6 Steps to Create a Real Estate LLC
webmanager • May 17th, 2023
(If you’re investing in real estate and other properties, the answer is probably yes!)
Having a real estate LLC can do wonders for your real estate business, mainly because it carries certain tax benefits and is relatively easy to establish.
So if you are considering creating your own real estate business, you will need to learn everything there is to know about real estate LLC, its pros and cons, the cost to start one, and so on.
And in this article, you will learn exactly that!
So without further ado, let’s get started.
To better understand if a real estate LLC is right for you, it’s important to first understand what it means.
In layman’s terms, a real estate LLC (also known as a limited liability company) is a legal entity different from the individual investor who has the freedom to purchase, own, and manage the personal property.
The main reason why real estate investors use an LLC is that it can be established for separate personal assets or real estate transactions.
In short: you are not personally liable for anything that happens to your real estate business. An LLC is a way to separate the business from your personal self.
Moreover, by using real estate LLCs, real estate investors can manage various real estate investment properties at once.
Is a real estate LLC right for your business?
Most likely, the answer is yes.
If you are 18 years or older, and plan to manage various real estate properties at once, it’s likely a good idea to form an LLC for your business.
Note: It is not mandatory to be a US-based citizen.
Having an LLC for a real estate business comes with various accounting & tax benefits. Not only does it give you free pass-through taxation, but it can also offer personal liability protection for all of your current real estate investments and real estate holdings.
Regardless of which real estate investing business path you decide to take, it is always a good idea to first get the expertise and guidance of a well-experienced accountant.
An accountant can help you set up your real estate LLC in a way that is most beneficial to your bottom line, according to your state and unique circumstances.
Chatting with an accountant before creating your real estate LLC can save you thousands of dollars in the long run.
Furthermore, you will also get a better idea of liability insurance, personal finances, and so on.
If you don’t currently have a real estate accountant, you can ask us any questions you have in your first 15-minute complimentary consultation.
Book your consultation here.
If you have completed steps one and two successfully, it’s now time to choose a name for your own business.
Make sure to think of a unique creative business name that meets all of the needs and requirements of your state’s rules.
Note: Your title company will be officially registered with the government agency when you turn in your Articles of Organization.
If you need help coming up with a name, you can use naming tools and generators like LLC Name Generator.
These tools will help you determine if the business name is still available in your state.
One tip we recommend is to ensure that the name you choose is still available as a website domain, if you plan to create a website.
You can check if your business name is available for free on Godaddy here.
Securing your business name as your website domain (i.e. insertdomainhere.com) is essential to helping people find your business online later down the track.
Once you have decided on a good real estate business name, you can begin filing the paperwork and other legal documents to begin your LLC.
As a business owner, this can be done by yourself, or hire a real estate LLC attorney or a third-party company to do this for a fee.
Again, we recommend consulting with your accountant to help get you started in this area.
You’ll need to pay a visit to the Division of Corporations in your state, and decide on various other selections, such as s-corporation designation for tax purposes, and so on.
Note: the paperwork and filing requirements will vary depending on where you live. Make sure to look up the appropriate filing requirements for your specific state.
This website is a good resource to help you file the appropriate paperwork for your state.
If your state requires an Operating Agreement, you’ll need to create one when establishing your real estate LLC.
In simple terms, the Operating Agreement for your limited liability company defines the structure of the business, which includes ownership percentages, federal income taxes, the process to buy, sell or transfer the ownership rights, and so on.
However, not all states require this operating agreement. That said, it is still good to have one. This is because banks and other commercial lenders might ask for a copy of this operating agreement.
Listed below are a few essentials you need to mention in your LLC operating agreement:
We can refer you to one of our trusted real estate attorneys for complementary consultation. You can also find a sample LLC Operating Agreement here.
If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN), even if it has no employees.
If you form a one-member LLC, you must obtain an EIN for it only if you plan to have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity).
However, there are practical reasons it makes sense for SMLLCs to obtain an EIN as well.
You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.
At this point, you are ready to establish your business and create your real estate LLC.
The final step is to pay the fees that are associated with the creation of the LLC.
In general, most states charge $50 to $250+ as an annual license fee.
You can find an up-to-date table of state-by-state costs here.
Note: The LLC fee is an annual fee, meaning you will need to resubmit your payment each year to avoid a penalty and double taxation.
The process of starting an LLC for real estate is probably one of the most important things you can do as a real estate investor.
Not only does a single-member LLC help to protect your business entity and your separate legal entity, but it also comes with huge federal tax advantages.
We recommend first speaking with your accountant before creating your LLC to ensure you are structuring your business in the most tax-optimal way.
If you need help or want to discuss your existing real estate LLC, you can book your complimentary consultation with the Basta & Company team any time through this calendar.
Until next time!
Samy Basta brings you more than 20 years experience in tax, financial, and business consulting to his role as founder of Basta & Company. His focus is primarily strategic business planning, empowering clients to set priorities, focus energy and resources, and strengthen operations. In addition, Samy and his firm provide strategic counsel, and technical insight, on a wide range of needs, including tax saving strategies, tax return compliance, as well as choice of entity.
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