Creating a company: LLC or other alternative?

[Scott C.]

I have been investing in real estate for the last six months. Now that we are about acquire our third property, I think its time to formally create a company to operate the business under. I am confused on the best way to go. My first thought was to open an LLC for the protection and ease of setup but doing a little research on the forum that may make it harder to get financing on future deals. Is that corrrect?

I have also thought of just doing a joint partnership company with my wife and I. We already have an umbrella policy in place for some protection from lawsuits and etc... but I want to make sure we are protected the best we can.

I'm real confused about the best way to go so any guidance from you long term pros out there would be greatly appreciated.

Thanks,

Scott

[Lisa Phillips]

@Scott C.

Hi! As far as financing, there are things to consider: Getting a conventional loan from a bank, they dont want to see the LLC on the property deed. If you purchase in your name, and then change it to the LLC, they can technically call the loan due as if you sold it. I have heard that people have called and asked each particular bank institution what their policy is on that, because all banks have different guidelines to how they want their investment properties treated.

As far as HELOCs, I was just shopping around with my credit union, and they had a place for saying if the house you were refinancing is in an LLC or not. So, some banks can facilitate refinancing with these entities, some won't.

Now, when I hear partnership, i SHUDDER: Partnerships mean you are liable for your partners deeds or misdeeds. Trust me,I know you love your wife, but it doesnt offer much protection, and should be avoided. You want protection, not to be on the hook if you partner gets in an accident, gets sued, and they can go after all the assets within the partnership. *SHUDDER*

An LLC offers levels of protection, along with a good insurance policy to protect against liabilities. For instance, if you have multiple properties, and some in 1 LLC, and the others in another LLC, if you theoretically get sued, they shouldnt see the assets in the other LLC. Some of my houses are in my name, some are in the name of my LLC. The houses that I bet would have better and faster appreciation, I put in my name for ease of refinancing. Otherwise, I would have left it.

I hope that gave you a little insights as to the possiblities that exist.