LLC Before or After First Property?

[Garrett Diegel]

We are looking to purchase our first REI property sometime this year. We will be purchasing a property with an investor partner (terms still to be discussed) and want to make sure that the business entity is set up correctly. My first question is do we need to set up the business entity before or after the initial purchase. Secondly, I have heard of setting up a holding company with multiple LLC's associated with it in order to purchase properties with different terms, people, etc. Any help would be appreciated. Thank you. I have also rough outlined the goals / terms for the possible deal below. Any advice on term/deal structure would be helpful as well.

FYI 

1st deal possible terms / goals: Investor partner provides financing under their name w/ lender as well as provides down (It is possible that we will provide the down instead). I will do all of the business planning, foot work, etc. Cash flow will be reinvested in order to purchase second property as well as protect the downside of prop maintenance etc. Investor will participate in the appreciation upside at the time of sale. % to be discussed.

[Bill Gulley]

In that case, form the LLC first, get a bank account, fund the account, buy the property. He doesn't need a mortgage acting as a lender, that is covered in the operating agreement.

Multiple LLCs are recommended by attorneys selling you the LLC docs, accountants charging you to clean up the books and idiot gurus trying to pass off convoluted asset protection stuff scaring the heck out of newbies to sell something new and different. Absolutely not the way to go for single family properties. Get insurance.

Now if you were buying 24 unit multi family properties, projects and partnerships, yes a single LLC has its place, but not for a 3/2/2 house.

But, before you open an entity, make out a business plan, what are you going to do, what might you do, what could you do and develop the company with alternative operations in mind the first time to meet contingencies. It is important to properly structure a company so that you will be operating within the scope of your business, if you have a PM company you shouldn't be selling peanuts on the side or start lending money. Good luck :)