Closing the deal...buy in my own name or as an LLC?

Question

Hi BP Community,

I am looking for my first deal and am in the process of researching S-Corps and LLC's.  I was wondering what other investors do when purchasing a property.  Do you make the purchase in your own name then transfer it to your business entity or do you purchase it through your LLC/S-Corp?  My thought was that people may be more likely to sell to an individual as opposed to a "business".  What are your experiences?

John Blackman · Answer

Yes, the first loan we did for a construction project was for a property owned by an LLC. The bank wanted to see the operating agreementt for the LLC that the property was held in so they knew who had control over the property and could make decisions regarding title.

The loan closing docs made me the personal guarantor for the loan.  So even though the property was titled to my LLC, I was effectively personally on the hook for the loan.  So at the end of the day it's still really all on you.  That will not change until you develop a track record with the bank and can show significant assets that your business can use to secure loans.

Also be sure to ask the bank if huge loan will show up on your personal credit.  Some banks will report the loan to the big three credit agencies, some won't because the loan is collateralized by land or cash.  Needless to say I don't do construction loans with banks that put those loans on my personal credit.  Although you may have to do a few that way until you have the track record to get around it.

Gaurav M. · Answer

I have a couple of properties which are financed with conventional lending. Conventional lender will not lend to LLC. So end up purchasing in my own name. Someday when I own these properties free and clear, I will transfer it to LLC.

James Wise · Answer

main thing to look at is financing. If it's 4 units or less bank will want it in your name and not an llc to give you a loan.

5 units or more a bank will be fine with lending to an llc with a personal guarantee from you.

Account Closed · Answer

@John Blackman

Thanks for the info.  I'd certainly prefer to hold everything through an LLC for several reasons.  Were you an established RE investor before you were able to find a bank to lend to your LLC?

Account Closed · Answer

Thanks for your responses.  For my first property I will be partnering up with a family member and possibly another investor depending on purchase price and renovations needed.  We probably will not need conventional financing as we will use a combination of home equity/personal savings.  We're looking for a single family flip.  I was just wondering if anyone has found it easier to buy in their own name.  Personally, if I were selling my own home I would most likely prefer to sell to a person vs. a faceless/nameless LLC and I wondered if others would feel the same.

Curtis Bidwell · Answer

In our partnerships we buy SFR/duplexes in personal names but run all business activity through an LLC.  Our commercial and multi families are titled in the LLC from the start.  Just understand that we don't get liability protection from the LLC on our SFR, we use $2m insurance umbrellas for that.

Laura Williams · Answer

You should ask the bank if you can hold in an LLC as some may let you. Wells Fargo told me I could change the title to an LLC after I bought and I talked to a small local bank that does investor loans that told me they prefer that investors keep the property in the LLC name. From everything I have heard and read the LLC is the best entity to hold real estate .......hands down. If it's possible you should hold all your real estate in an LLC for asset protection. You can't go back and put it in an LLC if you get sued.

And as far as people caring if a person or LLC entity buys their place I have not found it mattered at all. People or banks are just happy to sell.

John Blackman · Answer

There are banks who will lend essentially to you (personal guarantee) even if the property is held in an LLC.  The bank will want to see your formation docs to know that the LLC is essentially a pass through entity and held by who you say it is.  You may have to interview many banks, but you will find some who will lend to you, especially local banks.  @Bryan Hancock interviewed easily 100 different banks to find the ones we work with now.

All of our projects are held in an LLC.  For liability purposes, we never buy anything in our personal names.  This also keeps the books separate.

Lynn McGeein · Answer

I think if you are offering a cash deal, sellers won't care if it's individual or LLC as long as proof of funds, a nice EMD and a short closing date are all part of the package.  There are a lot of threads on here if you search for LLC that discuss LLC or not.  We went without LLC and raised our umbrella as we need the financing.  If I didn't need it, I would go the LLC route.

Closing the deal...buy in my own name or as an LLC?

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