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Author Topic: When to start an LLC  (Read 7789 times)

Offline WGGJR

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When to start an LLC
« on: March 13, 2006, 02:05:48 pm »
I plan to start an LLC to do my investing so that when I buy a property I can stop claim to it and save on taxes and protect my assets. My question is "should I get my LLC before I buy my first house or after?"

Thanks, Weldon
Jr

Offline kdhastedt

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Re:When to start an LLC
« Reply #1 on: March 13, 2006, 02:13:37 pm »

Weldon,

A couple of things...

(1) An LLC is a "pass through" entity for tax purposes, so there is no tax savings.  It is purely 'asset protection'.

(2) You can do it either way.  In the beginning (until your LLC has built up credit/credibility), you will most likely have to purchase under your personal credit and move the property into your LLC, anyway.  A lot of folks wait until they have a few properties.

(3) If you need a local RE lawyer, let me know.

Keith
I have CDO...it's like OCD but in alphabetical order - the way it should be!

Offline WGGJR

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Re:When to start an LLC
« Reply #2 on: March 13, 2006, 02:21:19 pm »
Thanks Keith.

I might have read out of context about saving on taxes, I believe I will get that info on the RE Lawyer from you.
Jr

Offline Roger J

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Re:When to start an LLC
« Reply #3 on: March 13, 2006, 06:54:54 pm »
Good idea on the attorney.  Might want to talk to a CPA as well.

One thing, alot of attorneys will encourage forming an LLC, unfortunately, for all the wrong reasons (namely, because you pay them to do it!).  I'm sure that Keith's is upfront and honest, but if he recommends it, find out exactly WHY.

Personally, I don't think that forming any business entity is smart until you know that you're actually going to be in that business.  You won't know until you've bought at least your first property if you even like, or will actually do, this business.

Unless you have some reason that having a separate entity in a start-up business is sound legal advice (you own have of the Burger King fortune, for example), I just don't understand the added costs of it.

Raj
www.HickoryNCHomes.com Search for all Hickory NC Homes for Sale.

Offline WGGJR

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Re:When to start an LLC
« Reply #4 on: March 14, 2006, 07:26:25 am »
Thanks Roger,

You and Keith always give good advise as I've seen reading through these Forums. As far as the LLC, there are so many different opinions out there that I figured that I would bring it here to see what you guys thought on the subject. I probably won't start one right off the bat, I will most likely wait to see if I need one. If everything works out as I plan and I do 2,3,4 houses a month with a full staff I will probably start one, By then I should have a better feel for everything and have a better understanding.

Thanks all!
Jr

mtnwizard

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Re:When to start an LLC
« Reply #5 on: March 14, 2006, 08:35:37 am »
Weldon,

Forming an LLC will protect your personal assets.  However, your real property will remain partitionable and subject to liens and encumbrances.  An LLC should be only part of your asset protection strategy.

Good luck to you.

Da Wiz

Offline WGGJR

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Re:When to start an LLC
« Reply #6 on: March 14, 2006, 08:44:25 am »
Thanks Wiz,

So, from everyones response, I need to wait until I have assets to protect. Although I will soon have 100-200k to start my investing. What type of protection would I need if I was sued for some reason? And what are some reasons why I would be sued? Should I worry too much at first or what? So many questions!

Weldon
Jr

mtnwizard

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Re:When to start an LLC
« Reply #7 on: March 14, 2006, 10:15:51 am »
When you are ready to go, I'd recommend placing your property in a land trust, then assigning a 10% interest to yourself and 90% to your LLC.  However, if you are the Managing Partner, you are able to assign the full 100% to your LLC.  The LLC will protect your personal assets, while the Trust protects your real property.  Good luck.

Da Wiz

Offline ttandoc

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Re:When to start an LLC
« Reply #8 on: March 14, 2006, 10:56:49 am »
Hi Wiz,

I have a question regarding creating a Land Trust. Who will be the Settler, Trustee and Beneficiaries ( i know this will be the LLC )? Is the % interest divided inside the LLC? Could you direct me to a site for a sample form of a Land Trus.

Thanks T

Offline Roger J

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Re:When to start an LLC
« Reply #9 on: March 14, 2006, 07:50:52 pm »
Thanks ttandoc,

We all have to here the Doc's ramble about land trusts day in and day out and you just have to ask him something else.  Now, we'll be here for ages hearing how wonderful the PACtrust/landtrust/trusting parent stuff is.  You'll truly believe after hearing the speech that a landtrust will protect you from all harm, make you a millionaire overnight, and tuck you into bed at night  ::)

Weldon on to your questions:

What type of protection would I need if I was sued for some reason?
Good insurance.  Both property and general liability.

And what are some reasons why I would be sued?
You looked at someone wrong.  You smell funny.  You make more money than they do.  Pretty much any reason under the sun, people will think of ways to sue IF they think that they have a chance of winning.  The key to not getting sued is a) don't make people want to sue you (don't make them MAD!) and b) using the proper forms/contracts to protect you.  If an attorney doesn't think that they can win a case, then they will usually require a large chunk of funds upfront.  The junk lawsuits won't do that, hence no lawsuit.

Should I worry too much at first or what?  I don't worry about getting sued.  I pay my attorney to do that!

Raj
www.HickoryNCHomes.com Search for all Hickory NC Homes for Sale.

mtnwizard

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Re:When to start an LLC
« Reply #10 on: March 15, 2006, 06:43:44 am »
T,

For a property you live in, you (or your LLC) will be the settlor/beneficiary.  You must name a Trustee and I always recommend a non-profit corporation acting only for the benefit of its members.  Appointing a trustee other than a corporation would allow the property to fall into the trustee's probate and other legal problems.  The % interest is divided inside the trust, not the LLC.

If you are buying a property "subject to", your seller is the settlor/beneficiary and retains 10% interest in the trust to avoid the DOSC.  You become a 90% beneficiary, and I usually assign a 50% interest to my tenant/buyer.

I hope this is of some help to you.

Da Wiz
« Last Edit: March 15, 2006, 07:30:45 am by mtnwizard »

Offline WGGJR

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Re:When to start an LLC
« Reply #11 on: March 15, 2006, 07:11:38 am »
Thanks Roger
Jr

Offline unwin99

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Re:When to start an LLC
« Reply #12 on: March 15, 2006, 04:26:55 pm »
With all due respect to Raj, whose opinions I find very helpful, I'm very appreciative of Wiz's response.  Very informative.   Thanks guys.

Rick

Offline kdhastedt

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Re:When to start an LLC
« Reply #13 on: March 15, 2006, 04:58:16 pm »
Maybe you just haven't heard it enough, Rick!

Keith
« Last Edit: March 15, 2006, 04:58:42 pm by kdhastedt »
I have CDO...it's like OCD but in alphabetical order - the way it should be!

Offline ragstoriches

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Re:When to start an LLC
« Reply #14 on: March 15, 2006, 06:19:23 pm »
I would also like to hear more about starting an LLC.  I have owned 3 investment rental properties in addition to my personal home for about 10 years now.  Just within the past year I have realized that I am an investor and should be doing more with investment property.  After reading up on this I started hearing about LLC's and asset protection.  I have an umbrella policy, but now I'm realizing that might not be enough.  I would like to hear any information anyone is willing to send my way on LLC's.   As much reading as I have done about it, it really seems confusing to me.  To start, would I do three separate LLC's?  How do I transfer the mortgage to the LLC?

I am also looking for an investment attorney and a CPA.  What is the best way to go about finding one?  I realize that the attorney would be able to answer my questions, but I would like to go in knowing something about this so that I don't end up being taken.

Thank you anyone who is willing to take this on.

 




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