Setting Up an LLC for Real Estate Investing

Investing in real estate can be both lucrative and risky. While nothing can eliminate all the risk inherent in real estate investment, choosing the appropriate structure for your real estate business can minimize unnecessary exposure to risk.

In Ohio, real estate limited liability companies (LLCs) are the preferred structure for real estate investment businesses. An LLC can protect you and your personal assets if there is a lawsuit against your real estate business or if the business incurs debt. In addition, having an LLC can provide important tax benefits. For instance, a real estate investment LLC will help you avoid double taxation on your properties. Benefits of an LLC for real estate investing also include the fact that mortgage lenders may offer better terms to an LLC than to an individual—even if that LLC only has one member.

There’s a reason that real estate LLCs are such a popular choice. Here’s what you need to know to get started on creating an LLC for real estate investing.

How to Create a Real Estate LLC in Ohio

The mechanics of setting up a real estate LLC in Ohio are relatively straightforward. For a fee of $99, you can file your Articles of Organization with the Ohio Secretary of State, which officially establishes the LLC. However, there are a number of decisions that precede that step.

Naming Your Real Estate Investment LLC

First, you will have to select a name for your LLC that is distinguishable from other corporations, LLCs, limited partnerships, or trade names that have been previously registered with the Secretary of State. Your chosen name must include the phrase “limited liability company” or an accepted abbreviation like LLC or L.L.C. You also cannot use a name that suggests that your name is affiliated with a state or federal government agency.

If your business is going to have a website, as most do, you will probably also want to choose a name for your real estate LLC that is available as a web domain. You should purchase the domain name so that no one else can use it.

Choosing a Statutory Agent for Your Real Estate LLC

After you have chosen a name for your LLC comes an even more important decision: your statutory agent, also known as a “registered agent.” When an LLC is served with a lawsuit or needs to receive other legal documents, the statutory agent is the person who accepts those papers. You may choose to serve as the real estate LLC’s statutory agent, or you may choose another individual. There are also registered agent services that exist for this purpose, and some LLCs use an attorney as their statutory agent.

It may seem simplest to act as your LLC’s statutory agent yourself, but consider issues such as privacy: if you run your business from a home office, your home address will be public record. Also, if the company is sued, you may be served with the lawsuit at an inconvenient time, or in front of people whom you would prefer not to witness you being served.

In addition, the statutory agent needs to be available during regular business hours, Monday through Friday, at the address provided on the Articles of Organization. If that doesn’t work for you, using another individual or a service as your statutory agent might be a better option. Your statutory agent must sign the Articles of Organization accepting their appointment.

Filing Your LLC’s Articles of Organization

As mentioned above, filing your Articles of Organization is what creates your real estate investment LLC in the eyes of the state. You can file Articles of Organization for a Domestic Limited Liability Company (Form 533A) either online or by mail.

Creating an Operating Agreement for Your Real Estate LLC

Ohio does not require LLCs to have operating agreements, but your real estate LLC should have one, even if your company is a single-member LLC. An operating agreement specifies the organization’s rules, including:

• The responsibilities of each member
• How members of the LLC can terminate their membership
• How a member can transfer their membership to someone else
• How the LLC will admit new members
• How profits will be distributed or reinvested

Having a clear, comprehensive operating agreement can help to avoid disputes between members and unnecessary litigation. You may choose to add certain provisions to a standard operating agreement, so long as they are not in conflict with Ohio law.

It’s best to speak with an experienced attorney about creating an operating agreement when setting up an LLC for real estate investment. Your attorney will help you ensure that you understand all terms of the agreement and that it is both thorough and flexible enough to work for your company.

Getting an Employer Identification Number

Just as you have a Social Security Number, an Employer Identification Number (EIN) serves a similar purpose for an LLC or other businesses. You will need an EIN for taxation purposes. You can easily apply online for an EIN on the IRS website.

To learn more about entity selection for a real estate investment business, the advantages of LLC for real estate, or what to do after you have established your real estate investment LLC, please contact Gudorf Law Group to schedule a consultation.