Christian Osgood explains when LLCs actually matter for real estate. Skip them for single-family homes financed conventionally, but they're essential for commercial properties and any deal with partners. He walks through formation: getting a UBI and EIN, drafting an operating agreement with a lawyer, and opening a business bank account.
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Do you need an LLC for your real estate? How do you secure it? How do you even form one? And what are the next steps? Well, good news. It's super simple. We're going to share all of it on today's video. Now, welcome back to the channel. My name is Christian Osgood. If you guys want to have a free course on how to buy any piece of real estate seller financed completely for free, go ahead and click the link below to our free course. Register there and you can literally watch in 10 minutes exactly how Cody and I built our portfolio to 100 units. Get started there. Very exciting. Now, when we get to LLCs, when do you need them? When do you not need them? Now, I'll tell you right now, there has been times where I have filed for an LLC that I didn't and I really didn't need one. We did this on my first ever duplex. I was told, hey, it secures your asset, put it in an LLC. Anything that you buy personally in your own name that is residential. So we're talking single family, duplex, triplex, fourplex, any of those. If you are trying to secure your asset, trying to put it in an LLC just for your personal liability, stop right there. One, it is not that hard to pierce most LLCs. For most use cases, you absolutely do not need one if you're just buying a solo asset under your own name. In addition, you're not going to qualify for the best debt products on duplex, triplex, and fourplex. Products, which is your conventional lending. Any Fannie Mae product will require it's actually in your name. You cannot use an LLC the exact same way. Ask me how I know. I put a duplex in an LLC, went to refinance, and had to pull it right back out of the LLC. I had to charge myself a transfer fee and excise tax, which is only a few hundred dollars, but it was completely a waste of time. A few hundred dollars in time wasted setting it up, a few hundred dollars in time wasted taking it out of the LLC. You do not need it for those assets. So when do you need it? You need it when you're buying a commercial deal, especially if you're doing it with partners. When you have partners, you all form an entity. This is your LLC. Your company is going to be the members there. You're going to file with your state or have a lawyer do it for you. It's typically very simple. Depending on how busy I am, I'll either do it myself or just pay a lawyer a few hundred bucks and they'll get it all done for me. Very simple to do. So you filed with the state, you get what's called a UBI. That is your business number with the state. You need this number to get what's called an EIN. So step 1, file with the state. That's where you put your LLC name, all your info in, and all of the officers in the LLC. So number 2, you're going to get your EIN. You're going to do this with the IRS. You can do this very, very, very simply online. But there's a couple of things to remember. Number 1, when you do this, you need the UBI first. You're going to do it immediately and it's going to give you 2 options. It's going to ask you for a digital copy or a mailed copy. The mailed copy takes forever. It can delay your entire deal. Get the virtual copy. However, like your Social Security, you only get one shot at this. So once you put it through, you're going to save that PDF. You're going to put it in a Dropbox or a Google Drive. And that is going to live in your files forever. If you lose it, it is an absolute pain to get a new one. Do not lose that identification number. Save that EIN letter. Next step, you're going to want what's called an operating agreement. Now, this is really important. Have a lawyer draft this. You and all your members are going to get together and you're going to decide who owns what, how much equity is there for each partner, what is everyone's contribution. How are we settling disputes as a company? Don't use a boilerplate for this. This is where most lawsuits go wrong. If you're putting together an LLC for a partnership to buy real estate, have it drafted by a professional. When you've done this 10 or 20 times and you have a whole library of operating agreements, then you can maybe start to get in there and put your own together out of templates that you've created for yourself. With your other partners. Even then, the other partner should take it to competent legal review. But that is where you actually specify who owns what, what is the ownership, and what is expected from every member. The more specific, the better. Some people slap together an operating agreement just to get a deal through the finish line. This is the part you spend the time thinking through. Every line, read it, understand it, think through the expectations. This is where you can get into a lot of trouble if there's no clarity on whose roles are what or what is the expectations for each member. This should have the capital contributions and the given task of every individual. Who's managing it? Who's responsible for filing taxes? What do we do if we need more money in the LLC? Can we do capital calls? These are all covered in the OA. However, once that's done, there's only one last step and it's a simple one. You're going to go to the bank and open a bank account. They're usually going to want to see your operating agreement. They're usually going to want to see that EIN letter. Actually, they're definitely going to want to see that. When you have all your pieces together, congratulations, you have a company and you can now buy real estate. Now, when you're buying a commercial property, if it's seller financed, you can put it together however you want to, at least as all parties agree. If you're going to conventionally finance or go through a bank, they're going to want to see all the company details. You're not typically going to have a 50-unit, a 20-unit building, even a 5-plex is typically going to be owned by an LLC. A commercial entity is going to take the commercial loan. Whether or not you have partners, you'll probably need to file an LLC if you are planning on pulling your deal, seller financed or not, into bank debt. But those are the simple steps. That's all you have to do. I'm going to recap them really quick because we do this all the time. You're going to get your UBI, you're going to get your EIN and save it. You're going to spend the time to put together a fantastic operating agreement, otherwise known as an OA., and you're going to open your bank account. From that point, you have a company. You are now clear to close the property. That is LLCs in a nutshell. Don't use them if you don't need them. If you do need them for a commercial deal or a partnership, those are the steps. Follow them. You will thank us later. It's very simple, but you got to do it in time, so don't do it in the last minute. Now, if you want more tips, learn more about real estate, want to dive deeper, Go ahead and follow this channel, click that subscribe button, and we'll see you guys on the next episode.
