Business Entity

[Kevin Coleman]

BP,

I have a question about establishing business entities. The previous post I've read have placed little importance on setting up a business entity(LLC or Inc) when first starting out. However, this goes against everything I learned in Bschool(for which I spent way to much money).

Currently I have one rental property which is a result of career move.   I plan to use my personal credit to purchase as many multi-unit properties as possible.  Will setting up a business entity deter a formal bank from lending to me?  

[Hattie Dizmond]

You'll have to get the loans in your name or at least be willing to sign a full-recourse personal guarantee on the loan, until you have sufficient & significant credit established for your business.  That doesn't mean you can't use a business entity.

You can form an LLC, purchase the property in your name, transfer the title to a trust with the LLC named as the beneficiary. As long as you are an owner of the LLC - and therefore hold a beneficial interest in the property - and don't sign a sales contract with the LLC, which would require you to vacate the property, there is nothing about that transaction that will trigger the due on sale clause. Although, I'm certain there will be at least one person who will tell you it will. Read Garn-St Germaine, if you have doubts.

The beauty of the transaction I just described is that the property, once held in the trust, can be sold or transferred - perhaps as future collateral - very easily by simply naming a new beneficiary or adding a beneficiary to the trust.