You are starting a home-based business in California and have determined you need more room for your office or workspace. You intend to move into a larger home to accommodate your operation, but you’re not quite sure how to balance everything in the meantime. We have some suggestions regarding how to launch a new business, purchase a new residence, and move all at the same time.
Launching a Home-Based Business in CA
There are steps you need to take to launch a home-based business. One of the first is to determine the right legal structure for your company. A sole proprietorship is faster to set up and does not require an EIN, but you will be responsible for lawsuits and debts acquired by your company. In contrast, an LLC will limit your responsibility for these liabilities, but you will have to file for a free EIN. Other tasks include setting up a bank account and determining the licensing and permits you may need. You will also need insurance and a solid business plan.
Hiring Employees
If you are hiring employees, you should consult an accountant to help determine a platform for your payroll services. Most accounting software offers automated tasks for payroll scheduling, direct deposit, and filing taxes. In addition, your payroll platform should give you the ability to manage benefits and allow your employees restricted access to view their records but not modify them.
Purchasing a House as a Sole Proprietorship vs. LLC
Buying a home when you are self-employed is almost the same as it is for W2 workers. You’ll be evaluated based on your two-year taxable income, credit history, and debt-to-income ratio, among other traditional home buyer qualifications. Additional rules that dictate a mixed-use home purchase include:
- You must be both the primary resident of the home and the business owner.
- The home must be a single-family dwelling.
- You may not make modifications to a residential property that hinder resale.
- The home must be significantly more residential than commercial.
The main reason to obtain a mortgage with your home-based business under your LLC is to protect you from liability in the event of a lawsuit. Business funds, not personal ones, must pay the mortgage. Some of the drawbacks of using an LLC for your residential purchase are the cost of setting up the LLC and the fact that it is sometimes hard to find a lender due to the limited liability. Mortgage companies tend to get skittish when they think they might not be able to recover the funds owed.
Searching for the Right House
You’re choosing to juggle a lot, but don’t get distracted during your house hunt. It’s important that you find a property that will meet your personal and professional needs, possibly for several years to come. Start by looking at home prices in your area – or the new area into which you plan to relocate – and decide if buying or renting is the best option for you. The median sales price to purchase a single family home in the LA area is currently around $800,000. You may find that a mortgage of this amount would put unnecessary pressure on you and your business to succeed quickly. There is nothing wrong with renting as you get your business up and thriving first.
If you’re looking for rentals in the Los Angeles area, you’ll notice that prices vary considerably depending on the city and neighborhood. For example, you can get a four bedroom house in Harbor Bay for around $3,700, but a similar property in North Hollywood will cost closer to $9,000. Be strategic about your choice and factor in cost, business community access, and personal needs, like school districts or walkability.
It may be helpful to rent a self-storage unit during your move and possibly in the coming months. Although your new place will likely be bigger, you are adjusting your living space to include a business, which may include more than adding a home office.
If you need a space to meet with clients, or storage to keep products, you may be displacing items that were previously in your home. Fortunately, there are many, many storage units to choose from in the Los Angeles area, and prices are far more reasonable than a mortgage on an even larger home. Plan to spend around $125 for a 5×5 unit, or $250 for a 10×10.
Things to Remember Regarding Your Move
Before you move, here are some things you should consider doing. First, inform your clients of your new location. Then, set up invoices, stationery, and business cards with your new address. If necessary, hire an IT professional to coordinate the proper setup of your technology and equipment. Enlist a reputable moving company to ensure your furniture and equipment arrive at your new home intact.
Making the Most of Your Move
Branching out into a larger residence is a daunting task when considering all the factors involved, but it can be done! Be realistic as you look at your home and business choices, and make the decision that best suits your current needs. Things can always change along the way.
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