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How to Set-Up Your Real Estate Business
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Before you begin buying property you need to first properly set up your business. I know you're champing at the bit to kick your investing career into overdrive. Before you get carried away you really need to take a step back, catch your breath, and relax.
There are some administrative chores you need to take care of first. By taking the time now to set your business up the right way you can save yourself from significant headaches down the road. You've heard it said that you have to walk before you can run. With real estate investing this is so true! There are three major steps that must be taken before you can begin your journey. You need to complete these steps in the proper order.
Obtain a Federal Tax ID number
Form an LLC
Open Bank Accounts
Get a Federal Tax ID
The process of obtaining a Federal Tax Identification Number is extremely simple and straight forward. It's free, you can do it on-line and the entire process takes less than 15 minutes. Start by going to the www.irs.gov website. In order to apply you'll need to gather your information (social security number, etc.) Once you've gathered what you need, you'll simply fill out a simple request form, known as an SS-4. It asks for basic information, such as your name, business name, address, etc. Once you've done that and submitted the form, the site will automatically take you to an online validation screen. IRS personnel will verify the information you've provided and immediately issue your tax number. You can immediately use your number, but they'll also mail you a hard copy of your number within a few weeks.
Form & Name Limited Liability Company
Once you've done that, you can form an LLC (Limited Liability Company). An LLC is nothing more than a legal structure for your business. Instead of taking title to property in your own name, you can do it in the name of your business. You can protect yourself from some legal actions and save money on taxes by forming an LLC for your business. You'll have to form an LLC in each state you plan on doing business. The Secretary of State typically handles formation of LLCs. A few of the smaller states don't have a Secretary of State. In these cases, it falls to the Lt. Governor.
There are 50 states and each is a little bit different. By visiting your state website you'll be able to link to the appropriate department and see what is required to establish your LLC. Most will allow you to apply online by filling out a simple LLC Articles of Organization form. You'll need that Federal Tax ID number you've applied for, along with the names and addresses of any partners you may have. If you're not permitted to apply online, print the form and mail it in along with the filing fee. Most states charge about $500 to establish your LLC; this will be an on-going expenses because you'll need to renew your LLC every year by paying a renewal fee (typically about half of the initial set-up charge).
If you don't feel competent to fill out the form, there are numerous online resources that will handle this process for you for a fee. A word of caution, though: These services can be quite expensive, so find out EXACTLY what their fees include. You don't want to pay $1,500-$2,000 in setup fees just to find out that you still have to pay your state filing fee in addition to their fees. You don't typically get much more for your money than you can do yourself except maybe a fancy folder in which to store your paperwork. You really shouldn't need to pay someone to file your LLC application. The application is simpler than a standard real estate purchase agreement. You're not planning to hire someone to write all your offers, are you?
Establish a Bank Account
The third and final step in setting up your business will be to go to your bank and open business checking accounts. Again, you'll need your tax ID number for this process. It's important – vitally important – that you open two checking accounts. You'll use one account for buy and hold activities and the other one for rehabbing and wholesaling. Be very careful not to mingle the funds between accounts because there can be terrible tax consequences if you do.
Here's a quick disclaimer. I'm not a lawyer, an accountant or a financial planner, so don't look to this as legal or financial advice. If you need that, hire an expert familiar with your area and local laws.
Once your business is set up you'll probably feel ready to test the investing waters. If you're confused about what to do next or how you should get started, you're not alone. Real estate investing can feel a little overwhelming when you're first getting started. You've probably got a million questions, don't fret that is perfectly normal!
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 | Charrissa Cawley |  |
Charrissa Cawley has a long standing reputation for excellence as a gifted speaker, real estate trainer and wealth coach. Her strength lies in training entrepreneurs in the areas of real estate, investing and financial literacy. Her passion is bridging the gap between learning and doing. She has helped thousands of entrepreneurs all over the world seeking financial growth by equipping them with the tools, resources and specialized knowledge to succeed.
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| Copyright Notice | |
Copyright 2002-2011 All Rights Reserved.
Published with Permission of Author.
No part of this publication may be copied or reprinted
without the express written permission of the Author and/or REIClub.com. |
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