When To Create an LLC?

This is in response to John Hyre’s audio on Asset Protection.

I’m just now getting back into Real Estate Investing while consentrating on “Flipping” houses to build Income. I’m doing this full time since my last “Lay-Off” from a 9am - 5pm job. I have a Brother-in-Law, who is still working a Full Time Job for the City and has agreed to be partners with me. I have no problem with that, but I’m currently doing all the educational finance investing and sweat equity at this time. His contribution is based on his knack for negoiating and knowing key people in the Real Estate arena. He is dependable but is mainly interested in OPM money (ie., Grant Money). I’ve already submitted both to Federal and Private Grant funding with no results as yet while doing my Real Estate Investing studies and out looking for houses to flip. My question is, should I go ahead and get an LLC with just myself since I currently have assets worth more than $50K?, or should I wait until my Brother-in-Law can contribute more to the partnership?


BillTwo :-\

If you’re going to own investment property, it’s always better to own it inside an entity to protect your personal assets from the risk associated with property ownership.

if you’re not going to own anything (wholesaling) then it doesn’t matter so much.

Its up to you how you want to approach it. There is no need for a new LLC unless you have acquire a property or you have a plan. My plan was to start one and get business credit cards. It works!!!

Mark and Steven,

Thanks for both your inputs and I will create an LLC against those assets that I use as rental properties.


BillTwo :slight_smile:

One more thing, after you create your corp, you will need to get an EIN number from the IRS>

I agree with the above. Forming an LLC in most states (not CA!) is so cheap & easy, why not do so? Also, if flipping, there is less need for asset protection (less opportunity to be sued compared to a landlord), but the entity is often useful for tax purposes (e.g., an S-corporation if social security taxes are an issue) with the asset protection then being free. Even in lieu of tax benefits (e.g., you are already maxing out most SS taxes due to a high salary), the ease of setting up & running an LLC is worth whatever modest asset protection it provides.

John Hyre