Setting Up Your Business: As Easy as 1, 2, 3

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.

l       
Obtain
a Federal Tax ID number

l       
Form
an LLC

l       
Open
bank accounts

 

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.

 

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?

 

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
– don't read an article and expect it to be be the final word on everything.

 

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. 


 

If you wish you
had someone available that can hold your hand and help you as you learn the
ropes of real estate investing, you're not alone.  A lot of investors feel this way.  If you'd like to learn more about how a
personal coach can help guide you through the maze of options and choices, then
www.REIconferences.com can help.  Follow the link for practical advice that can
help you get up to cruising speed quickly and help put you on the road to real
estate immortality.

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About the author

Charrissa Cawley has a long standing reputation for excellence as a gifted speaker, real estate trainer and wealth coach. She offers accurate and proven strategies to investors of all different levels and is the founder of www.reiconferences.com, one of the fastest growing real estate investment training organizations in the US in addition to www.rewexclub.com, the top rated Real Estate Investor Community on the web today.

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