LLC Accounts

There is more involved in opening and LLC than just filing with the state. This week we went one step further and opened a business checking account in the name of the LLC. Even though the financial info for the LLC will be filed with our personal tax returns, this will make it that much simpler to keep track of our expenses and profits. The hope is that it will also legitimize business expenses in the eyes of the IRS. Or that is at least what our account advised us to do. We are also going to need to set up a savings account for any overflow if money (I like to think positively.) and any security deposits.


There is something that I read about once that I have just done some research on again. It is called Accredited Investor Status by the SEC. Some of the requirements for this status involve corporations that trade securities. But for individuals, you either have to have a net worth of $1,000,000 or an income over the past two years of $200,000 ($300,000 for spouses) with the expectation to continue at that level. There are a lot of investment companies out there (a lot of hedge funds) that want you to be accredited before you can invest in them. Some of these companies invest in real estate domestically and globally.


Why and I interested in this? I am looking in to the distant future, beyond just getting out of the rat race. Although anyone can start out investing in real estate there are still opportunities out there that are only available to seasoned investors. I am going to keep this accredited status in mind and file for it once I can qualify and then see what sort of other investment opportunities present themselves.

Forming an LLC

We have recently formed a Limited Liability Company (LLC) in which to hold our real estate assets. We named it Hewitt REI, LLC. The REI stands for Real Estate Investments, but that is too long, so we went with the popular abbreviation.

Most people agree that the LLC is the best way to hold real estate to offer protection from litigation. For small businesses it is more beneficial that an S or C Corp because it avoid double taxation. For an LLC, any income that the properties produce is considered as personal income and is taxed as such. For full corporations, the corporation is first taxed for any income, and then the money that is taken out of the corporation is then taxed again as personal income.

I also need to state that just because we have an LLC to hold our properties in does not mean that we are completely free from lawsuits. If someone gets hurt on our property, or decides to try to sue us for any other rental related reason, they will be suing the LLC and not us as individuals. That means that if they win, they cannot claim my personal residence of other assets as payment in the suit. However, if they can prove that we somehow personally did something, or were somehow grossly negligent, then they can try to sue us personally. The success and outcome of that attempt would be determined by the details of the case and how good your lawyer is. I just want to point out that having an LLC is added personal protection from litigation, but in no way is that protection 100%.

Filing for the LLC was rather simple. We filed in New Jersey, and did it all on-line. It took us about 20 minutes. I insist on reading all of the fine print, so most people are probably able to complete the process in less time. It cost only $250.00. Then the state sent us these nice looking forms complete with a gold seal. They certify that we can do business under our chosen name, and that our company is in good standing. We also filed separately for a federal tax id number. There was no charge for that. So, now we are all set to transfer the property to the LLC at or shortly after the closing. It is something that our lawyer will handle, but I am told that it is a simple form for the transfer.