Forming an LLC (or other entity) befire first deal...

[Miles Stanley]

I know there is a long debate on this topic as to forming an LLC at the very beginning or after getting the ball rolling and waiting till a few properties in (I'm interested in buy and hold btw).

I know the formation of an entity like this isn't cheap, especially when the investment capital is low in the beginning, but I met with an attorney yesterday on an unrelated matter and at the end I got to chatting with him about real estate investing. He said the very first thing I should do is set up an LLC for protection of personal property and for asset/liability protection. I see his point of view, but I also know he would benefit from this as he would be setting it up (although I have no reason to distrust his opinion at this point).

Has anyone had actual experiences with setting one up at first vs. later or have or have any personal anecdotes? Any "I wish I would have..." stories?I know one argument is that why would I set up an entity to protect something I don’t even have yet.On the flip side, I see the benefit of being covered from the start.

I have also heard that financing is hard to get on SFR as an LLC.To that one might say, "well apply for financing in your name and transfer ownership to your LLC!".To that I would say "I have heard that may trigger the dreaded due on sale clause in the mortgage agreement…bad things!".

Help!

Thanks,

[Sean Conrad]

Hi Miles,

Hopefully I can help. I own and operate two businesses outside of real estate. I also offer legal advice and help others forming their own business! With that being said, I would HIGHLY recommend forming an LLC before doing anything! And yes, your attorney is correct. Forming an LLC will protect you and your personal possessions. However, I would not recommend using an attorney to form any type of business. They make their money by tacking on "fees". For all of my business needs, I have used Legal Zoom. (legalzoom.com) Ive spent around $450 for each of my LLC's and it was worth every penny! Keep in mind, it can take up to 3 months for your LLC to fully form due to the government taking forever to file and approve all of the paperwork that goes along with it. However, Legal Zoom does all of the work for you and explains everything they had done as well as a packet of all the information you will need to know about LLC's. Hopefully this will help you make your decision. Good luck!