Purchaasing through an LLC

[Jon Passow]

Sorry for the misspelling in the title, hit post too soon and now I can't edit the title. I've decided to go the LLC route for my REI plan and I'm a little confused on how to purchase a property THROUGH an LLC. Details like, do you put the LLC name on the title or your own as President of the LLC, when it comes to hard money loans and bank loans, do you use the LLC and in turn the LLC's credit history or do you use all your own credit history?

Any help would be much appreciated :)

[Alex Owens]

Everything that has been said on this thread so far is correct. However, there can be some complexity to purchasing and financing through an LLC. First, you are obviously going to want to make sure your LLC has been filed correctly through the Secretary of State and that you have obtained an EIN number from the IRS. You should have an articles of incorporation, and LLC Certificate, and an EIN number to identify your LLC. Additionally, you will likely need an Operating Agreement that spells out the function of the LLC and lists you as the owner and manager of the LLC. (I am in Oklahoma and this is the procedure for this state, I make no guarantees that this is the same across all states - additional documentation may be required)

My company has 240 LLCs because we set up and purchase each property in an individual LLC that is wholly owned by our umbrella LLC. I won't go too far into the reasons behind this, but this structure is the best route to go if you are looking for maximum liability protection.

Additionally, to @Nghi Le's point, banks will not give you a conventional loan with an LLC on title. You would have to go through and qualify through a bank's commercial loan department. If you are new to real estate investing and this is your first LLC, there will be no credit history for the LLC and your loan qualification will almost entirely be based on your personal financial health and credit history. Once you become a big player with dozens of transactions under your belt, banks will begin to look at your overall business, business credit history, and business cash flow to determine credit worthiness.

The last thing I will address is @Scott Michael's comment. I believe what he was referring to is submitting a contract with your personal name and qualifying for a conventional loan like a normal home buyer would. Then, the idea is to quit-claim deed the title over from your personal name to your LLC - thus securing conventional financing on what is actually a commercial transaction. This is certainly an option, but a quite risky option at that. This will trigger the "due on sale" clause that 99% of loans have these days. If your bank never finds out that you transferred the deed to your LLC, it should not be an issue. However, if the bank does find out that the title has been transferred to an LLC and your personal name - which is on their loan - is no longer on title for the property, they have every legal right to call the loan due immediately. The chance of a bank actually calling the loan due is very unlikely if you are current on payments, but it is certainly an option that the bank could exercise and leave you in a terrible position. I would certainly recommend avoiding this strategy at all costs!

Just quick disclosure: I am not a lawyer nor do I convey my comments as legal advise. I am just giving you my experience with LLC in hopes that you are able to use that information to best position yourself legally and ethically in your own real estate business.

Hope this helped, good luck!