Are you one of the many investors hoping to up your profits? Then the answer is diversifying your portfolio with real estate. With demands for various properties growing (such as multi-family properties, commercial spaces, etc.), there’s room for you to fill different niches.
It’s important that you set up a business first though. Not only will this give you more credibility, but it’ll also offer you certain advantages. For this reason, many people choose limited liability companies (LLCs).
Those who want to know how to set up an LLC for real estate are in the right place. In this article, we’ll outline the steps in easy ways for you to follow.
Should I Start an LLC for Real Estate Investing?
First of all, is having an LLC for real estate a good idea? In general, yes.
A real estate LLC will offer protection for your personal assets. Should your business get sued or have any sort of liabilities, your own assets usually won’t be used to settle anything. There are some special cases where this might happen, but for the most part, there’s nothing to worry about.
In addition, you’ll enjoy tax benefits. LLCs are taxed as pass-through entities, which means your company won’t pay taxes on income. Instead, the profits and losses are passed onto you (and any other LLC members). As a result, there’s no double taxation.
Many real estate developers choose to create a separate LLC for each property or development. This strategy provides an additional layer of asset protection by isolating liabilities. For instance, if one property faces a lawsuit or financial difficulties, only the assets within that specific LLC are at risk, shielding the rest of your portfolio. This approach also simplifies accounting and management for individual properties, making it easier to track performance and ensure compliance with legal and financial obligations.
Now, if you’re convinced, here are the steps to creating an LLC for real estate.
Choose a Business Name
You can’t have a business without a name, and it’s got to be a unique and memorable one. Otherwise, you won’t make a lasting impression on clients, partners, and other parties.
Not only do you have to be creative, but you also have to comply with your state’s LLC naming rules. In all states, you’ll have to have “Limited Liability Company,” “LLC,” or “L.L.C.” in the title too.
Do note that there are restricted words in many states. For example, “bank” and “insurance” isn’t allowed unless your company is actually in those industries.
Appoint a Registered Agent
All LLCs must have a registered agent. This is either a person or entity that receives legal and official documents on your LLC’s behalf.
Technically, you can be your own company’s registered agent. However, there are many downsides to this, and we don’t recommend doing so.
Instead, you should use our registered agent service, as we have experts who can take care of the duties for you. Our services are 100% remote, which means you aren’t tied down to one physical location. Plus, our prices start at $147 per year, which is very affordable.
File the Articles of Organization
The articles of organization (or certificate of formation) are what officially establishes your LLC with the state. The following is what you need to include about the company:
- Name
- Purpose
- Address
- Registered agent information
- Management structure (member-managed or manager-managed)
You can complete the form online or by mail through your state’s Secretary of State office. The filing fee can be anywhere between $50 to $500, depending on the state. The processing time also depends on where you’re located, but you can usually get expedited services by paying extra.
If you don’t want to deal with all of this, then you can use our free business registration service. It even comes with a free year of our registered agent service! You just need to pay for the state fees, plus whatever extra services you want.
Create an Operating Agreement
An operating agreement shows how your LLC will operate; it’s not always legally required, but it’s highly recommended that you create one anyway. It can be a lifesaver should any issues arise.
Key details you should include in the document include:
- Roles and responsibilities of members and managers
- Ownership percentages of each member
- Voting rights and decision-making processes
- How profits and losses are distributed
- Procedures for adding or removing members
Don’t forget to include real estate-specific clauses as well. Address how properties will be managed, liability protections, and how property-related expenses and income will be handled.
Get an Employer Identification Number (EIN)
If you want to open a business bank account or hire employees, then you’ll need an EIN. This is the equivalent of a Social Security number for your company.
Keep this number handy, as you’ll need it to file state and federal taxes.
Open a Business Bank Account
Once you receive your EIN, you can open a business bank account. You should get one because if you keep personal and business finances separate, not only will it make bookkeeping easier, but it’ll also protect your personal assets.
Obtain Necessary Licenses and Permits
Depending on your city and state, you might need a general business license. You may also need specific permits to operate an LLC for real estate purposes. If you plan on being a landlord, then be aware that some cities or counties require you to have rental property licenses.
In addition, you’ll have to check local zoning laws if you’re planning on running your real estate business from a home office or specific property.
Set Up Real Estate-Specific Needs
Do you already own real estate? Then you’ll have to transfer the title to the LLC. Typically, this means you’ll have to prepare a deed that names the LLC as the new owner, and then file the deed with the local county recorder’s office.
You’ll also need you update your property insurance to reflect ownership by the LLC. In some cases, you might need liability insurance tailored for real estate investments.
Know How to Set Up an LLC for Real Estate
You don’t have to go this route, but knowing how to set up an LLC for real estate can be beneficial. It may seem complicated at first, but if you follow the steps we’ve laid out for you, then your business will operate smoothly while you have protection over your personal assets.
Sign up with Business Anywhere to use our comprehensive services for entrepreneurs. We can get your LLC set up in a flash. Plus it’s completely free – just pay state fees!
