How to Use an LLC to Buy Property for Real Estate Investing

How to Use an LLC to Buy Property for Real Estate Investing

Joe: Hey, it’s Joe Crump. How to purchase real estate with an LLC. First of all, you don’t need an LLC to start buying real estate. You can put all your taxes through a Schedule C on your 1040’s so you can be self-employed. But if you’re doing this on a regular basis, you want to get an LLC. LLCs aren’t that expensive to set up. If you’re in an expensive place to set them up, like California, you might want to think about setting one up in Delaware where it’s cheaper and there’s more privacy and you don’t have to pay the franchise taxes and there’s some other issues. Especially if you’re working out of state.

Joe: I set up my LLCs in Indiana. It costs me $90 to set up an LLC online in Indiana. And you can do the same thing. It’s not that difficult. You can get an EiN for your taxes and that’ll allow you to be able to open up a bank account and you can run everything through that LLC. And that LLC will protect your assets. So, let’s say you have nine properties. You own nine houses. And you don’t want to lose them all if you get sued. So, you set up a structure so that three properties are in the first LLC, three properties are in the second LLC, and three properties are in the third LLC.

Joe: If property number one in LLC number one get sued, and you lose, and you’re insurance doesn’t cover it, and they decided they’re going to take all the assets of that LLC, the most you’ve lost is those three properties and you still have your six other properties. So it makes it a lot harder for them to pierce that corporate veil and get to your properties unless you’ve committed fraud. So, that’s the way to protect those assets. And having an LLC can be a great way to protect your assets.

Joe: An LLC can also help you save on your income taxes. My CPA told me that unless you’re making about $75K a year in your investment business, it probably doesn’t benefit you that much to have an LLC, unless you have assets to protect. So, I would suggest that when you’re getting started, that you don’t setting up an LLC until you have enough assets to protect or until you’re making $75K or more in income on your business. Once you do that, then you can do a lot of things in your LLC that’ll make it possible for you to save on your taxes. So it makes a lot of sense to do that.

Joe: You might also want to set up, for your flip business, a separate type of entity called an S Corporation, rather than an LLC. Because there’s some things that you can do inside an S Corporation. S Corporations are typically for high income earners, so if you’re flipping a lot of properties in your S Corporation. You’d never hold properties in the S Corporation, but you can set up your business in that so you can flip properties through it. You don’t necessarily keep assets in that. That’s a pass through corporation and that money’s going to come back through you and to you personally. Whereas with an LLC, you can hold the properties and hold your assets inside the LLC.

Joe: But each LLC that you have, if it’s not inside a Roth IRA, you’re going to have to have a tax return written up for each one of those. So, if your tax returns cost you say, $500, that’s $500 per LLC that you’re going to have to pay in taxes every year just to keep those things going. You’re also going to have pay for your books to keep them up and running. So, make sure that you have income coming in and you have an asset to protect before you do that.

Joe: All right, so, those are the basics of setting up an LLC. One more thing I should say, if you’re out of the country and you want to set up an LLC you can do that as well. You can set up a local bank. You need to get an attorney to help you do that. And I would suggest that even if you’re local that you get an attorney to set up your first LLC and then the ones after that you can set up on your own very cheaply.

Joe: The first LLC, maybe it’ll cost you $1,000 to have somebody set that up. It’s going to be higher on the East coast and the West coast, but in middle America most attorneys will do it for somewhere around $1,000 or $1,500, they’ll set up an LLC for you and that’ll pay for all your expenses to make that happen. And they’ll answer your questions and help you go through that process. And then once you get your EIN you can set up your bank account and you can have your whole system up and running.

Joe: All right. I hope that helps. Good luck. Subscribe to my channel.