CPA's advice was to not create LLC?

Question

Hello Everyone!

Somewhat new to BP.  But even newer to posting on BP.  I had asked for advice in another forum and someone's answer prompted a new question.

I am about to close on my first duplex next month.  I run all of my major financial decisions by my accountant before making any moves.  With this duplex, I told my accountant that I was paying cash and right away he advised me to create an LLC.  I asked him about the differences in financing when I deed a property to myself versus an LLC.  Some of the things I mentioned to him were higher rates, shorter terms and higher premiums for insurance because I was under the impression that deeding a house to an LLC would turn my entire venture into a commercial venture.  After I told him that I plan to finance multiple other properties in the future, he retracted his advice to create the LLC and said that if I'm financing other properties in the future, to just deed them to myself and forget about the LLC.  I searched numerous forums about which business entity to create.  However, I didn't really find any that mentioned any of my concerns specifically (rates, terms, insurance).  Does anyone have any thoughts about my concerns?  Are my concerns valid?  Or does creating an LLC somehow offset the higher rates and insurance premiums?  And if so, how exactly?  Thank you all for reading.

Account Closed · Answer

The main point of the LLC is to protect your personal assets (and other properties assuming they are in their own LLC's) from liability based on what happens on a given property.

The drawbacks can be admin related and sometimes cost related. For example, in RI they charge 500/yr just to have an LLC so that's a crappy expense to have :(

Also if you have 10 properties in 10 different LLC's that's 10 quickbooks files, 10 bank accounts, etc. You can put them in one file and use "class tracking" to get around the files but the bank accounts are separate anyways.

What I do on 4 fam and under is do residential financing in my name to get excellent residential terms and then quit claim them to the llc after purchase. "technically" a bank can call your loan for that but i've never, ever seen that nor do I think that's even a remote possibility.

If you go LLC from beginning then you'll get commercial financing where the terms may not be as favorable.

If the properties are similar class wise and equity wise you could make an argument for putting them in 1 llc but from a legal standpoint individual ones are generally considered the "safest".

edit: oops posted at the same time sorry for the dup info

Rob Beland · Answer

Account Closedmy CPA advised against an LLC as well. I own all my properties in my own name.

Account Closed · Answer

Does anyone have an opinion to financing a property in my own name for the lower rates, take the chance of the liability for a few years, and once the property is paid off, re-deed it to an LLC for the asset protection over my next 40 years?  Has anyone heard of this before and can it be done?  I mean, it's my property, why can't I deed it to whoever or whatever I want?

I am beginning to see that the LLC debate is a matter of personal opinion.  Some do, some don't.  Like John said, it's a matter of your own risk tolerance and assets.  Thank you all for your thoughts.

Hugh C. · Answer

Also consider the value of your holdings.  If there is a lot of equity, and worth splitting the holdings into separate LLCs for asset protection, then it may be a very reasonable cost.  But if very little equity, small over all value, no significant other assets, then may not be worth the added costs for the LLCs.  Don't forget umbrella insurance policy as a supplement to protecting significant assets or just protecting yourself from liability cost.

Chance Housos · Answer

My CPA recommended using and LLC for all flips/rentals for tax purposed, write offs, and asset protection. You will find many people on here that go both ways.

Mark Nolan · Answer

@James Norton

Welcome to the Bigger Pockets community.

Jon Holdman · Answer

An LLC is for asset protection.  Done properly, its way of isolating assets so a lawsuit involving one asset (hopefully) doesn't affect others.

But, conventional loans (i.e., low rate, 30 year fixed rate loans) are available only to individuals, not entities.  So, if you want a conventional loan, the property has to be in your name.  It is possible to get loans for a property owned by an LLC.  These are commercial loans.  You might get 15 year fixed, maybe 20.  You may be able to get a longer amortization period, but will have either ARMs or a balloon.  You will also probably have to give a personal guarantee, so you're still on the hook for the loan.

You should discuss asset protection with an attorney.  Its a complex topic and depends on your risk tolerance and your assets.  An umbrella liability policy should be part of that discussion.