Are you interested in investing in real estate? With the growing demand and rising property prices, it’s a good idea to step in this market especially for the long term. And one of the best ways to get involved is by setting up an LLC for real estate investments.
From limiting your personal responsibility to reducing your real estate taxes, this commercial structure will bring you plenty of benefits as a real estate investor. This is why we’ve created this article, to show you how to set up an LLC for real estate investments in only 5 steps.
Step #1: Pick a Name for Your Real Estate LLC
The first step is choosing the name of your entity. It’s a smart move to include words like “real estate” or “properties”, because it will make it easily distinctable and automatically correlate it to the real estate industry. Of course, you should also add “LLC” at the end of your selected name.
After taking these considerations into account, it should be easy to pick a name, but you need to make sure it’s been taken already. You can do this by checking with your local Secretary of State’s office.
Ideally, you should brainstorm different names and then make a list with the 3-5 best ones, so you can then check their availability and finally pick the ideal name of your real estate LLC.
Step #2: Select the Registered Agent
After picking the name for your LLC, you need to select the registered agent. You need to make sure that you only pick a reputable and trustworthy person or entity, because it will play a vital role in handling paperwork for your real estate LLC. You also need to consider that the registered agent must reside in the same state as your LLC.
When it comes to selecting the registered agent, you have three available options:
- You can select yourself as the registered agent
- You can select a third-party company
- You can select an employee or services provider as the registered agent.
In many cases, the best option is to work with a third-party company that specializes in bringing registered agent services. This way your paperwork will be managed responsibly, which will play a major role in the stability and future growth of your real estate LLC.
Step #3: Create the Articles of Organization
Now that you have named your LLC and you’ve assigned a registered agent that will handle the paperwork of your company, it’s time to create the articles of organization. It is also referred to as the blueprint of an LLC because it will provide the state with key information about your entity such as:
- The name of your LLC
- The start date of your LLC
- The purpose of your LLC
- The address of your LLC
- The name and address of the designated registered agent
- Details about the members, managers and officers that compose the LLC.
This is a mandatory requisite when starting an LLC in any US state. Therefore, you should be ready to start this process as soon as you choose the name of your LLC and you select the registered agent.
Contrary to popular belief, it’s easy to create the articles of organization – here’s how you can do it in only 4 steps:
- Visit the website of the Secretary of State
- Obtain all the information about your LLC (name, address, start date, purpose, etc.)
- Fill out the application form with all the requested information
- Send the application.
If your state requires it, you will also have to publish a notice about your LLC in the local newspaper. This is the case for Arizona, Nebraska, and New York.
Step #4: Write the Operating Agreement
The Operating Agreement will define the rules, processes, and provisions that will apply to your real estate LLC. From designating how the profits will be distributed amongst the members to how you will find the LLC for your real estate investments, this legal contract is a requisite for setting up an LLC.
You should not write the operating agreement on your own because there are way too many details that need professionals and specialized guidance and advice. Therefore, we invite you to contact us, because we can write an operating agreement that will protect your rights and interests.
In a nutshell, this is how you can write the operating agreement for your real estate LLC:
- Provide information about the members and the ownership percentages
- Define the compensation, rights, roles, functions and responsibilities
- Write the terms for joining or leaving the entity
- Create the dissolution terms
- Install certain clauses such as a severity clause
This is why you need a professional to advise you when setting up an operating agreement for your LLC for real estate investments, to make sure it’s designed to protect your interests, rights and goals.
Step #5: Get the Licenses and Permits
Even though naming your LLC, selecting the registered agent, filling out the articles of organization and creating the operating agreement are the foundations for your LLC, you might still need to apply for certain licenses and permits such as:
- A general business license
- An employer identification number (EIN)
- Sales tax permit
- Professional licenses
If you do not make sure that your LLC for real estate investment has all the necessary licenses and permits, you might face issues such as fines and penalties.
Why Should You Set Up an LLC for Investing in Real Estate?
When compared to other types of legal structure for conducting real estate investments, an LLC offers you unique benefits:
- Protect Your Assets and Limit Your Responsibility: In the event of any legal claims or debts against the real estate investments made by your LLC, your personal assets like your car or home, won’t be affected. This is why an LLC is a popular option amongst real estate investors, because it acts like a shield between you and all the things that could go wrong.
- Reduce Your Taxes and Save Money: Thanks to the possibility to opt for pass-through taxation, the profits and losses will pass directly to the members, and will be reported on their individual tax returns. This will allow you to avoid a double taxation, and you will also be able to take full advantage of deductible expenses to further reduce your taxes.
- Distribute Profits and Investments Smartly: In case you are forming an LLC with other real estate investors, you can use the operating agreement to set up specific rules regarding the distribution of profits and investments. This will allow you to give each member their fair share depending on their role, potentially preventing problems and disputes in the future.
Here you have 3 powerful reasons to set up an LLC for real estate investments today, and we can help you to make it happen by giving us a call at [phone].
Should You Set up an LLC for Real Estate Investments on Your Own?
You can set up an LLC on your own in theory, but in practice it is not a good idea. Because you can dismiss important details when creating the operating agreement, a mistake that will leave you exposed to disputes, claims, legal issues, etc.
Especially if you are planning to form an LLC for real estate investing along with several other members, you need to be especially careful. And if you do not have a legal background and/or experience setting up LLCs for real estate investments, there are many things that can go wrong.
You should not take this lightly, and hence you should seek professional advice and services to set up your LLC the right way. This will allow you to enjoy the incredible benefits of limited responsibility, reduction in taxes and smart distribution of profits that a real estate investing LLC can offer you.
We Can Help You to Set up an LLC for Your Real Estate Investments Easily
If you want to set up an LLC for your real estate investment, then Quilca CPA Group can help you. With plenty of experience helping real estate investors, we are ready to handle your real estate investment needs – give us a call now at (786) 310-5582 or send us a message at [email protected] to schedule a consultation.