What is an LLC?

An LLC stands for Limited Liability Company. It’s a business structure that separates your personal assets from your business.

In other words, if something goes wrong with a property you own under your LLC, your personal bank accounts, car, or home are protected. Think of it as a shield that keeps your personal finances separate from your investments.

Real estate investors use LLCs because they:

• Protect from Personal Liability

If someone sues your property for an accident, the lawsuit generally targets the LLC, not you.

• Show Professionalism
  An LLC makes your investing business look official to lenders, partners, and tenants.
  
  
• Give Flexibility in Taxes
  LLCs are “pass-through” entities, which means the income from the business passes through to your personal tax return. You don’t pay corporate taxes unless you choose to.
  
  
• Allow Easier Partnership Management
  If you invest with a partner, an LLC can clearly outline each person’s ownership and responsibilities.

Choose a Name

This is the fun part, Gorgeous! Your LLC name should be unique and not already in use in your state. For example, if your name is Sarah Johnson, you could name it “Johnson Property Investments LLC” or something creative like “Bright Future Homes LLC.” 

Make sure it sounds professional and gives people confidence in your business.

File Articles of Organization

This is the official paperwork that creates your LLC. You submit it to your state’s Secretary of State office online. Think of it like registering your business so the government knows it exists. 

Most states have a small filing fee but once it’s approved, your LLC officially exists!

Create an Operating Agreement

Even if it’s just you, you should have an operating agreement. This document lays out the rules for running your LLC. It can include things like who makes decisions, how profits are handled, and what happens if you bring in a partner later. 

For example, if you own the LLC alone, the agreement can state that you have full control over decisions and all profits go to you. If you ever add a partner, you already have a plan for sharing responsibilities and income.

Get an EIN

An EIN is like a social security number for your real estate investing business. You’ll need it to open a business bank account, file taxes, and pay employees if you ever hire anyone. 

You can get an EIN from the IRS for free online, and it usually only takes a few minutes. Think of it as giving your LLC its own identity separate from your personal finances.

Open a Business Bank Account

Once you have your EIN, open a bank account specifically for your LLC. Keep all your property income, expenses, and deposits in this account. This separates your personal money from your business money and helps protect your personal assets. 

For example, if you collect rent from a rental property, that money goes straight into the LLC account instead of your personal checking account. This makes accounting simpler and keeps you organized.