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jcjohnson7

Business "formalities"

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Quick question. Before I start signing contracts and actually putting deals in the books, do I need to form some sort of business entity or at least get a business license for a sole proprietorship with some liability insurance? Like I said in my initial post on the Lease Purchase forum, I am focusing solely on CA's at the moment. I know this kind of thing has been picked over in the past and I have actually already started contacting FSBO's, but I just want to know if there are any "formalities" that I should be getting out of the way at the moment in order to be ready to do a deal once I hunt one down. Thanks for any help.

 

Josh.

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Formalities are just that - formal, but not crucial. I went through the same thing a few months ago. It's commonly called "Paralysis of Analysis" round these parts. I met with an advisor at the local Chamber of Commerce, I collected all the paperwork for licenses and permits, I researched corporations and LLC's, I designed business cards and a website, and when it was all over I had spent months working with no leads and no deals. The best thing you can do now is contact sellers. Lots of them.

 

The business entity question can wait until you have a few deals done. I was advised by an accountant that a business entity really doesn't help much with CA's unless you're doing loads of them. SLO's are a little different, so if you go that route I would suggest looking into insurance at least.

 

Regarding a business license, you should check with your city and county. Even though I'm technically an investor, if I want to work from my home I have to file a home office permit with the city. If you're going to do business under a fictitious name then you need to register with the county.

 

Being ready to do a deal once you find one is mostly a myth. You can never be prepared for everything. Everyone has false starts and makes mistakes, which is why this forum exists. Contact people, make offers, learn as you go, and ask for help when you need it.

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Thanks jhanson, that helps me out a lot. So you don't think there is really any reason for insurance if I am doing CA's? Am I technically an investor or am I providing a service? I guess that is where the gray area lies with me because if I am seen as a service provider then I would imagine I would have more legal vulnerability than being an investor....if that makes sense. I just want to do it right. I'm not afraid of doing deals as I've done direct sales all my life; I'm just afraid of lawyers and the IRS. (Probably BECAUSE of the precautions we take to protect ourselves and our employers) They are my boogymen. I'm just interested in self-preservation because I've seen some crazy stuff out there first hand. And then of course the tax issue is another discussion all together... I'm sure you can understand my excessive forethought on the matter. Thanks again.

 

Josh

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Josh, if you're doing CA's, you are a principal in the deal, and then you are assigning the deal. It's that straightforward and simple. There is no need for lawyers, accountants, the IRS, or the Real Estate Police to be involved at this time as you are just getting started.

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