LLC Costs - How much? Is this a good deal?

Question

I'm a new investor and looking to start out with a couple flips a year to generate cash to fund purchases on rentals and duplexes. I live in California and have owned one rental property in Texas a few years. I think I would likely invest in other states for the rentals and duplexes due to the prices in California.

I have been listening to some of the podcasts and I thought from most I have listened to that the initial business set up costs a few thousand $'s.  I was offered by a group  an initial set up of $2,560. They would help me create and do quarterly filing on up to 5 business LLCs. They also offer unlimited consulting and access to their tax/legal group. Then after 2 years starting 2021 they would charge $150 for personal returns and $250 per business return annually.

In conjunction with the LLC and tax saving they also offered a funding and business credit line service. It is a software and education tool that supposedly builds my business credit and paydex score to 80-85 within 3-5 months so I can use the business instead of my personal guarantee. Plus I should get loans and line of credit rates using the business and I don't have to worry as much for debt to income ratios. This service they offered for a one time membership fee for $2495.

With both services its about $5K plus my state filings. Do you think this is worth it? I know I can try to do my own on legal zoom cheaper. But I'd rather have everything correct so I make sure I take advantage of any business expenses and deductions with an LLC. And since I'm new, if I'm getting unlimited consultation from attorneys or CPA for a couple years starting out that sounds like it would be helpful.

What are your thoughts? Thanks for your help

Preston

Sean Morrison · Answer

It sounds like this group are not attorneys if they're giving you access to their tax/legal people. The price seems pretty high for non-professionals to create LLCs. Also, tax and legal people should work for you, not some group.

Basit Siddiqi · Answer

@Preston SmedleyThe formation costs of an LLC will vary from person to person depending on how much help he/she is getting and the complexity of the LLC.Multi-member LLC's with complex operating/LLC agreements will cost more than a single member LLC with no operating agreement.Furthermore, the cheapest route to setting up an LLC is doing it yourself. However, that is not always the best route to go.With that said, it does seem like the costs you are being quoted are on the higher side.

Weston Couch · Answer

@Preston Smedley Well, I've seen CA investors avoid that franchise fee with a lot of success using a Delaware Statutory Trust("DST") which functions a lot like a Series LLC. It allows you to have compartmentalized liability protection(like you do with a bunch of individual LLC's) between your properties without having to fork out $800 annually per LLC. That in turn lets you grow your asset protection structure for minimal cost, both in terms of upkeep moving forward and expansion cost.

Of course, DST's still aren't free, and you'll probably still need to pay an attorney to set one up, but it's definitely a heck of a lot cheaper option for CA residents than a bunch of individual LLC's, just over the course of one year. If you have any questions about that, feel free to DM me.

Preston Smedley · Answer

@Weston Couch yes. I know I would have to pay the $800 per year if I establish the LLC in California.

Also I do not have to get both services. As I looked at a couple other forum posts I saw LLC set ups at $500-1000. Then if I had to pay a CPA to file my quarterly/year end returns, I am assuming that would be another few hundred per year where I thought the first service seemed reasonable. Especially if I want to add another LLC, they would help with up to 4 more.

Thanks for everyone's advice and help.

Weston Couch · Answer

@Preston Smedley Hey Preston, without going deep, those don't seem like good terms. Have they informed you of the $800 you'd have to pay to maintain each one of those LLC's in CA annually?

Clint G. · Answer

@Preston Smedley

Last LLC cost I was quoted to set up in TX was around $800

...one time cost.

Jerel Ehlert · Answer

Sounds fishy.  I'm only licensed in TX as a lawyer, so check around.