it is now time to set up an LLC or if it is even worth doing? Right now I don't even have a business license as I bought my first house around June and have just fell in love and have been busy buying more houses. I have told myself I am not allowed to buy anymore (after this 5th one on Tuesday) until I get everything set up the right way.

Any and all advice would be greatly appreciated.

Basit Siddiqi · Answer

@Derek E.LLC's will benefit you if you own these properties free and clear and do not have proper insurance coverage.If you get sued - the individual can go after all the properties.From a legal perspective - How many properties will you hold in each LLC's?Many people will argue to have 1 LLC for each property.Ultimately - it depends on how much each property is worth and your comfort level.From a tax perspective - as long as you are the only member of the LLC - it will be considered pass-through and reported on your individual tax return.It doesn't look like it costs much to create and LLC in West Virginia(per Nolo.com)$100 initial fee to set up the LLC$25 annual fee to keep LLC in good standing$30 fee to West Virginia for Business license with the stateMost CPA's offer a free consultation. Provide your tax profile during your consultation and see if the CPA/Tax accountant connect. Are you looking to connect with a local CPA or one who works with clients remotely?Feel free to use the search feature, local REIA and recommendations for a local CPA. Otherwise there are many CPA's on this site who work with clients remotely.

Brian Schmelzlen · Answer

Derek, an LLC is not important for tax purposes in your situation. However, I would still recommend forming it. The more properties you own, the more valuable the liability protection that LLCs offer is. I do suggest talking to a CPA soon about this and tax issues/planning. Everyone’s situation is slightly different, so a conversation where you can disclose details you might not want to publicly share is helpful.

Jerry W. · Answer

@Derek E., I would suggest you form an LLC. They are actually very easy to form. It can be done in under 10 minutes, 30 minutes if you are new to it, and usually only a few hundred to set up. What is important is knowing how to run things n order to keep your corporate formalities and get maximum tax benefits. I would suggest talking to your CPA or get a good CPA to decide what tax structure you want to elect under. You need to decide if you will use a single member LLC or or have partners like a spouse. It is very important to know the rules on how to run one. There are a lot of articles out there to help. Don't get sucked into the buy my bullet proof investing plan for $20K that some folks are pitching. They have 3 layers of companies and trusts, etc. They charge a lot, charge often, and can kill your cash flow. That being said the stuff works, just not as good as they say, and it is only marginally better than doing a simple one. If you can afford to buy 5 houses and pay cash, you cannot afford not to plan on asset protection. It can be helpful to consult with an attorney or hire one to help, but pay more than a thousand or so. Anything more than that is mostly hype.

Ken Fung · Answer

Seems like the rule of thumb is to setup a LLC after the 5th property. IF you own all the properties free and clear, e.g. Derek E, then it should be easy to transfer the deeds to the LLC. However, if the properties are financed, can the deed be transferred from my name to the LLC? From other posts, this appears to be problematic. So if I'm looking to buy my first property with financing, should I start the LLC first?thanks,Ken

Caleb Heimsoth · Answer

My cpa recommended to me to have an LLC sometime around 5 properties. I’m about half way there currently and already have one. In your case I would form one. You can look up direct ways of setting it up. You could do all in one or all in separate LLC within series LLC. For you it’s probably cost effective To put all in one LLC and then just get extra insurance

Brian Schmelzlen · Answer

Every firm is different, but I would avoid any firm that would charge you because it seems like they would nickel and dime you too much.

Derrick E. · Answer

That's kind of what I was thinking. With more properties/tenants comes more liability.I will try to reach out to a CPA this week. Are free consultations normal or should I expect to pay to even speak with a CPA?

Derrick E. · Answer

Thank you so much for the response. I haven't been using a CPA. I've just been keeping records of everything up to this point. I didn't expect to grow this fast and I don't see myself slowing down any time soon. Guess I will look for a local CPA to reach out to. I'm very interested in getting the maximum tax benefits and my wife would most likely be on there with me, unless we can benefit from only having one of us listed. My wife told me I couldn't buy another house until I got things in line, and I know she is right so I agreed to it lol. I really want to buy more houses so I need to get this done.