Spoiler alert – I am not a lawyer nor do I play one on TV. Get legal advice from a real lawyer. Really. This article is based on my own personal experiences. Mileage may vary.
- Create a limited liability company. There are lots of legal reasons related to limiting your liability that a lawyer can explain. However, the reason that I like having an LLC is it’s a good way to keep my rental investments separate from my personal finances. Once you get an LLC, you can also contact the Internal Revenue Service to get an Employer Identification Number (EIN). It’s a pass through with the government so it doesn’t change how I file my individual taxes. However, it means I don’t need to put my individual social security number on everything. Not everyone has access to their internationally renowned personal LLC attorney like I do. However, I know there are lots of companies online that offer to do it for a small fee. I have even seen instructions online for how to do it yourself. I can’t vouch for anything in particular, though.
- Get a business address. Now that you have a business, it’s time for a business address. The easiest is just to go to your local post office and rent a post office box. You can do it through the actual United States Post Office or through a private business like a UPS store or an independent company. I just have a plain local P.O. box. It works fine, but in retrospect, I wish I had shopped around a little more. Some of the private companies can give you an actual street address (not just a box number). That way, you can get packages sent to your business address. Some companies will also scan and e-mail you all your mail so you never have to go check your box or at least, they’ll alert you when you have mail so you’re not just swinging by having no idea. Also, be sure to think about the city where you’ll have your box. For example, you might want something generic (say Dallas) or more specific (say Flower Mound). Think ahead to where your business will be operating and what image you want to project to future vendors, clients and tenants.
- Transfer to the deeds to your business. We all come to this rental business in different ways so it’s likely your properties are titled to you individually. Now it’s time to move them into the corporation. Last I checked with a title company, it was about $120 for each deed for the title company and/or the title company lawyer to change the document and record it with the county. I personally like this because it changes the information and address from you personally in the county tax records to the new business address. Again, it’s just that additional layer of separation to keep your business and personal life separate.
- Get a separate bank account. Once you have your LLC documents and EIN, you can go to the bank and get a bank account in the name of your business rather than you as an individual. This will give you additional separation from your personal life and it will also help you keep your finances separate. This makes it easier to track your profits and losses and provides an additional layer of protection should anyone try to sue you.
- Order business cards. Costco has an inexpensive way to order cards or you can use any of the many online services. Getting business cards will make you seem a more professional and they’re an easy thing to hand out to your tenants and any contractors. We have been very lucky with always getting good tenants, but you never know what’s up with other people. By giving out your business address instead of your home address, it gives a little more separation that some tenant won’t show up on your doorstep with an issue while you’re trying to get the kids off the school bus.
- Sign up for a business credit card. Your business has assets (the properties themselves and the rents they generate) and you may decide to leverage some or all of it someday. Your business checking account and your business credit card will help you establish credit in the name of your business. Plus, there are lots of perks out there for small businesses (miles, points, cash). Renovations can get pricey so you can earn some good perks along the way. Also, some credit card companies have good solutions for small businesses that allow you to segment your expenses to help you better track spending.
- Track your spending. I’m personally a fan of a product called Expensify. The base model of Expensify if free, but you can upgrade to a more robust model that allows more scanning of hard copy receipts. I know QuickBooks and other companies make similar products that allow you to e-mail and scan receipts to track your spending though so shop around to see what you like best. Expensify lets me forward my electronic receipts from places like Home Depot to Expensify. Then at the end of the year when I do my taxes, I can add up relatively easily all my repairs, utilities, property taxes etc.
All these tasks are relatively simple on their own, but each one will take a little time to get together. That said, once you have these processes set up, they are relatively easy to maintain and should help you stay organized going forward. I know I feel better keeping the business separate from my personal expenses and I like that my tenants don’t know necessarily where I live. Granted, Google and other products out there make it hard to be anonymous, but this will give you a little bit of piece of mind.