Multi-Investor LLC

[Floyd DaCosta]

Hi - I'm new to this community, but i appreciate all of the valuable advice and discussions !

Looking for some input here (on what is likely a pretty basic question for all of you.)

I, along with 2 other people, are planning on setting up an LLC for the purposes of buying, renovating and selling properties. I'm looking for information (and best practices) around getting this setup.

I've perused some of the existing forums but haven't been able to find exactly that information.

Is there any information or gotchas to keep in mind?

Any information is appreciated .. !

[David Beard]

My advice since you're new to this:

• For a multi-member LLC, there are many issues to address such as member buyout, member death, member differences in work performed, etc. So use a real estate attorney who has lots of experience with setting up business entities. This is probably not an attorney at a title company office. The attorney will have a questionnaire to walk through issues. You should probably also get a good book on LLC creation, so that you can speak the language (NOLO). You can find a good attorney through referrals from your REIA group, other investors you know, real estate agents. You can also use your tax assessor's site and secretary of state's site to identify which attorneys are being used by other active LLC investors.
• Take steps to shield the identity of the members. In most states, this can be done through the use of attorneys and statutory representatives, so that members are not revealed in the public record. Also be sure to set up and use a P.O. Box, especially for your county tax assessor, which is public info. If a physical address is ever needed, you can use a UPS store or equivalent.
• Use liability insurance as the first line of lawsuit defense. Make sure that you each have umbrella insurance of at least $2mm.
• Recognize up front that partnerships often result in frustration and remorse due to inequities in work performed (that is not property recognized in the operating agreement), differences in opinion on how to grow the business (take distributions versus plow all profits back in), etc. Make sure you talk through these issues thoroughly in advance. The attorney has seen it all and should be able to give good guidance. It's money well spent.
• Of course, get a tax pro involved. At some point it may make sense for your LLC to elect S-corp treatment (rather than straight pass-through) and pay salaries, in order to bypass some self employment taxes.