Did you create an LLC when you began aquiring properties ?

Question

Hey guys.

I’m relatively new to real estate investing and have wondered the benefits of creating an LLC before I start. I am reluctant to taking out addition mortgages in my own name which is why creating an LLC is appealing.

How do you guys run your businesses?

David M. · Answer

@Collin Rush

There are a bunch of threads on this.  In general, bottom line it’s better to use your personal name when doing long term rentals of something lower value like single family homes.  LLC is only for asset protection.  You can mitigate the risks with additional insurance through an umbrella policy

Meanwhile, owning the property under your own name allows you to tap into better rates in conforming loans, being able to go to court yourself (assuming you choose to) just to name a couple for example

Getting a loan under a LLC will still require you to personally guarantee it, and it will be a commercial loan. As for the court thing, since the LLC is a legal state entity, you can’t represent it (unless you are an attorney yourself) even if you are the sole member.

If you are doing investments other than single family homes, it might be beneficial to go through the expense and hassle (you need separate bank account and not co-mingle your funds) if a LLC. For example, a medium or large apartment complex or a commercial strip mall. Maybe if you are doing flipping..

I hope this helps. Search the forums.  You’ll find the other discussion threads. Good luck

Tanvir Sattar · Answer

Another thing I would add is if you are investing with someone else it would be safer to create an LLC. That way you and the other investor(s) are protected.

Jessica Franco · Answer

@Philip Ganz Thank you

David M. · Answer

@Ozzie Sezen

You probably should get some professional help instead of hijacking another thread here.  For starters, if you use a NY entity to purchase a property in NJ you will need to register the entity as a foreign entity in NJ or risk not being able to go to court (in NJ).  As I've mentioned above and in many other posts (as have others), there isn't much benefit to purchasing "small properties" in a business, unless that is just what you want to do...  Yes, S Corp is more or less the same as a single member LLC as both are pass through entities for tax purposes.  S Corp is just a tax status allowed to be elected for C Corp and LLC.  Meanwhile, rentals are passive income so paying yourself, either by salary or by dividend, out of the S Corp really isn't tax efficient.

Ozzie Sezen · Answer

I am a beginner, planning to invest the first rental and keep it for a long term investment in NJ. I own 100% S corp in Queens, NY. Should I get using my personal name, or S corp? Does it really matter for S-corp 100% ownership? Is there any benefit if I get it in S corp?

Any advice greatly appreciated.

Arthur Martin Barbeau · Answer

I had similar experiences as those mentioned above.  Many lenders will only finance individuals, not LLCs.  Business loans that are offered are done so at higher interest rates.  It is probably worth doing your own due diligence and call 12-15 lenders to better understand what is available to you so as to make an informed decision.

Zac Boelkow · Answer

my accountant and lawyer told me to purchase my properties in a LLC. That was based on my own unique circumstances. It is difficult acquiring loans for a LLC. Also it should be discussed with attorney and accountant to verify if it benefits your unique situation

Philip Ganz · Answer

@Jessica Franco  Your first loan should not be in an LLC becasue you can not get FHA/Conventional finaincing without risk violating the due on sale clause.

David M. · Answer

@Jessica Franco

I'll send a direct message so as to not hi-jack this thread

Jessica Franco · Answer

@David M. thank you for the helpful info. We have also been exploring the idea of creating an LLC. At the moment we are house hacking in our Duplex, once we move out we plan on creating an LLC. I hear it can be a lengthy process to transfer a property that is currently under your personal name to an LLC. Do you happen to know much about the process at all?

@Collin Rush I don't mean to hijack your post :D

Did you create an LLC when you began aquiring properties ?

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