Did you use an attorney for your LLC?

Question

Hello Investors,

I want to get an LLC for my REI, but not sure if I should just do it on my own through the State website or hire an attorney.

My reasons on doing it myself: Pros= quick, cheap, simple

Cons: Not sure of all the legal jargon and if I set it up the best way to benefit me and my business.

Attorney: Pros= Better understanding of terms and conditions of the LLC from lawyer, Better protection?                                     Cons= Cost (not sure how much) I looking to purchase in the next month so I don't want any high expenses.                             Time looking for a lawyer that works with REI

Thoughts or experience?

Ned Carey · Answer

@Angelica Lopez I see investors here, or gurus say, just do it yourself. This is often terrible advice. When you are new you may not understand the pitfalls or the details.

Yes I do many things myself because I have years of experience and many hundreds of hours talking to attorneys. I don't need their advice for every transaction. You will get to that point to. But if you are not at that point you should talk to an expert. Or study and research until you are also an expert.

David M. · Answer

@Angelica Lopez

If you are doing any passive investments, there are no tax benefits to having a legal entity.  Its just for asset protection.  There are tax "efficiencies" if you are doing a business venture, that is when you have partners that aren't your spouse.  Then, you'll need an entity.

You might not need an attorney to file your LLC, especially if its just yourself.  But you probably want to consult with an attorney and CPA to learn how to operate correctly to protect your LLC's corporate veil.  There is no point spending the upfront costs and the continuing costs of the LLC (including commercial financing) to find out when you are being sued that you don't have the asset protection of the LLC because you were doing something wrong.

Don't forget to get insurance.  You need insurance anyway with LLC since you don't want to have to pay the legal fees to defend the LLC should something happen.

Good luck.

Ned Carey · Answer

@Angelica Lopez if you have to ask you should use a lawyer :-)

The main reason for a lawyer if for him or her to explain to you the proper way to run an LLC and the formalities expected. If you do not follow proper formalities, a court can rule it is not a real business and treat you as if you don't have an LLC (called Piercing the corporate Veil)

I recommend the self help legal books by NOLO Press. I have two on LLCs. While I don't recommend you do your first LLC yourself, I recommend you read up on LLCs so that you can communicate more effectively with your attorney. You should also contact a competent tax preparer that is familiar with real estate. There are different ways you can elect to have your LLC taxed. Depending on what you do with the LLC it can make a  big difference in taxes.

Angelica Lopez · Answer

@Ned Carey Hi!! Thank you for your advice! I totally agree with your statement, “If I have to ask, them...”

My only concern is cost. I want to spend the money on an attorney and then have investors tell me that I would have saved myself money by doing it myself (hate when that lol).

But as you stated, I know that they are technicalities that could possibly forfeit my LLC, so I want to make sure I’m doing it correctly.

Actually as I write this, I’m realizing that the $1k-2k might be worth the “what if’s” down the road.

Thank you for the recommendation on books. I’m always looking to learn as much as I can. This is all new to me.

Stay safe and happy investing!

Tom S. · Answer

@Angelica Lopez  As David correctly mentioned above, for buy and hold properties, the LLC is disregarded and the properties will be on Sch E of your personal tax return.  There are no additional tax benefits of the LLC.

Angelica Lopez · Answer

@David M. Hi! Thank you so much for your input! I am in GA and this is where I will be purchasing as well. I do realize that that’s a yearly cost for the LLC, but from what I’m reading in “How to Invest in Real Estate” book by BP, it’s worth it in terms of protecting my myself and assets and possibly tax benefits.

I’m GA the process is simple and we can just apply online.

David M. · Answer

@Angelica Lopez

First, do you realize that LLC are much more expensive to operate?  For one, you need to get commercial loans instead of residential loans?

Anyway, it really depends on your State and probably if you are doing a single member or multi-member.  In NJ, mi have a couple of attorneys tells me I don’t need an operating agreement as a single member as there is no point.  Meanwhile, I can do all the registration online in a few minutes and pay the fee online.  I hear other States you actually have to snail mail paperwork to the State for your filing.

Do you mind telling us what State(s) you plan on filing?

Good luck

Did you use an attorney for your LLC?

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