Best Way to Start an LLC?

Question

So I’m currently house hacking a triplex and am looking to buy my new rental. I would prefer to buy it in an LLC but would consider buying it in my personal name and transferring it later. I also just sent out a direct mail campaign and would prefer to have an LLC. I’m kindve in the take action, figure the details out later stage. My question is, what do you guys recommend for what service to use to start a sole proprietor LLC to hold rental properties in? I do t currently have a lawyer but know there’s a ton of online services that’ll do it. Curious what other investors idt. I’m in PA if that helps. Thanks in advance.

Nathan Gesner · Answer

If you're willing to put the time into figuring it out (it's not hard), you can create an LLC in Wyoming for around $100 and do it all online. I'm not sure what it would be like in PA but it certainly shouldn't cost you thousands.

I have 25 doors and own them all personally. I'm sure I'll set up an LLC some day, but for now I just carry a big umbrella insurance policy. The vast majority of Landlords will never be sued. Of those that are sued, the majority will not lose their case. Of those that do lose their case, the average payout is less than the average insurance coverage, which is why insurance companies recommend a certain amount.

The odds of you being sued and losing your assets are ridiculously small. The best protection is to know/obey the law, document everything, and treat your tenants honestly and fairly.

Ryan Lane · Answer

You can also look at LegalZoom or ZenBusiness. LegalZoom is more known, but you'll pay a premium for the service. ZenBusiness is a bit cheaper. The LLC is a good choice if you ever want to bring in a partner and it does provide another layer of protection. From a tax perspective, the LLC will be disregarded on your return until you bring a partner in, then it becomes a 1065.

Jason Smith · Answer

I would always recommend an attorney to draw up the docs.  There are a lot of online places where you can for an LLC but all to often they do not include everything you need to actually protect yourself.  This is especially true here in Texas where I am.  To get full legal protection you are likely looking for I’d recommend getting an attorney to help you out.  If you are going to be doing this for awhile you will acquire properties and want to KNOW that you have a solid corporate vail that is not easily pierced. Worth every dollar

Deniz Eker · Answer

I transferred from my personal name to an LLC after closing on a property in FL.I had paid cash.My accountant did it(cost me around 200).The lawyers charge more.I also have an umbrella policy and I don't think I will create for other properties in the future..

Chris K. · Answer

@Bill Goodland

Assuming you have the properties in Pennsylvania, note that you will incur the full realty transfer tax if you transfer the property from your personal name to an LLC. Depending on where you are, the amount is 2% to +4% of the property value. So that could hurt.

For a single-member LLC, you could use a service like Rocket Lawyer to form it. But if you never dealt with an LLC before, it may make sense to work with a lawyer to get it done. M guess is that you could get an attorney to do it for between $750 to $1k including all the filing fees.

And I agree with @Nathan G. that insurance is generally your first line of defense. If you ever partner with another investor, then you are more or less required to go with an LLC. But for a single-member LLCs, there's a limit to how much protection you can receive due to the fact that you are --- most likely --- actively managing the rentals.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Nathan McIntire · Answer

Creating an LLC for your real estate business could be a great idea especially if you are managing very many doors. having an LLC looking a bit more professional and could show credibility in the future with investors or lenders. I think it also depends on the number of members you. If its a single member LLC which is pretty straight forward, you could set up everything online for around $100 USD depending on what state you're in. If it's multiple members you may want to reach out to an attorney or use legal zoom to help set up operating agreements.

Ujwal Velagapudi · Answer

Do it yourself. It blows my mind how these "create an LLC" businesses even survive when the process is so simple. Especially in your case, you've got a very simple requirement. Just go onto the state website, create an LLC and bam $50-100 later you're done. The articles of incorporation will be mailed within a couple weeks, depending on the state, or it'll be posted online. You can even get that expedited to a few days if you pay a bit more. If you live in PA yourself, then you will be the "registered agent". Going to the IRS website to obtain your EIN is also a very easy process, all done online. Unless you want to give money away, please don't pay anybody to do these simple things for you (unless you've got a super complex scenario), there are so many online resources to help show you how for free.

As for transferring from your personal to LLC, like a poster mentioned, check into your transfer tax laws since you don't want to pay for that. Also, when you transfer, you can quit claim deed it over to the LLC which means it's not a warranty deed. You'll also need to get your lender's permission to transfer and put the business on the mortgage as well. I would just say start off with putting the property under your LLC from the start.

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