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Getting started with an investment LLC
Posted on 12/12/17 at 12:45 pm
Posted on 12/12/17 at 12:45 pm
I'm about to dive into starting an LLC and picking up a couple of rental properties. Does anyone here have experience with this and can point me in the right direction to get started? I have the land and will be putting a trailer on it initially. Then probably a second and then will consider flipping a house. It'll simply be a side hustle for a friend and I. I'm most interested in getting tips on how to begin. As far as I know:
- File for the LLC with the secretary of state
- Open a checking account for the LLC
- We both make our initial contribution into the LLC's account and then we can acquire our first property
Am I missing something there? And then what's the best way to start with bookkeeping? Any pointers are appreciated.
- File for the LLC with the secretary of state
- Open a checking account for the LLC
- We both make our initial contribution into the LLC's account and then we can acquire our first property
Am I missing something there? And then what's the best way to start with bookkeeping? Any pointers are appreciated.
This post was edited on 12/12/17 at 12:47 pm
3
Posted on 12/12/17 at 12:58 pm to lsugrad35
It's simple to file LLC docs with secretary of state to get the entity set up. you can do it online in a few minutes. since you have a partner, you really want to have an operating agreement, which is not a standard form and not filed with secretary of state. it lays out how you and your partner will manage the business and the authority of each, as well as several other important items. i recommend talking to a lawyer to get it set up.
you'll also want a good insurance policy with umbrella coverage.
you'll also want a good insurance policy with umbrella coverage.
Posted on 12/12/17 at 1:01 pm to lsugrad35
I went through this exact process with a partner 6 months ago. We used LegalZoom for our LLC. Then opened a business account and funded it out of pocket for the LLC fees, home inspection, etc. When it was time to close on the property, we just made our transfers from personal accounts that we needed.
Sounds like you’ve done your homework. Are you going to manage the property personally? We use a third party and they’ve been excellent. Their fee equates to just over 10% of monthly rent.
As far as bookkeeping goes, you can just start simple with a spreadsheet tracking your expenses and incomes. Keep every receipt and record every expense you have. Best of luck!
Sounds like you’ve done your homework. Are you going to manage the property personally? We use a third party and they’ve been excellent. Their fee equates to just over 10% of monthly rent.
As far as bookkeeping goes, you can just start simple with a spreadsheet tracking your expenses and incomes. Keep every receipt and record every expense you have. Best of luck!
Posted on 12/12/17 at 1:26 pm to CoachKlein
quote:Congrats bud. Hope y'all have lots of success.
I went through this exact process with a partner 6 months ago
quote:
We used LegalZoom for our LLC
This is good to know. I'm actually doing quite a bit of research on this site and it seems pretty legit.
quote:
Sounds like you’ve done your homework. Are you going to manage the property personally?
My friend and I are both pretty detail oriented and don't mind doing some research. I also have a degree in business and my current full time actually creates the online application for forming entities of all types. So fortunately I'm very knowledgeable in actually forming the LLC with SOS, its the post formation and financials that I'm inexperienced with.
As of right now I plan to manage the property personally. At least for the first one.
Thanks for the info both of you.
Posted on 12/13/17 at 6:22 am to lsugrad35
Unless you absolutely need a partner, I’d recommend flying solo. I won’t do business with friends or family just so that they stay my friends and I don’t end up hating family. If you go with a partner, put every detail in writing, sign and dual copies. It is amazing how many things can go wrong and you want to protect yourself whether the business is a failure or a success.
Posted on 12/13/17 at 6:44 am to lsujro
quote:
since you have a partner, you really want to have an operating agreement, which is not a standard form and not filed with secretary of state. it lays out how you and your partner will manage the business and the authority of each, as well as several other important items. i recommend talking to a lawyer to get it set up.
Many people skip this, and it puts them at risk of bad situations. The lawyers can end up making 10 times as much down the road when things go bad.
A good business lawyer who drafts an operating agreement for your LLC will talk to you about ideas to handle events such as the death of a member (do you want to be partners with his bitch wife and bratty kids?), transfer restrictions (maybe give you the right of first refusal if a member wants to sell his interest to some crooked a-hole), which member has authority to do what things, disagreements among members ("50/50 right down the middle" is a recipe for disaster), how to call for capital contributions if things go south, what happens if a member can't pony up his capital contribution and the other member covers, buy-sell agreement, etc.
Posted on 12/14/17 at 2:42 pm to Twenty 49
quote:
A good business lawyer who drafts an operating agreement for your LLC will talk to you about ideas to handle events such as the death of a member (do you want to be partners with his bitch wife and bratty kids?), transfer restrictions (maybe give you the right of first refusal if a member wants to sell his interest to some crooked a-hole), which member has authority to do what things, disagreements among members ("50/50 right down the middle" is a recipe for disaster), how to call for capital contributions if things go south, what happens if a member can't pony up his capital contribution and the other member covers, buy-sell agreement, etc.
This is spot on. I did exactly what you are doing about 8 years ago. As time passed my business partners and my priorities changed. We had kids and it put time constraints on our ability to manage the properties. We are still great friends to this day but our friendship was strained for several years. We both decided it was best to sell the properties which we did. I would strongly consider going it alone if you can especially if you own the land already personally. I have started buying on my own but it set me back several years.
Posted on 12/14/17 at 3:00 pm to lsugrad35
You will also need to register with the taxing authority in whatever state you're in (in TN it's the TN Dept of Revenue) and file with the IRS as well for an EIN.
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