I just bought my first rental property. Should I put it into an LLC?
What's going on, YouTube? Thank you for watching this YouTube channel. My name is Matt. My
company's called The DeRosa Group, and this is our YouTube series called Mentorship Monday.
People email questions to helpme@derosagroup.com. That is helpme@derosagroup.com and we will answer
your YouTube question right here on this channel for you and everyone else to learn from. I'll read
your question out loud. I'll give you a shout out, the whole thing. So stop what you're doing
right now after you watch this video and send an email to helpme@darosagroup.com and you get
your questions answered right here. So I have two questions and it's really,
it's two people asking the same question. So we'll knock them both out here. And this has
to do with LLCs. People can make LLCs complicated as one of these folks asking this question made
it very complicated. And that's okay because it's a complicated topic. But you guys don't
need to make these things as complicated as they could be. And there's articles you might've read
about it and stuff like that. You don't need a Wyoming-based LLC if you're not in Wyoming.
You don't need LLCs in different states. Again, I'm not a lawyer and don't be taking
what I'm talking about as legal advice. I'm just a fellow real estate investor
giving you my experience in this industry. But I do not believe that you should make the LLC
conversation as complicated as it is. I do believe you need an LLC, period. If you own real estate,
you should eventually find a way to get into an LLC for protection for yourself.
And also, so you're treating your real estate investing as a business because if you're owning
it in your own personal name, and if you're taking the rent you're getting and putting it in your
personal bank account, you're treating it like a hobby. You should treat your investing that
you do as a business. And running it through an LLC will cause all the revenue and cause the tax
returns and stuff like that. It'd be through this other thing over here, this LLC that you form.
So I firmly believe yes, it's a simple answer. Yes, you should
have an LLC. But no, you should not make it as complicated as people are making it.
So I'll briefly read Paul's. We had a question from Paul and a question from
Pareira that were very similar, so similar that I wanted to just knock them both out with one
YouTube video, okay? So here's from Paul. Hey Matt, for a newbie with just one property,
is it advisable to be spending money to create a holding company this early in
the game knowing that creating a fresh holding company will cost at least $2,000 in legal fees?
The parent company would also be about over $1,000 for each operational LLC to set up.
Okay. Let me pause. What Paul's talking about is setting up one LLC, and then a sub-LLC to own
each property. Timeout. No, too complicated. You don't need to do that. First, I started hearing
about thousands of dollars to set up operating companies for one piece of real estate that you
own. This is a small single family home. That $2,000 could be your entire year worth of profit
on that property. No, do not do that. Do not pay thousands of dollars to set up these entities to
run one or two properties. It's not worth it. Set up an LLC. Yes. And you guys should learn
how to register an LLC with your state's website. And then go get a lawyer to draft
an operating agreement for you because you need to set up an LLC. You need to register it with
your state. You need to get it an EIN number with the IRS. And you need to get yourself
an operating agreement from a good lawyer. Do not buy it online. And a good lawyer should not
be charging you thousands of dollars to set up an operating agreement that they already
have on the shelf and use a template they already have, and to put your data in there and that.
So you need a good lawyer to draw up an operating agreement for you. But you should be able to
register with the state and get your IRS EIN number for yourself. The IRS EIN number's free,
by the way. If you go on the IRS's website, you can get it. And state registration,
New Jersey, where we do business is like 150 or 125 bucks, somewhere in there, maybe 200,
depending. New Jersey charges you for everything. And each state's going to be a couple hundred
bucks to get it set up, but not thousands. Okay. And then Paul goes on to talk about
Wyoming-based LLCs. And does it make sense? And no, it does not. You can. There's benefits to
Wyoming-based LLCs and Nevada LLCs and Delaware LLCs. But at the level that most of you guys are
at, even at the level we're at in our company, we don't even look into those kinds of things
because the savings you're going to get, and the asset protection you're going to get is simply not
worth the hassle in getting these out-of-state LLCs and everything like that. It's just not
worth it. I set up the LLCs we use in the state that the properties are in. So the property's in
Kentucky? That's where the LLC is set up. And then, we just get really good liability
insurance around the property. So if there is a slip and fall or a liability issue,
liability insurance will take care of it. It'll there as a nice umbrella shield for
you and everybody sleeps well. As you get larger and larger and get more and more complicated,
let your real estate investing tactics and your asset protection tactics become
complicated with your growth. But do not do super complicated stuff like this first deal, no.
Question from Para, same kind of question, but I'll just highlight it
here. My husband and I bought our first investment property. But wait. I should congratulate Paul and
Para for their first investment property because Paul bought his first deal. Para bought their
first deal. And that's a huge success because you guys got your for first deal done. Congrats.
Sometimes the first deal is the hardest one. We bought the property in our own name. Shame,
shame, shame. That's okay. You'll work around it. We want to form an LLC and have a few
questions. If we have just one property, should we form an LLC? Yes, you should form an LLC. If
you own real estate that's not your primary residence, yes, you should have an LLC.
Should we use our home address when forming the LLC? That's interesting. I probably would
not. When I first got started, I used a PO box and then a mailing service for my LLC,
because the address of the LLC is public information. It's super unlikely, not going
to happen. Nobody's going to show up, knocking on your door, but it does put your personal
information out there. So I probably would not use your primary residence for the address of the
LLC. You can get a PO box. You can get a mailing address service or registered agent service that
can have a anonymous third-party address so your personal information isn't out there.
What's the best way to find and hire a real estate lawyer? Ask another real estate investor
in your state to help you find a real estate lawyer. And that's a great way to get started.
You can also look on biggerpockets.com for references to real estate lawyers
that are active in your local area as well. So great question Para. Great question, Paul.
Bottom line guys, yes, you need an LLC. No, it does not need to be complicated. Good point, Para,
on using your primary residence as the address. So you know you probably should not do that.
And there are affordable third-party mailing services you can use for that kind of thing.
Or not for nothing, if you hire a lawyer... Sorry, I'm speaking to New Jersey talk now,
not for nothing. But if you're going to use a real estate lawyer, use your real
estate lawyer's address. They'll allow you to do that. I've done that myself. So that's that.
But again, don't over-complicate LLCs. Let it get more complicated as your business gets
more complicated. But get them and then let them get more complex as you grow, okay?
Remember, helpme@derosagroup.com is the place to send your real estate questions
and I'll answer them on my YouTube channel. And check us out at derosagroup.com if you
guys want to hear more about [inaudible 00:07:31] company. That's all I got for
you guys. Thanks for watching. Have a great and profitable week.