Maybe you realize as a real estate investor it’s wise to set up an LLC or other business entity to protect yourself. Let’s talk about how to do that.
First off, let me just say that I’m not a lawyer and I’m not giving you any kind of legal advice. I’m not qualified for that. 🙂
Typically real estate investors will set up an LLC or corporation to protect their personal assets. You never know when someone may decide to try to sue you. Hopefully you don’t ever run into that, but you never know. If you’re doing everything under your own name, if someone sues you, you could lose your house and everything else you personally own.
Setting up a business entity like an LLC may provide some protection. If you’re doing business under your business entity, for example, your LLC, and someone sues you, they can typically only get what the business owns and not what you personally own. There are exceptions, but that’s the general idea.
Even if you’re the only one in your business, you can have a business entity like an LLC. It’s just called a single-member LLC. It’s nice because setting it up and running it isn’t as complicated as other types of businesses. For example, if it’s just you in the LLC, when it comes time to pay taxes, you don’t have to file separately for your business.
Years ago, when I set up an LLC, I went to a lawyer’s office and paid them to file everything for me, which cost hundreds of dollars. Now you can do it online for much less.
Here’s an online service I found that will get things set up for you for as little as $79:
They even have a free tool to help you determine what kind of business entity is best for you (in other words, an LLC, a corporation, etc.).
Of course, doing business under an LLC or corporation doesn’t make you invincible by any means. If you go to court and the court decides you were doing something fraudulent, or if there isn’t a clear distinction between you and your business when it comes to banking, etc., they can “pierce the veil” of the business entity. In other words, they can come after you personally.
So for your business entity to protect you, you need to be clear on what’s expected of you to keep you and your business separate. For example, just having a separate business checking account isn’t necessarily enough. If you’re regularly using your business account for personal purchases and using your personal account for business purposes, you and your business are basically the same thing, so your LLC probably isn’t going to protect you in court. That’s just one example. There are other things that are required too.
If you’d like to learn more about some of the things you’re expected to do to keep things separate, here are a couple helpful articles:
In other words, you want to make sure you follow the rules to keep things separate between you and your business so your business entity will protect you.
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