To "LLC" or not to "LLC"...

[JerseyJeff 0]

There has been much discussion on forming an LLC for your investment company and I would have to say that we all feel it is a good idea.

 

That being said, a major decision a "newbie" faces is whether to shell out the money needed (money many of us tight-budgeted beginners do not have) to incorporate when we get started, or wait until after we have set up our first contract where we can use the profits for the creation of the LLC.

 

An observation/suggestion would be to stay away from sandwiching a lease for your first deal versus doing a cooperative lease or consulting job. Sandwiching would keep you involved for the life of the lease (assuming you do not assign it) thus increasing the chances for something to go wrong and you being "personally" liable.

 

Setting up a cooperative lease or consulting would allow you to get in and get out (preferably with some option money or consulting fees). In the cooperative lease you are merely providing the seller with "specialized knowledge" and finding a T/B for him/her. You collect the option money, or a percentage of it depending on the terms, and walk away. I have yet to see the contracts MichaelC uses as I am one of the newbies with little cash so I have yet to order his book, but I am assuming in a cooperative lease the only contract you sign is with the seller and your only responsibility is to explain to him/her what a L/P is and to find a T/B for him/her, then you walk away. It is pretty much the same for consulting minus finding a T/B for the seller.

 

As I see it, the only potential liability you have in either situation, is if the tenants turn out to be nightmares and the seller tries to sue you because you found them. The good part about the cooperative lease is that the seller meets the T/B's before the contract is signed with them, so I assume again that this clears you of any liability.

 

The only other problem might arise if they use the contracts MichaelC provides and they get sued so they, in turn, try to sue you. But the assurance of MichaelC that these are quality contracts, and an explanation to the seller that you are not a lawyer and he/she should only use the contracts as an example and seek legal counsel before entering into any agreement should clear us on this point as well.

 

I just wanted to put this out there for all the "newbies" who don't have the money to LLC right now, and wish they could make one deal thus giving them some spending cash to incorporate, advertise, etc.

 

Your opinions are welcome. If anyone sees a major problem with this philosophy I ask that you let us know.

 

Again, I am a "newbie," and this was just my observation, so proceed accordingly.

 

JerseyJeff

[mamasanta25 0]

Hello Jeff,

From what I understand, you can set up your LLC while your first deal is in the works. This way, you are protected before any contract is signed. Please correct me if I am wrong Michael, or anyone else who thinks so. Anyhow, it may simply be a matter of using your intuition, and when you feel that your first deal is at hand, go ahead and set up your LLC. Michael has said that it takes a matter of 10 minutes to do so online. This way you don't spend the money possibly too soon, like months before your first actual deal is closed. You spend it days or hours before instead. You will quickly be reimbursed. Well, let's get there guys.

[-Tony- 0]

JerseyJeff,

 

just want to say that forming a LLC may not be expensive as you think. some states it is as little as $20.00. I just got mine in the mail today, Virginia being a little more expensive, cost me $75 plus $25 processing fee.

 

it was A SIMPLE one page doc., that takes 5-10 min to fill out (if you can't figure it out or you have a Question call your state corporation commission they will go over it on the phone at least they did with me.

 

there is no need to pay a lawyer to do it, check the form out first and you'll be surprised...If you are not comfortable after that then shell out the money. just my thoughts

 

Tony

[MichaelC 160]

Good advice, all.

JJ, your intuition regarding a Cooperative Assignment and Consultation are right on. They are certainly less "hands on" than a sandwich lease. Thus, your exposure is less, as well. Of course, we all need to remember that we live in a society that has that ol' litigation lotto mentality. So, if some fool wants to sue you for anything these days, they sure can. What we need to do is protect ourselves through measures such as LLC's and good contracts.

Samantha, that is correct. Your LLC doesn't need to be "seasoned", so to speak. You could, if you wanted to, form your LLC online and then immediately meet with the homeowner to sign the papers on your deal.

JJ, you may also want to follow Tony's advice about looking into this online. Try the NJ Secy of State website. It isn't one of the easier ones to navigate, but if you kick around it awhile, you'll have a good idea of cost and what's involved in setting up an LLC online.

[-Tony- 0]

MichaelC and JerseyJeff,

 

"FYI" I couldn't do mine online but got all the forms there

 

Tony

[JerseyJeff 0]

Thank you for the adivce. MichaelC, I will look at the NJ website and see what I can find. The research I have done so far indicates the NJ filing fee is $125. I am confident I can fill the "stuff" out myself w/o the aide of the LLC sites, I was just trying to minimize upfront costs.

 

This appears to be one expense, however, I may not be able to defer.

 

Thanks again,

 

JerseyJeff

[option8 0]

I would like to expand this discussion to include having the contracts you intend to use undergo "legal review" by a competent real estate attorney.

 

We are struggling with which come first, the deal or the legal review and the possible negative consequences of using un-reviewed contracts.

 

I confess that we are sitting on 4 possible deals without having this review done and frantically getting the funds together to get this review done.

 

I'm getting paralyzed --- any comments? HELP!

 

option8

[JerseyJeff 0]

I have been doing some research on my state's website as far as what forms I need to fill out and what needs to be satisfied for starting a business. It stated I need to:

 

- Complete a Certificate of Formation and file it with the Secretary of State (Setting up the LLC)

 

- File a Tax/Employer Registration (NJ-REG) With the Division of Revenue

 

- If you register as an employer using a SSN, you must obtain a FEIN for the business from the Internal Revenue Service and report this number to the State. You may request a FEIN from the IRS

 

- They strongly recommend that you register your new business entity for employer purposes either immediately after or no later than 60 days after filing with the Division of Revenue. Employers are responsible for insurance requirements such as temporary disability and workers’ compensation, as well as for unemployment contributions and reporting.

 

- All corporations, limited partnerships, limited liability companies and limited liability partnerships – domestic or foreign, must submit annual reports and associated filing fees each year. The annual fees are: $50.00 for all limited liability companies

 

I did not include references to all of the forms/fees needed to accomplish these tasks.

 

Does my state just make this extremely difficult, or did everyone out there have to do all of this? I want to do this legitimately without cutting steps.

 

Tony, you mentioned you had to fill out one document, and you were done. You didn't need to do all of this?

 

Everyone's opinions are welcome.

 

JerseyJeff

[MichaelC 160]

Jeff, each State has their own way of setting up an LLC, and the costs required to do so.

Here in FL, as I have previously noted, it was not difficult and the one or two questions I did have were answered when I called the number that is provided on the website.

I don't know if this is just specific to FL, but since my LLC is a single member entity I have no need to become involved with the IRS. Any income earned through the LLC is income earned by me, and my SS number is sufficient.

While I don't think all the items you list are applicable to you, I suggest you call the office directly and have someone assist you with this. After all, they are civil servants.

[Bradley 0]

LLC? Not sure what this is, would you need this in Canada

[MichaelC 160]

LLC? Not sure what this is, would you need this in Canada

An LLC is a Limited Liablilty Company. It is designed to separate you personally from any business dealings you do, in the event someone decides to sue you. It is a subject of great interest, and is kicked around on this board with some regularity. In addition, Bradley, I take some time to discuss it in my manual.

Do you need one in Canada? I can't say..............any Great Northerners want to chime in here??

[NickC 0]

I can only assume it would be the same here in Canada. I say this because I haven't gotten to this point myself just yet.

 

Creative real estate does work just as well in Canada as it does in the US. Granted the laws may change, country to country, just as they do state to state, or province to province. So you should probably speak to your accountant regarding how you should go about protecting your business..... as well as yourself.

 

I do know trusts are used in my town, so I could only imagine the use of LLC's, and Corporations are used to the same effect. You have to protect yourself in a free market, and conduct your business safely.

 

I plan on proceeding with this after/during my first deal.

 

Just my opinion though.

Nick

[JerseyJeff 0]

While I don't think all the items you list are applicable to you, I suggest you call the office directly and have someone assist you with this. After all, they are civil servants.

MichaelC, great idea, why didn't I think of that? I guess it's because I trust the advice of everyone on here, so I tend to come here first. Being the information is specific to each state, it is a good idea to check with those "civil servants."

 

Anyways, here's what I found, which I thought may be helpful to someone else on here.

 

In New Jersey, you need to file 2 forms, both of which can be done "real-time" online:

 

1) Public Records Filing for New Business Entity ($125 )

2) State of NJ Division of Revenue Business Registration (Free )

 

My question is this. I asked about using my SSN, instead of acquiring a FEIN, and she said I can use my SSN for an LLC, Single Member. Then she said to use whatever number I am using for the Federal Government. And to that I said "Huh?" I asked if I needed to file any forms with the government, and she said it is best to call the IRS and inform them of what your intent is and see what they say.

 

MichaelC, do I need to do this?

 

Being it will be a LLC, Single Member, I confirmed with her that when filing taxes, I can just file with my personal taxes and fill out a C Schedule. (I am assuming profits, if any, will be accounted for for both state and federal taxes?)

 

One last question, regarding sales tax. We don't need to deal with that do we?

 

Thanks in advance for the replies.

 

JerseyJeff

[MichaelC 160]

JJ, let me try and answer your questions. But, first, let me issue my disclaimer. I am not an attorney, nor a CPA. My wife says I'm a lousy husband, my kids say I'm a lousy dad, and my in laws hate me.

On the bright side, though, my cat loves me. Consult a professional if you need to regarding these matters. OK, with that out of the way...............

The two forms Joisey requires sound about standard. In FL, the cost is, if I remember, $100, with an annual $50 renewal.

I believe you can use your SSN for a single member LLC. I noted this earlier because this is what I was told by the individual I spoke with at the Florida Secy of State Office. I, too, was advised to contact the IRS. When I did, they confirmed that my SSN would be sufficient for a single member LLC.

Sales tax? I don't believe that concerns you and your LLC.

[JerseyJeff 0]

I am not an attorney, nor a CPA. My wife says I'm a lousy husband, my kids say I'm a lousy dad, and my in laws hate me.

Wow...At least you're good at L/P's...

 

I'll see what else I can uncover.

 

Hey Dave T, you're good at this stuff, any comments?

 

Thanks

 

"Joisey"Jeff