Do You Need an LLC To Start Investing in Real Estate?
TL;DR - Thinking you need an LLC to get started with real estate may be holding you back. However, once you have multiple properties with good cash flow or want anonymity, it can be a good idea to create one.
DISCLAIMER: THIS IS NOT LEGAL OR TAX ADVICE. CONSULT A PROFESSIONAL.
If you’ve recently picked up real estate investing, or have been thinking about getting started, you probably have one question on your mind:
Should I make an LLC or not?
It’s a hotly debated topic within the real estate industry — there are staunch advocates for both sides.
But we’re here to make it easy for you.
We’re going to cover why the idea of making an LLC might be holding you back. And then we’re going to describe when you should get an LLC.
By the end of this article, you’ll know exactly what you need to do. So let’s get started!
Real Estate LLC
Why an LLC Might Be Holding You Back
An LLC, or limited liability company, is a business structure that offers personal liability protection and flexibility when it comes to taxes and management.
Because of the benefits of LLCs, many real estate investors choose to establish one or multiple of them.
Even so, they’re not completely necessary when first starting in real estate.
Beginning investors often waste a ton of time gathering information about the real estate industry. They research every single thing they think they need to know before starting.
Instead of taking action, they push it off further and further so that they can know everything there is to know.
Eventually, they stumble upon the idea that you need an LLC before you can get started. Which, you guessed it, pushes off action even further.
Because now they don’t just have to go through the process of purchasing real estate, they also have to set up an LLC.
This inaction can set you back months – potentially years – before you actually buy your first piece of property. And by then you’ll have missed out on a ton of money, not to mention experience!
While it’s good to do research, the knowledge you’ll learn is useless if it’s not implemented.
In the same vein, creating an LLC makes you feel like you’re getting work done when you really aren’t.
Imperfect action is the number one way to improve and learn as a real estate investor. You’re going to make mistakes either way. So will you make them now or later?
One path builds your wealth quicker and the other delays it.
When You Should Get an LLC
When you’re an established real estate investor and have significant wealth to protect, it’s good to make an LLC.
An LLC gives you personal protection of your assets. But when you’re first starting out, you don’t really have that much to protect.
Once you’ve learned the real estate game and have built up a solid portfolio of properties, that’s when you should make an LLC.
An LLC will protect your properties and your personal assets.
Your personal assets may range from:
Money
Investments
Your Home
Cars
Anything else you own
Any legal action that comes your way won’t affect your personal wealth with an LLC.
A sign that you’re ready to make an LLC is once your property cash flow is larger than the costs of creating and maintaining an LLC.
By that point, it makes sense to utilize the benefits of a legal entity.
Beyond personal protection, LLCs allow you to group your properties up. You can have multiple properties under one business. This can make them easier to manage for tax purposes and such.
It’s also a good idea to have an LLC if you want anonymity.
While people can easily identify you as the owner of a home, it’s a bit harder to do that if an LLC “owns” the property.
A savvy researcher would have to figure out who owns the LLC that owns the property before they’d know your name.
Until Then, Focus On Learning
When you’re first starting out as a real estate investor, it’s highly unlikely that you’ll need an LLC.
You don’t really need protection for your personal assets because they aren’t large enough yet. Unless you’re already a millionaire!
If anything, creating an LLC before investing in property makes you feel like you’ve done something significant when you really haven’t. It only adds a layer of complexity to an already complex undertaking for a beginner.
You’ll add unnecessary costs to your journey, as well as legal roadblocks and additional paperwork. Trust us — you do not want extra paperwork.
The real progress is buying real estate, learning as you go, earning cash flow, and then using your profit to build your empire. Anything besides that is hindering your progress.
At least in the beginning.
Final Thoughts
Unless you’re already a millionaire or have multiple real estate properties, chances are an LLC is not the right choice for you.
They simply add too much complexity and additional costs to getting started with real estate.
Plus, there are other methods to protect yourself and your properties than forming an LLC.
These include property insurance, an umbrella policy, leverage, and preventative maintenance.
But whether you create an LLC, pursue these other methods, or go another route, keep one thing in mind.
Do not set up these things by yourself. Use professional businesses and legal services when setting anything up for your real estate.
It may seem like you can do everything yourself, but this is a risky route to take. To best protect yourself, you’ll want to make sure your real estate operation is in tip-top shape legally. From head to toe.
Even one little hiccup can cost you everything. So be safe and consult professionals!
As always, happy hunting!
How We Can Help You
Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.
