Epic Real Estate Investing - How to Form a Real Estate LLC | 1195

Episode Date: April 19, 2022

Why do you need to have an LLC when you do business and make money? The answer is simple. It is good to put your investment properties in a holding company for added protection. Therefore, in this podcast, Matt shares with you 6 steps on how to form a real estate LLC! But before that, as a bonus, Matt explains what it means to be financially independent and reveals step-by-step actions to achieving it. Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. What does it mean to be financially independent? To be straight with you, it depends, meaning it means different things to different people. But let's take a look to see what it means for you. You ready? Let's go. Welcome to the all-new, epic real estate investing show. The longest running real estate investing podcast on the interwebs, your source for housing market updates, creative investing strategies,

and everything else you need to retire early. Some audio may be pulled from our weekly videos and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, EpicR-E-I.TV. If you want to make money in real estate, sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to rei-Aase.com. Here's Matt. Few things may sound as appealing as the idea of becoming financially independent.

though financial independence can mean different things to different people. It typically refers to being able to live comfortably off of one's savings and investments. In some cases, it may also mean the ability to retire early, though financial independence doesn't necessarily have to mean leaving a career you love. It's about working because you want to, not because you have to. Like the sound of that? Well, achieving financial freedom could be easier than you think. You see, the process of getting there often comes down to a relatively simple principle. spending less and saving more.

But there are plenty of nuances to this time-honored wisdom that can make a significant difference. So let's take a look at what it means to become financially independent and explore some practical strategies for achieving it. While there is no set definition for financial independence, the term often means getting to a point where you don't have to work to pay your living expenses. Usually financial independence is achieved by relying on savings, investments, and other forms of passive income to pay the bills. Though financial independence doesn't have to mean leaving behind a job or a career, it can.

In fact, the term is often used as a synonym for early retirement. And the two phrases are commonly strung together in the popular acronym Fire, which stands for financially independent retire early. Now, there are myriad benefits to becoming financially independent. One of the biggest perks is the ability to have choices. You can choose to keep working if you enjoy it or you can kick back and relax. That's a choice. You can save money to pass on to future.

generations or you can splurge and travel the world. That too is a choice. Becoming financially independent can also enable you to enjoy work more, meaning if you're no longer doing it for the money, you can structure your job responsibility so you're only doing the things that you want to do. It can also benefit your mental and physical health. Having the ability to work less allows you to exercise more and get more sleep. Not to mention, avoid the day-to-day stresses that accompany the rat race. Financial independence may also allow you to spend more time with the partner, kids, family, and friends, having stronger relationships can lead to increased happiness in life also. Becoming financially independent typically requires having a clear plan and place

and being willing to, you know, roll up your sleeves and get to work. To work hard now, so later you don't have to. All right, financial independence. Let's make it happen. First thing to do, define your lifestyle. Do some daydreaming and think about what you would do if you didn't have to wake up to an alarm clock each day and go to work. Where would you live? What would you do with your time? But before you go too crazy, just keep in mind that the more extravagant

the lifestyle that you envision, most likely the longer it will take to make it happen. The more of a minimalist you are, and I've been working more and more on minimalizing my life in the last few years. I find it quite liberating, but the more of a minimalist that you are up front, the sooner your financial independence day can arrive.

I built my financial independence through multiple streams of passive income. And to start, I lowered my expenses as much as possible. And then once my passive income caught up to my expenses, I started allowing myself more expenses, but never too much to exceed my income. So that takes us to number two, projecting what your expenses are going to be. So your best bet is just to start with your current spending by looking at the last 12 months of bank and credit card statements and recording your expenses on a spreadsheet.

Or maybe you already have them ready to go in quick books or something. Look at where you spent your money over the last year, and then think about how those expenses may change with your new lifestyle. For example, you may spend less on housing if you plan to downsize or move to an area with a lower cost of living. On the other hand, you may spend more on travel, hobbies, and health care. And of these expenses that you're left with, where could they be cut further? Reducing your expenses actually gives you more bang for your buck in the beginning than boosting your income when it comes to creating your financial independence. Meaning, cutting a $100 per month non-essential online subscription service you may have is typically going to be easier than building your passive income stream by $100 per month.

In the short term, both strategies, less expenses, more income, can increase the amount you can save each month. However, cutting expenses also helps you in the long term because it enables you to live on a smaller income for the rest of your life, which in turn lowers your financial independence number and makes it easier to reach. You could look at it like this. Every dollar you earn helps you once, but every dollar you save helps you twice. Number three, calculate how much you need and how you'll get it. So first part of this is simple. Once you know your average monthly expenses, you now know what you need to bring in each month.

Now you'd like to earn more than you need, of course, but let's use this number as our first milestone to focus on. And then once we reach it, then we can set a new one. So let's say your average monthly expenses over a year are $10,000, $10,000 a month. that's the number you're going to want to focus on first. Second, an important decision needs to be made and how that $10,000 is going to be generated. And there are really just two ways to go about it. The first way, the traditional way, is to work, save, and invest. With the goal being, you save enough money to where it eventually amounts to enough that per interest and or dividends, it produces a passive

income for you. For most people, it makes sense to meet with a financial advisor to get a grasp on what's realistic by projecting market fluctuations and life events and determining how much you need to save until your passive income amounts to $10,000 a month in residuals. As an example, if you found a conservative investment that averaged 6% annually per year, you would need to save $2 million to reach your goal. How long that would take for you to reach will depend greatly on how much you earn doing what you're currently doing for a living. The truth is, however, that most people simply just don't make enough to save enough for this plan to pan out while they're young enough to enjoy it, if they ever get there at all.

This traditional advice of work, save, and invest, it's failing 95% of the population. That's not some random statistic that I just kind of pulled out of thin air. No, that's per the Department of Health and Human Services. All right, so now the alternative approach, which would be to work, invest, and save. And I'm specifically referring to investing in passive income vehicles that allow you to utilize some leverage, such as income producing real estate, or accessing a line of credit to start an online business, or in decentralized finance where yields in the triple digits are not unreasonable nor uncommon.

Depending on your experience and know-how, for most people, this will require an investment in themselves first to understand how investment vehicles like these can work for them and how they can work for you. And if you'd like some help with that, it might make sense for you to take a look at how I help my private clients become financially independent over at r-e-i-a-a-a-a-s.com. When you get there, just answer a few questions and then you can pick a time for us to hop on the phone to discuss. The point here, though, by simply changing the sequence of your priorities from work, save, invest, to work, invest, save, you can reach your financial independence at 10 times the speed of how the majority of the population is going about it. And that's the

that conservative estimate. Now, number four, maximize income. You know, the more money you make while you're working, the more you'll be able to save or invest, depending on which path you choose. Either way, more money makes both of those approaches much faster. So there are many places to look for extra income. First, your day job. You know, if your job pays by the hour, you can try to get some additional shifts or put in more overtime. If you're on a salary, ask your boss for a pay raise. You know, with either type of job, you can work on polishing your skills in order to earn a promotion or learn a whole new set of skills so you can get a new, better paying job somewhere else. Another way to maximize your income is through side jobs. If you aren't getting enough hours of work at your main job, you can look for a second job to make up the difference.

You can also start a side business, such as tutoring or dog walking or driving or freelance writing, or you can bring in a little extra cash from a hobby that you enjoy, such as, I don't know, photography or graphic design or music or. crafts. Another way to maximize your income is selling your belongings. You know, a lot of people have extra stuff lying around the house that they no longer need, and some of it could be worth money. For instance, old furniture, coins, and jewelry sometimes have value to antique dealers. You can also get money for gently used clothing or furniture and sports equipment through consignment shops. And of course, you can sell nearly anything on eBay or Amazon. Another way, passive income streams. Start building them right now. Do you have an extra room that you can rent out? Can you pick up an income property or two and start renting those out?

By picking up just one income property and turning it into a short-term rental, it can produce as much as two or three traditional income properties. Could you use the subjects matter from that book and create a YouTube channel around it? You know, at the time of this recording, I don't have that many subscribers, and the channel earns anywhere from four to five figures a month. With some dedication, that alone might get you to your $10,000 a month of goal. And if you don't like any of those, I've got 30 different ideas, 30 other ideas completely for you to choose from when it comes to creating passive income.

And I'll put a link for you down below in the description. So, based on those four actionable steps and insights, when could you get started? When would now be a good time? If you'd like some help with that, the invite still stands. Take a look at what I put together for my private clients at rei-a-a-east.com. When you get there, answer a few questions, and then you can pick a time for us to hop on on the phone to discuss. We'll be back with more right after this.

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19 plus Ontario only. Please play responsibly. Concerned by your gambling or that if someone close, you call 18665330 or visit Comexontera.com. Hope is not a financial strategy. Let's get back to work. How to form a real estate LLC. Because if you're doing business and you're making money, you need one. So it doesn't matter if you're a fix and flipper or a buy and hold investor.

It's a good idea to put all of your investment properties in a holding company, like an LLC for added protection. So starting a real estate LLC is also generally pretty simple and could be done on your own. It could be done online or with the help of an attorney, regardless of what level of assistance you choose to set yours up, it would make sense for you to understand the six steps that are involved so that you know that it's getting done the right way. Big warning here.

Meaning, before I let you in on these six steps of forming a real estate LLC, I must warn you there's a lot here to do and some very important stuff to not do. So if you'd like to just get this over with and have your LLC set up for you, check out freeentity.com. Over there, they're going to ask you some questions, and they'll answer all of your questions, and if you choose to have them set up your LLC, they'll get it done the right way and fast.

Now, if you're more of the do-it-yourself type, understood. Let's begin. Number one, research regulations. The formation of an LLC will vary slightly from state to state, with fees and regulations being subject to change. Most investors choose to incorporate within the state that they conduct business, though some opt for areas with more relaxed business laws like Delaware or Nevada. Do note that if you have a physical presence or do business across state lines,

you will have to register a foreign LLC in each of these places. Selecting a state, it's entirely up to you, so be sure to research the process before actually getting started. And all of this information will be available on your area's Secretary of State website. Number two, choose a business name. The right business name is more fundamental than you might think. Not only should it attract potential clients, but it must also be unique to register as an LLC.

So write out a few potential options before going online to check their availability. One of the best tips to follow as you name your business is to avoid pigeonholing yourself. You know, starting an LLC is only the beginning of your real estate business. So choose a business name with potential. Once you have some candidates in mind, make sure they are not already taken. So the most common reason LLC applications are rejected is because of problems with business names. So go to Google and type in LLC name search and you'll see multiple options and how to research your name. Number three, file your Articles of Organization.

The Articles of Organization for an LLC is essentially the blueprint of a business. It should state the company name, primary address, the start date, the business owners referred to as members, and a brief description of the business. As I mentioned, the specifics can vary between states. So with that in mind, make sure that you include each of the required parts before. submitting your articles of organization to the Secretary of State's office. This is also the part of the process where business owners must pay any fees associated with starting an LLC. Now, it may take a few weeks to hear back from their office, but there should be no issues

with approval if everything is submitted properly. Now, number four, create your operating agreement. Now, not all states will require an operating agreement, though it is not a bad idea to create one as a part of your business plan anyway. The states that do require one as of the recording of this include, California, Delaware, Maine, Missouri, and New York. While the other states have different rules, an operating agreement can actually come in handy no matter where you live. Essentially, it states how the business is divided among members and

how decisions will be made. Further, it can also describe what would happen if one member decided to leave the company. One of the biggest perks of starting an LLC is that it can offer protection from several negative situations. The same logic applies to an operating agreement. It protects business members by anticipating possible scenarios that could harm the business structure. All right, just two more steps to go to setting up your LLC. Number five, publish an intent to file. Now, only three states require an intent to file, Arizona, Nebraska, and New York. And this means that if you are forming an LLC in one of these three states,

you are required to publish an ad in your local newspaper stating your intention to create an LLC in that state. Generally, investors will publish ads over three to six weeks in a newspaper. The newspaper will then send back an affidavit of publication, which must be submitted to the Secretary of State's office. Number six, obtain licenses and permits. A real estate investment LLC is typically not the only designation that you'll need to open your doors for business. Almost all states will have separate licenses and permits that are required before conducting business. These can include a general business license, sales tax permit, professional license, and more. Again, your questions on this part of the process can typically be answered with a little

online research. I recommend starting with the U.S. Small Business Administration's website and going from there. Now, there are six fundamental mistakes to avoid when starting an LLC for real estate. You see, while forming a real estate LLC is immensely important for protection, the beginning stages of setting it up can also be massively intimidating for beginners. Also, there are several common mistakes that investors make along the way. So to better assist in understanding the complexity of a real estate LLC, I'll share with you the biggest mistakes people make when forming one. thing, not starting the process of forming your LLC before pursuing new deals. Second, selecting the wrong LLC structure for your business. Third, commingling personal and business funds or engaging in

unethical practices. Number four, not consulting a professional on the best corporate and tax structures for your business. Number five, omitting the proper steps and due diligence recommended when forming LLC. And number six, underestimating ongoing costs and maintenance to keep the LLC up and running. Now, I warned you. I mean, you can see at this point, there is a lot to do and a lot of stuff to make sure that you don't do. And if you'd like to talk to a professional other than some guy on YouTube like me to help you set up an LLC, and particularly the right kind for you and your business, I've worked out a deal with some friends of mine so that my clients get a complimentary consultation with an expert to brainstorm some ideas around helping you keep more of what you

make. And then, if it makes sense, they'll go ahead and they'll set up the business entity for you. And here's the best part. They've even agreed to pick up most of the customary expense. that you'd expect to pay when setting up an entity like this. So what's the catch? Because there's always a catch, right? Well, they know after they prove to you how good they are and how well they'll take care of you, you'll probably want to do more business with them in the future. That's it.

It's the old show them how you can help them by actually helping them trick. They're pretty sneaky that way. They're going to look at your situation. They're going to take care of all the complex nuances of setting up a business and make sure that you are structured the right way. And when it's done correctly, you can write off over 250 different deductions, saving you potentially thousands, even if you're just starting out. So if you like the idea of this, get the rest of the details and book a time for your call at freeentity.com. So you can protect your assets and start keeping more of your hard-earned money.

Freeentity.com. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them. And ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings and success to you.

A Metaerio. Living the dream. Yeah, yeah, we got the cash flow. We didn't know home for us. We got the cash flow. Okay, only 10 more presents to wrap. You're almost at the finish line. But first, there.

The last one. Enjoy a Coca-Cola for a pause that refreshes. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.