- Hey, welcome back, everyone.
It's Clint Coons here, and in this video,
we're going to answer whether or not
you need a limited liability company
for your real estate business.
All right, let's get started.
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This has to be the number one question
I receive all the time.
Should I set up an entity right now?
And it's really hard to answer because,
unless I know exactly what it is you're doing
or how serious you are about your real estate investing,
the safest answer is always gonna be,
absolutely set up a limited liability company
to protect your assets because, who knows,
you could be sued tomorrow.
And there's a lot of legitimacy to that train of thought
because, when you're making offers on real estate,
if you're doing it in your own name,
well, there's liability there
that, if you don't go through on the deal
and you back away, you pull out at the last second,
maybe 'cause you couldn't get your financing
to come through 'cause you're trying to work
with a private money lender or a gap funder,
ah, you could find yourself in a situation
where someone's suing you if the property value went down.
So there is liability, of course, in just making an offer
if you don't have the right contingencies in place,
and many times, as new real estate investors,
you're gonna hear about
how you have to have a strong offer.
You come in and you don't have a financing contingency,
even though you plan to finance a property.
You're just gonna find someone else
to help gap fund your deal.
You try to minimize your due diligence period, as well,
because you want that seller to think
this is the guy that's gonna be able
to get me the money the quickest.
Well, if you're going that route,
and those are the types of deals
you're gonna be looking for, then I would highly recommend
you create a structure right away,
be it a limited liability company or corporation.
Now I know this video, I mentioned it's about LLCs,
but really it can come down
to either type of business entity
because it's not a one size fits all approach.
If you've invested in education to learn
how to go out and put deals together, what type of deals
to invest in, then I think you should probably
set up a corporation and not an LLC.
And there's tax reasons for that
that I'm not gonna go into,
but they could be beneficial to you at a later date.
So if you're active, you know you're gonna
be putting deals together that are not traditional,
meaning you're not gonna use financing
through a conventional route or watch my video
on working with lenders or the different types of loans
that there are available to you,
if you're not going the conventional route,
then I'd probably set one up.
I think it's really important to get that entity set up,
and then you should be making your offers inside of that.
Now what happens if you're gonna be buying
residential real estate
and you're gonna go more of the conventional route?
You're gonna go out, you're gonna find the property,
you're gonna get the standard inspection period,
financing contingency there,
go down and work with a broker to acquire the property.
If you haven't bought anything yet
and you're just getting started,
you probably don't need a limited liability company
at this point in time.
And here's why.
You're not gonna be able to close in the name of the LLC
because, with those types of loans,
you have to close in your own name.
So to set an LLC up now is going to be premature.
Here's a mistake that I see
a lot of real estate investors make.
They assume that they're going to be investing
where they live.
I just think, say you're watching this video right now
and you live in California.
I mean, let's face it, California is one of those states
that makes it really hard to make money on real estate
if you're not flipping.
I mean, the prices there are just so high
that the return on your investment or your rental return
is pretty, can be pretty darn low or it can be negative.
A 2 or 3% cap is not an area I'm comfortable in.
So you may find yourself investing out of state.
Maybe it's in Alabama, North Carolina,
Indianapolis, who knows.
And in that case, setting up a California LLC
isn't gonna benefit you because you're gonna need
an LLC in the state where that property is located.
So as a real estate investor, if you're just starting out,
what I would suggest you do is analyze
where you'd plan to take your investing.
If you're going to be flipping,
if you're gonna be wholesaling,
definitely need to get an entity set up right away.
If you're gonna be buying residential real estate
and you know you're investing in your market,
and you know that you're gonna be working
with portfolio lenders or private money,
and you're not gonna go the conventional route,
set up an LLC because you're gonna take title
in that limited liability company.
Now, if you're getting started and you're buying,
you're gonna go out and you're gonna look for properties,
and you don't own anything yet, and you just wonder
if this is for you and you're going the conventional route
to finance it, hold off.
There's no rush.
Educate yourself with all my other videos
so you know what you should be doing when the time comes,
but there's no reason to jump right in
and set up a limited liability company.
One last point I want to make.
Nevada, Wyoming and Delaware.
You're gonna hear all about those structures.
Should you set that up for yourself at this point in time?
Answer to that is, give me a reason why you need it?
I will tell you that, a certain point in time
when you go out there and you're gonna create
your first structure is, yes,
if you want anonymity, you should set up a Wyoming LLC.
Typically, you'll see in many of my videos,
I always do this.
I draw that Wyoming LLC down here.
This is the Wyoming and it's going to provide anonymity.
So when you set up that first LLC,
let's say, this is in North Carolina,
it's owned by the Wyoming.
And that way no one will trace it back to you.
So if you're gonna get your structure set up
and that's what you're looking for,
then this may be the way you start.
So actually it might be two LLCs for you.
But for the most part, like I said,
if you haven't found any properties yet
and you're just getting started,
and you're just gonna do residential real estate
the conventional route, take a breather,
find the investments, get a property under contract.
Once the money goes hard, give us a call
and then we can help you out
starting that first initial structure.
All right, guys, hey, if you like the videos,
give me some likes.
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All right. Take care, everyone.
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