AM I AN INVESTOR YET?
:-D I am just getting started in REI (no deals yet) and I want to get my books set up correctly right from the beginning.
At what point am I 'open for business'? Do I just pick a date?
Before I go out and get business cards and place ads, I need some advise about actually setting up the business. I'd like to save the expense of getting an Accountant involved at this point, but I want to be sure to take advantage of all the tax breaks legally available.
I am thinking of setting up my books using MS Money software. I'd really appreciate any advise on how small investors handle the finances. Any good web links on this would be appreciated.
Also, I don't see any need to incorporate right at first, but are most small investors incorporated for limited liability reasons? Thanks!
You are open for business today. Jump in and get going. When you find yourself needing a business card and you don't have one, go get some ASAP. Place the ads now. When you purchase your first property, set up the LLC that owns it at the same time. (You can do this for each deal that goes through for maximum protections). Where any forms request the Taxpayer ID number of the LLC, you can put "Applied for on (date)". Don't focus too much on getting it all set up just so. Get out there and start dealing - hopefully you'll have so much going on you won't have a lot of time to futz around with the books - hire a bookkeepper and accountant to clean up the mess you made during start up and look for recommendations on tax savings next year. You aren't going to save anything just by organizing your books before you make a pruchase. Your savings will exist in how your deals are structured.
The one thing you want to make sure you do is make sure you limit your financial exposure up front by owning these things in LLCs. (BTW, you will have a set of books and at least one bank account for each LLC.)
If you have enough going on, you won't be worried about how to squeeze another $300 off your tax bill. You'll just do post mortem analysis and say to yourself, "I won't do *that* again!" for any mistake you find yourself making.
I've started numerous business entities before looking at REI and some of them even made money! Getting my books set up was never a factor to keep me from finding a client and cashing their check.
Let me clarify one thing. An LLC is a good idea, but you should probably consult with your att'y to find what is best for any particular deal. (Another thing to do is make sure you pay your advisors fast - they like that and will make you a top priority in the future).
You can get a tax ID number over the phone by calling the IRS office. First, you need to fillin the SS4 form, which is available on the IRS web site. Then, call the number, read off the info on each line and in a few minutes you will have your TID, be it for an LLC, INC, LTD, etc...
InfoSponge, what if I'm going to 'flip' the property - would I need to set up a bank account for that or just for rental units?
I will read up on the LLC thing. Thanks for the tip. I'm an info sponge also and I love this forum. Thanks for your help.
I'd certainly make sure all business related to rental units flows through a business entity. It wouldn't be a bad idea to have the $ from flips go through their own bank account but you don't have to. It would be just in case someone sues you because you took advantage of them or their mother or something. Just be careful that if you have a business entity, you don't go mixing your personal funds in and out of it all the time or a court could rule there is no legitimate business there and your personal assets are then exposed.
Again, I am not an accountant nor a lawyer, so please consult with your paid advisors before making a decision to C or not to C. =)
No matter what niche you pursue, I strongly suggest you hire the appropriate professionals up front. There is no reason not to get CPA advice or attorney advice before you get in to something you aren't sure of. Although I am new to real estate I have had a CPA for years just for tax purposes and for giving advice to reduce my tax burden. I consider his expertise and professional counsel indispensable and inexpensive, especially considering what he has saved me over the years.
My .02 worth.
Bob