The first thing I did was read up on what I was getting into. Since my husband had a potentially liable profession, I wanted to keep my endeavor as separate as possible from him. The universal recommendation seemed to be to form an LLC. I had a local attorney do this for me for about $600. Since that date, I have formed several other LLCs, utilizing LegalZoom or other online places, for under $300.
The main purpose for an LLC is legal protection-- your personal assets are separate from the business holdings. One recommendation I heard from other landlords, was to create a new LLC for every property--- thereby further protecting assets if you are sued. For example, if you have ten properties under one LLC-- if you are sued, the pot of money includes ten properties. If you just have one property-- there is only one property to be legally attacked.
Legal protection is the biggest reason for an LLC, but I have discovered other good reasons for formulating one:
1. Protecting debts. With an LLC, you can put utilities and other services in your LLC name, thereby protecting your own name and assets from that debt. I often put utility bills in my LLC name and constantly check to make sure that tenants don't turn off utilities that get put into my name. If I incur a large debt for some reason, the utility cannot come after me personally, only my LLC. This has not happened, but I like the idea of further protection!
2. Making you appear to be more important. Even though it costs under $300 to form, an LLC, for some reason, inspires awe. It just sounds better! When I started my business, I called it "Mitcham Group LLC"-- it sounded better than Wendy Myers' Rentals. For one thing, I was a "group"-- no one had to know that it was just me cleaning, painting and renting the apartments at that time!! Now I have several employees and ancillary services-- so I have grown into a group, but at the time, it was just being hopeful for the future! And LLC just added that professional touch that made people feel like I knew what I was doing.
3. LLCs are more laid back. Since I have gotten bigger, I've looked at S and C corporations. Of course, your accountant is the best one to advise you in this area, but for me, the LLC works and is easier to manage. I am free to set up the company structure and bylaws however I want. I don't have to answer to a board of directors or jump through any other organizational hoops.
If you decide to create an LLC, my recommendation is to hire an attorney to help out the first time. It is worth it to have things done right. But if you have some know-how and want a cheaper option, the online services are great, just be careful of the upgrades they want to sell you on. For example, LegalZoom wants to charge you $49 to create a federal EIN number for tax purposes. You can do this yourself in exactly 30 seconds by going to the IRS.gov site, for FREE. You will need this FEIN to put bills in your name, establish credit, hire employees, etc.
One last tidbit-- when choosing your LLC name, do some research. Make sure there are no competitors with the same name. Make sure the name is available from the Secretary of State; in Ohio, you can do a simple online search to check. Make sure you can get a website domain with your same name. I heard of one smart individual who wanted to capitalize on a local car dealership name--- he picked a key word from their name. When he did advertising, he piggybacked on their good, established name to promote his own business. For example, his commercials came on after theirs, and his name was next in the phone book. Of course, even with an LLC, you can choose a "doing business as" dba name. I have done this--- chosen LLCs that have private meaning, then running them all as dba "Mitcham Group Apartments." This way I gain some anonymity with my LLCs, but have them all run as one entity for promotional purposes.
I hope this helps any budding landladies or lords out there. Feel free to email me with any questions or comments!
