Question from a beginning real estate investor: “I was wondering if you can tell me the difference between when you do you start your business between putting in like incorporation or putting in a LLC?”

Robert Elder Answers: “My recommendation is that you own your properties in a LLC which is a Limited Liability Corp. It is a corporation. It’s different from a C-Corporation, or a professional corporation, or the other Corporations that you might use.

The LLC is simple, it’s user friendly, it gives you a couple of different tax reporting options without going into a lot of detail. I can’t imagine why you would want some other entity other than a LLC unless you are trying to do some estate planning, in which case you might want to use a trust. But in the absence of having estate planning goals, and from strictly a business stand point, I use an LLC and I encourage everybody to use that.

Follow up question from the student: “So for each property do you do a separate LLC, or do you put in all one?”

Robert Answers: “I personally do not use a separate LLC. The very best asset protection would be to have a separate LLC for every piece of property. If you only have two or three pieces of property that wouldn’t be very bad because you got 2 to 3 LLCs. But let’s say you got 10 properties that we are recommending, surely you don’t want to keep up with 10 LLCs. I know, I don’t.
I’ve got a staffs, a bookkeeper, an office manager and I still only have about 4 to 5 LLCs to keep up with and I have to think that’s too many. So, I would suggest that even though there is some small asset protection advantage to having entirely separate LLCs, the paper work headaches far exceeds the value. There is a LLC known as a serious LLCs, that’s a relatively new animal and it allows you to subdivide as many subdivisions as you like inside of a LLC. And so you can have each house, each piece of property in a different series (different subdivision of an LLC). It is a little more expensive to set up but it gives you asset protection that’s should be as good as having separate LLCs, a separate LLC for an every piece of property and yet the simplicity of only having one LLC for all your properties.”

Scott Nachatilo Adds: “A regular LLC provides really good asset protection. But the most important thing is to get started. Buy two properties; you don’t even need to set up LLC. Keep in mind that we’re not giving you accounting or legal advice right now, we’re just telling you what we do. And you may or may not follow that practices.”

What you want to do as a beginning investor is to get you want to get your feet moving.
Like the way to get up the hill is to get your feet moving. And the minute you stop to try to think…for example, that you need more information to make it at the top of this hill – it’s just going to take you longer to get there. You want to do everything you can to get your feet moving up the hill. Things like setting up an entity will just slow you down. As a beginning investor, you just want to start making progress up the hill.

At some point, you need that entity. It’s just not critical when you first get started in real estate investing.

For more tips and techniques for getting a fast start in real estate investing, go to www.ReplaceYourPaycheckNow.com.