No LLC- First Investment

[Sheila Reyes]

Hi BP Members! I'm on the way to getting my first MFR (fingers crossed) and am currently starting attorney review. I was wondering how can I start running things like a business without an LLC? I understand that according to all mortgage documents, you are not allowed to switch title to an LLC. People have done the LLC thing but technically its not allowed. As my primary residence, I was told an LLC may be overkill too and that I should consider just getting a big umbrella insurance policy vs an LLC. I plan to get more properties in future and was wondering I don't get an LLC, can I run anything separately in my first MFR like an actual business? Can I still get business bank accounts, have expenses go towards my business, etc.? The seller also owns the property under an LLC? Can I acquire the LLC? Would the lender probably not allow that either?

[Nicole A.]

Yes, you can purchase a property that is owned by a LLC. That shouldn't be a problem.

The advice you were given on getting an umbrella policy is good and you should definitely follow that advice. You might need to get your policy with the same company that you currently have your auto/home insurance through. 

I do recommend that you open bank check and savings accounts that will be used only for your real estate business (even though you're not an entity). You would need to ask the bank on if it'd still be a business account or, since the properties will be in your name anyway, perhaps just opening more checking/savings accounts in your name will likely be fine. Just don't use them for anything but your REI.

You will still be keeping track of expenses for tax time. Categorize as best as you can. Examples of categories:

• *Mortgage interest paid per year (this is usually on your last mortgage statement of the year)
• *Repairs
• *Insurance
• *Legal fees 
• *Taxes
• *Credit card interest (I believe this can be for business in general and not require a formed entity, but double check)
• *Advertising
• *Misc.
• *Utilities
• *Improvements
• *Donations

Once you have multiple properties, be sure to use the above categories of expenses for each property. Your tax guy will want to know expenses broken down by the property. And then by categories such as above. That list is probably not full, but what I remember off the top of my head.

Are you going to use your current primary residence somehow for business purpose as in rent part of it out? Or move out and rent it? 

I think a LLC is overkill when people create a new LLC for every property they get. I would be more of the route (if I was strongly pro-LLC) to have a LLC for each state I operate in. So if I have 3 properties in MD and 2 properties in FL, I would have 2 LLCs... one for MD and one for FL.

Nothing wrong with having them in your name either though.

I might recommend, though, that you get a UPS box or a Street Address box from the post office (different format that PO Box, which lets you use the address better). If you rent out properties, you'd probably rather give tenants this address than your personal home address. If you have this, you could also possibly use it as your contact address that will be put on public real property records. Gives you a little more privacy.

Hope this helps start you off!