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**Looking to Invest in Real Estate: Seeking Guidance**

Hi,

My wife and I are eager to dive into the world of real estate investing. As we explore this new venture, we have encountered unfamiliar terms like LLC and registered agent. Feeling a bit overwhelmed, we realize the importance of taking the necessary steps to protect our personal assets.

**Financial Background and Investment Goals**

I am an O5 with 21 years of service, and my wife and I have three kids. We currently own our home through a VA loan, still owing about $350k. Additionally, we have substantial investments in our TSP and other accounts. Given our financial stability, we are keen on exploring avenues to expand our portfolio through real estate investments while safeguarding our assets.

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By utilizing an AI Legalese Decoder, like the one offered by XYZ, we can streamline the process of understanding complex legal terms and procedures related to forming an LLC and appointing a registered agent. This tool can provide us with comprehensive insights and guidance on how to establish and manage an LLC effectively, minimizing any potential risks to our personal assets. With the help of this innovative technology, we can confidently navigate the legal aspects of real estate investment and make informed decisions to secure our financial future.

Any advice, resources, or general information on setting up an LLC and engaging a registered agent would be immensely valuable to us as we embark on this exciting new journey. Your support and expertise are greatly appreciated. Thank you.

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4 Comments

  • jon110334

    I’m an O5 select with 17 years experience, and… IMHO, I’m probably over-invested in real-estate. I own a primary residence, a rental property, a vacation home (which is also a part-time rental), and a vacant lot that we plan on building on.

    Really, the biggest concern is if you can be found “negligent”. If someone climbs on top of your roof and falls off, then they’re a dumbass. If you don’t replace the CO alarms and the entire family dies of carbon monoxide poisoning… well maybe you deserve to be financially ruined.

    Here are some things (from my experience). You can set up an LLC for about $200 and the fee can be deducted from your rental income. You’ll also want a tax identification number or an EIN, which will allow you to open a business bank account.

    The LLC will have an anual fee. It varies by state, but in my state it’s around $10. In California I’ve heard it’s something stupid like $10K per S-Corps or something. (Mark Kohler talks about it in his podcast) The good news is, if you’re the owner/operator the S-corps vs L-corps shouldn’t be the end of the world.

    As far as “trusted agents”… that’s a way to separate yourself from your LLC. Each year you have to file an annual report and pay your annual fee. The annual report contains parts that are public knowledge, specifically the name and address of the trusted agent. So if you name yourself as the trusted agent, anyone looking up that annual report will know who and where you are. I’ve heard “trusted agents” cost about $200 to $1000 a year… assuming they’re literally just an address forwarding company.

    Now, your deed is still public domain as well, so if you attach your LLC to your property, then people will still be able to know who you are because your name is still on the deed. In order to remove that, you’d need to “sell” your property to your LLC. Now the deed points to the LLC, the LLC points to the trusted agent.

    That’s how “you’re supposed to do it”. Now if you get sued, then at worse the renter takes all of the assets that belong to your LLC… primarily, your rental property.

    Add to it, your bank probably won’t let you just transfer your mortgage to an LLC. (Mark Kohler talks about this, as well and basically says the legal equivalent of “send it”… followed by the legal equivalent of “YOLO”… the guy’s a pretty bad influence).

    Strictly speaking you won’t be able to transfer your mortgage to the LLC, so it won’t do you much good early-on. Having the LLC lets us open a business bank account, and allows us to better track money coming from and going to the rental property.

    So… minimum… I’d say get an LLC with EIN (for banking purposes)… (the LLC really isn’t giving you much protection, so you may want to invest in a more robust insurance)… on the other extreme LLC that “owns” the property and is linked to a third-party “trusted agent”.

    We’re in the first boat, if you couldn’t tell. Our philosophy is… we have a nice house, it’s well maintained… it would be hard for someone to say that we were “negligent” with the upkeep of our house… we also have a lot of insurance.

  • Alice_Alpha

    Good starting point: 

    LLC:

     https://www.ebay.com/itm/375202793448

    INVESTING:

    https://www.ebay.com/itm/374024067483

  • CPD001988

    I’ve owned a couple rental properties over the last 10 years. I had lived in the houses for 2-5 years prior to converting them to rentals, so a bit different. A couple thoughts:

    1) Its not going to lower your taxable income that much. The mortgage payments, insurance, property tax, etc. are all deductible. Also, you can take depreciation expense on the house structure, appliances, fixtures, etc. These expense will offset the rental revenue and lead to a lower taxable income for the rental property. You will likely break even or have a loss on paper, but will have someone else paying down the equity. You will ultimately end up paying some of this back through depreciation recapture on the sale, but its better to have the tax break now then in the future (finance 101).

    2) If you just have one rental property that you are going to take care of, a good insurance policy is all you need. LLC’s can help shield your assets, but if things go very sideways there are ways for lawyers to get through an LLC. If you start to accumulate more properties and take on greater risk / liability then it might be worth an LLC.

    3) You can purchase the home through the LLC or purchase it yourself. If you purchase yourself, you can then file a quit claim deed and transfer ownership to the LLC. I looked into doing this to free up my VA loan entitlement, but ended up selling the place near the housing peak in 2022.

    4) You’re not going to be able to expense things like your cell phone, meals, car, travel, etc. to the LLC and get some massive write offs that you see on social media. Also, you don’t need an LLC to expense the items that you can. You can expense the portion that is attributable to your business. For example, your cell phone bill is likely used 5% of the time for your rental property, so you can expense 5% of your annual cell phone bill. Obviously people don’t follow this and likely never get audited, but you’d face penalties if you were audited. FYI, real estate transactions, large deductions, etc. all increase the chance of an audit.

    5) One large benefit is a cash out refinance. After 5-10 years with some equity paid down and house appreciation, you can typically borrow up to 75% of the property value. The excess between the old mortgage balance and new is considered a loan and not taxable. There are some minor refinancing fees in there as well. This takes quite a bit of time to materialize, but is a nice option to have in your overall wealth portfolio.

    As you can see in my other post about why not just invest in a REIT, I’m not totally sold that rental properties are some “secret” path to wealth creation, like social media posters would lead you to believe. I do think that the passive nature of it forces you to save more than you may otherwise with money tempting you in a brokerage account for a boat, vacation, or other luxuries. Historical returns for residential housing are not better than the S&P500 and you need to have a long investment horizon… assuming we don’t see another COVID housing boom or you are buying in a city like Austin 10 years ago.

    This has been my experience and perspective.

  • CPD001988

    Why not just invest in a REIT