For anyone with long-term real estate investment plans, forming an LLC (Limited Liability Company) should top the list of priorities. If you have something to lose – anything – forming an LLC can help protect your assets if a real estate deal fails. Many assume that an LLC is only needed for the formation of a company, not for an individual investor, but that’s simply not the case.
Even if you own just one or two rental properties, the cost of forming an LLC is worth the investment. The LLC can serve as asset protection, offer different tax options and protect your business in other ways.
How Much Does An LLC Cost?
The initial costs of establishing an LLC can range between $50 and $500 if you complete the paperwork and filing on your own, but llcuniversity.com reports the average cost of filing an LLC in the U.S. is $127. If you obtain an LLC on your own, you must purchase an Operating Agreement online. Fees vary from $50 to $200.
If you hire a lawyer to complete your LLC set-up, the fees will range from $1,000 to $1,500. You’ll also need to hire a Commercial Registered Agent if you don’t have a street address in the state where you want to register your LLC. Those fees range from $100 to $300 annually.
Do I Need An LLC?
If you invest in real estate, you need an LLC. An LLC is a legal element that protects your personal assets if your business is sued. The LLC allows you to conduct investments and real estate deals while limiting your personal liability from your business transactions. When you make money under an LLC, it is separate from your assets as an individual.
As a real estate investor, an LLC protects you in two important ways:
- Protection from lawsuits: The LLC protects you from potential damages that stem from a lawsuit and shields your personal belongings and money from a lawsuit.
- Protects your credit score: Maintaining a strong credit score supports you in being able to invest in different real estate deals in the future. Lawsuits brought against you, even ones that don’t allow the plaintiff to collect against your assets, can damage your credit report.
When you consider the $1,000 fee to have a credible lawyer handle your LLC process compared to the financial obstacles, emotional stress, and time away from business caused by one lawsuit, it’s clear the investment is well worth the cost.
The value that comes from knowing your assets and future are protected by a solid LLC allows you to delve into real estate investing with confidence. The money you spend on LLC fees today will protect what you’ve worked so hard to gain for years to come.