Wholesaling Real Estate: A Guide to LLCs & Protecting the Corporate Veil
Incorporating continues to be a hot topic in real estate investment circles. Should you do it, if so how should you organize your real estate investment business or can you just leave it for later?
While most real estate investing gurus and industry professionals recommend it many wholesaling real estate guides and books don’t cover the ins and outs of forming an LLC or other legal entity or go into enough detail on it, leaving many investors with the impression that they can just worry about it down the road.
So what’s the smartest move to make?
It’s Easy & Affordable
It’s crazy that some investors put off incorporating due to the perception of added cost and hassle when it is actually incredibly simple and affordable for most. Yes, of course there are all types of offshore shelter corporations in exotic locales that are pitched by asset protection specialists that may not be that clear cut or cheap, not to mention safe and legal, but there are lots of fast and easy fixes too.
Those wholesaling real estate can now file a company via the web in most U.S. states in just minutes today and some barely cost over $100 to set up. You can always get more creative down the road.
Can You Afford Not to Incorporate?
Some don’t see the necessity. After all you can functionally flip houses all day long, all year without ever having to have an LLC or other business entity registered. However, when you look at the tangible benefits the argument in favor of doing it becomes far clearer.
For a start having this extra layer can provide more potential tax deductions and write-offs, increasing net returns. For others the added privacy is a major and essential plus. Otherwise the whole world can figure out what you own and are worth in about 5 seconds online. Then there are additional forms of financing that are only available as business loans and are not available to individual investors.
However, perhaps most importantly is the protection from liability that an LLC can provide. This legal structure acts as a powerful shield to guard investors from losing everything simultaneously. No matter the hazard an LLC is your barrier to protect issues in personal life like divorce from ravaging your business as well as defending personal assets and savings from frivolous and malicious lawsuits on the business side.
Together these pros of doing business under an LLC make them absolutely priceless in the long run.
Protecting the Corporate Veil
One major mistake investors make when delaying incorporating is then trying to toss everything under the umbrella of their LLC after the fact. This along with mixing personal and business funds can allow lawyers to pierce the ‘corporate veil’ and its layer of protection, rendering it invalid. Don’t make this mistake. Separate personal from business and investment activities and maximize the benefits.
When filing don’t forget to:
- Get a matching web domain name and toll free number for your primary business entity
- Renew on time or face huge penalties
- Spread properties among multiple entities for more protection
- Use a professional business address
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