If you’re considering registering as a business then you might want to consider doing so as an LLC. A Limited Liability Corporation has many advantages including that it allows you to safely invest without risking your own property, unless you specifically put it up for collateral. Specifically, an LLC also allows you to pay taxes as an individual rather than as a company which can have its benefits as well. You’ll also be able to get individual property insurance for each of your investments, and if done properly, be able to keep each of your investments separate. Consider these tips from your local commercial property managers to get started with setting up your LLC in Seattle, Redmond, Kirkland, Bellevue, or surrounding areas.
Set up an LLC for Each Investment
Because a Limited Liability Corporation doesn’t tax the business as a whole but rather the investors running them, it is practical to set up multiple LLC’s for each property investment. This might sound like a lot of hassle at first, especially if you have more than a few properties, but by separating your investments you can protect them. If one property is going bankrupt then your other properties are not collateral. If a tenant sues you over one piece of property, then that lawsuit is only against the LLC, meaning that the rest of your property is safe. You can also get individual insurance for each property so that accidents on one LLC don’t affect the insurance cost on another. There are cons to this as your property managers do have to treat each LLC as a different company meaning that you need individual paperwork and receipts for each LLC. While it is a bit more of a hassle, many real estate experts agree that the pros far outweigh the cons when it comes to large scale investing.
Consider Skipping the Lawyer
Most people setting up as an LLC can get and fill out all of the paperwork themselves which can save a great deal in lawyer’s fees. Unless you don’t happen to have commercial property managers and are short on time, you can just as easily fill out the paperwork yourself. In fact, you can actually begin your Washington state registration via this link. However, you do have to decide if you are a sole proprietorship, general partnership, joint venture, tenants in common, or other type of business structure before application. You can check to see if your business structure requires additional paperwork here.
Make Sure Your Property Belongs to the LLC
Once you’ve created an LLC, you will have to make sure that you transfer the deeds to your property over to that LLC. Until you sign the deed over to the LLC, the property is still yours, and still your liability. However, signing property over is a relatively easy process. If the LLC is already set up, all you need is a deed and a signature as a bill of sale is not applicable in this instance. You should consider having any property officially notarized, and then check with your lawyer to see if your specific property requires a bill of sale or not.
Create a Separate Bank Account
Finally, you want to make sure that you stay clear of fraud which means keeping your accounts separate. Starting a business account allows you to do this for each individual LLC that you create. Remember that bills of sale, bills of purchase, depreciation, income, and insurance should all be kept separate for each LLC. You will also have to send in an individual annual report per LLC, but once again, you can file this online.
There are plenty of great reasons to form an LLC, but mostly only if you are a very serious investor. If you only have one small property, make less than $12,000 a year, or make the majority of your income through your job, forming an LLC might not be for you. Importantly this advice is not from a lawyer and is very general rather than specific to a case. You should consider talking to your lawyer or your financial advisor before filing for a company as your situation may differ depending on your investments.
The discussion herein is of a general nature only and is not to be construed as specific legal advice, which requires the establishment of an attorney-client relationship and fee agreement. SJA Property Management does not provide legal services.