When Do You Call Yourself A Business??
At what point do you stop being a person who buys real estate as a hobby and become a Real Estate Investor? Does being an investor mean that you are a business and should register a business name? Please let me know your opinions and what you did. I am getting to make my first investment purchase, and want to make sure that I am doing things "by the book" to avoid penalties, law breaking etc., I appreciate your help in this.
Hey,
You call yourself a business from day one.
A business does NOT have to be a corporation, it can be a Sole Proprietor
I would agree with Bruce, but would also like to add a couple of things. I'm not an attorney or an accountant, and these are strictly my personal views. As with all investments, you want to try to limit your risk and exposure. By forming a company (a simple LLC), you can do both. You limit your risk because your personal assets are no longer tied to your deals and you limit your exposure by not signing your name on all your documents (trackability). There are also some pretty nice tax advantages that go along with LLC's.
Having a company also builds your credibility and projects a professional image. When you talk to potential customers/clients, you can say, "I'm so-and-so with ABC Company and here's what we specialize in", instead of coming across as someone who works out of the back of their trunk (even though most of us do).
Here in Colorado, it's pretty simple to form a LLC. File a couple of pieces of paperwork and pay a $50 fee. I think the hardest part is coming up with a name and then designing a stinkin' logo!
HTH,
Junoti
A different perspective. I own a Used car lot, a Rent to own lot, a warranty company, and 33 rentals. I do not have a corporation. These are all under a sole proprietorship on the advise of my attorney and my accountant (Fortune 100). I've been told that this isn't smart, and I've been told that it is not worth the expense to go to the LLC. Time will tell.
Good Luck,
Shawn(OH)
Shawn - I would love to know what your accountant and attorneys justification is for operating your businesses as a sole proprietor is. I've know hundreds of accountants and lawyers and I would say if I filled a room of 100 each I would have a hard time finding a single one that would ever recommend a sole proprietor ship as a business entity. That advice goes against eveything ever published about tax advantages and asset protection.
I third the opinion re: considering yourself a business from day one. You are what you think you are... Make sure you develop relationships with advisors (tax, legal, financing, insurance, etc...) that are on your team, and the same page. I hate to quote the cliche, but success is a journey, not a destination. SOme are simply further along the journey than others...
How do you hold your properties?
Here Here !!
You are a business!
Regardless of chosen form You'd be wasting a lot of income tax breaks among other things to think or present yourself as other than a business.
Thank you all, I appreciate your input and value your opinions. I have one more question related to this. Does this mean that until I have filed a business name and received my business license, that I should hold off on purchasing properties? Again, thanks for your feedback...
I do not know what you're required to do in your state or county. Here you are supposed to register with the county if a sole propt., GPart, Trust (mostly those entities that you use your SS as your EIN, but you can apply for and EIN with the Fed if you feel froggie) If you form an LLC, LP, SCorp or Corp you must file with the state of TX.
Check your state comptrollers office or website for info or you can drop by the local county clerks office at the courthouse for the info.
Hey,
I am not sure why you would need a business license, but differrent places might have different laws.
For me getting my "business" incorporated was a piece of cake. I filled in all the forms and sent it to the state with a check. I then have to send $15 a year and a copy of the companies minutes.
Why did I create a company? Ummm...because I thought it would be cool. I don't have a better answer than that.
My opinion is that there is little, if any, asset protection a company would truly offer me. I know that violates everything you have ever read about it, but let me explain.
I own stock in Home Depot and if HD gets sued, I can't lose anymore than what I paid for the stock. BUT, if I was somehow responsible for whatever caused them to be sued, my butt is on the line. Now, can you really imagine a scenario where your company is liable and you are not????
Bruce - I think you are missing the point that your personal assets cannot be attatched if someone sues you for something you did under the guise of working for your corporation. They might be able to take investment property held in the corporate name or your tools bought by the corporation, but your house, your wife's car and such would be safe.
That is why whenever you hear of a consumer with a problem in regard to a company, if the company goes out of business, the consumer is screwed.
Under the right circumstances, your but is on the line even if you are a corporation or LLP. Most of us don't understand the difference between corporation such as IBM and Joe & Sean Investment Inc. formed a year ago.
Principles and directors of the corporation can personally be liable if they commit fraud or for a short list of other stuff, which you can consult your attorney about.
That's correct eureo, if you are going to commit fruad or break the law you can be prosecuted personally, but that is not what we are talking about here, that is the exception to the rule, and not what a corporation is designed to do in regard to real estate and asset protection. When it comes to asset protection there is no difference between IBM inc and Joe Shmoe inc. As long as you have a valid corporation and the veil of protection cannot be pierced because of your own negligence you will protect yourself and limit your liability. Be an employee of your corporation.
If you do form an LLC do you need to have a business checking account under the company name? How about financing, do the mortgages have to be secured by the LLC which is a new entity with no track record? or is it better to initially purchase the properties with "my" credit and transfer them into the LLC?
I appologize if this should have been a new thread but it seemed like it would fit under this one.
Quote:
On 2004-01-14 17:40, NoMoreDreamin wrote:
If you do form an LLC do you need to have a business checking account under the company name? How about financing, do the mortgages have to be secured by the LLC which is a new entity with no track record? or is it better to initially purchase the properties with "my" credit and transfer them into the LLC?
I appologize if this should have been a new thread but it seemed like it would fit under this one.
You should have a checking account in the LLC name. As for the mortgage companies, chances are you and your creditworthiness will be personal guarantors on the note anyway.[ Edited by norrist on Date 01/14/2004 ]
Shawn-
I'm with the Rehabinator. I'd get a second opinion on that legal advice. I don't know you but feel nervous thinking about your exposure.
It would be a shame to lose all of that over an un-covered insurance claim, for instance...
There has to be better ways from a liability, tax, and even estate planning perspective.
When your first starting out, a sole prop. is fine. As you acquire more assets, consider putting your properties into individual trusts owned by an LLC . Check out Bronchick's courses on protecting you assests and forming trusts.
Hey,
Just to get back to the liability advantage of forming a corporation....there is some confusion about it.
We have all been taught (and correctly) that a corportion shields the shareholders from personal liability, but this protection ONLY exists if we are not involved in whatever actions caused the liability.
For example, say I have a company with two employees: Joe and Bruce (myself). Joe is driving the company truck (on company business) and hits someone; I am only liable for the amount of money I have in the company (I am shielded). On the other hand, if I am driving the truck, the company AND myself are at risk. The legal term is "Joint and Severable".