How To Form A Real Estate LLC
Forming a real estate LLC is one of the most important steps an investor will take when setting up their business. Which is why we break down the process in just 6 easy to follow steps!
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VIDEO TRANSCRIPTION:
If you’re new to real estate investing, you’re probably focused on building your business and generating sales. While these are both important of course, it’s arguably even more important to take the necessary steps that come with forming a real estate LLC.
Why? Because when you form a real estate LLC, you and your business become two separate entities. This means you can purchase and own real estate in the name of your LLC so that YOU are not personally liable for any potential debt or lawsuits associated with your business. So, how does one go about creating an LLC? Keep watching because we break it down for you in just 6 simple steps!
Step 1: Research your local market’s regulations as laws and fees will vary from state to state. Most investors choose to incorporate their businesses in the state where they conduct the most business, but others will choose states with more “relaxed” business laws (like Nevada and Delaware). Note that if you conduct business or have a physical business across different states, you will need to register a foreign LLC in each location. You can find all the information you need on your state’s Secretary of State website.
Step 2: Choose a business name. This step is more important than you might think! How so? Well for one, the most common reason LLC applications are rejected is because of problems associated with the business name. Avoid this in advance by researching online to ensure your desired name is available. It’s always helpful to have a backup plan too! Remember, your business name should be unique, memorable and enticing to attract clients. We have an entire video dedicated to providing tips on picking the perfect real estate business name. Check it out!
Step 3: File your articles of organization. The Articles of Organization for an LLC is essentially the blueprint of your business. It should state the company name, primary address, start date, business owner names (called “members”) and a brief description of how you plan to conduct business. But keep in mind that each state’s specifications will vary.
This part of the process is also where you will pay any fees associated with starting an LLC. Costs can range from 100 to 1000 dollars depending on your state, the size of your business, and whether or not you choose to file your LLC alone or with the help of a lawyer. Be sure to submit your articles of organization to your Secretary of State and expect to wait several weeks for approval.
Step 4: Create an operating agreement. An operating agreement states how your business will be divided among members, how decisions will be made within the company, and what would happen in the case that 1 or more members choose to leave the company. Keep in mind that it can be a smart idea to include an operating agreement in your business plan even if your state doesn’t require it. This is because it will protect any and all members by anticipating possible scenarios that could harm the business structure.
Step 5: Publish an intent to file. Publish your intent to file as an ad in your local newspaper to state that you intend to create an LLC in that particular state. Investors generally run ads for 3 to 6 weeks. Subsequently, your newspaper will send you back an Affidavit of Publication, which you will need to submit to your Secretary of State’s office.
Step 6: Obtain proper business licenses and permits. Again, this will vary from location to location, but almost every state will require a general business license, sales tax permit, and professional license. Check out the U.S. Small Business Administration’s website to find out which licenses and permits your market requires.
Protect yourself from personal liability while simultaneously protecting your business from any unpredictable legal or financial issues that may arise by setting up your real estate LLC. Follow our step by step guide to get your business started today.
Have more questions about forming an LLC in your market? Let us know in the comments! And as always, if you enjoyed learning today don’t forget to “like” this video and subscribe to our channel!
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