Moving property to an LLC

[Derek Loveland]

As I begin seriously investing in real estate, I'm considering starting an LLC to both apply for business credit and hold properties as I build my portfolio. I've had some thoughts on how to get started and am looking for some feedback to help me see my blind spots.

My wife and I currently own a 3/2 SFR that we've been renting out since 2013. We paid it off a couple of years ago and took out a HELOC last year with an 80K line. At the time the house appraised at 126,000. We used some HELOC funds to replace windows and the roof on our primary residence and now owe 30K.

I would like to use the house to help establish the LLC and am looking at two approaches: 1) start the LLC, apply for a BLOC, use BLOC funds to purchase the house for the LLC, or 2) refinance the house and use the funds to pay off the HELOC, establish the LLC, and provide an initial operational reserve. I'm leaning toward option 2, figuring there's a way to move the house under the LLC once nothing is owed against it.

Any thoughts/advice is appreciated!

[Account Closed]

I have been running several businesses for more than 50 years and I discussed having LLC's with my attorneys and CPA's more than 20 or 30 times. Because of all the hype I was always thinking an LLC would have benefits, but my attorneys and CPA's always told me they had too many drawbacks and they talked me out of forming LLC's. The answer seems to depend on who you are asking. You really have to look into how you pay taxes through them and that seems to be a nightmare. YOu have to look at what the total cost is for the extra bookkeeping and taxes and whether or not the LLC will really protect you. One problem with LLC's is when you don't do everything perfect you lose your protection. The other problems are many banks and vendors do not want to business with LLC's because they feel there is no Personal Liability. Who does the creditor hold liable for payments not made?

Personally, I am 100% for the C-Corporation because at the end of the fiscal year I wipe out my bank corporation bank accounts so I don't have to pay double taxes . My corporations never pay one penny of tax with the exception of my annual corporation fee of $800 and then I only pay my personal taxes.

For those who do not know what double taxes are; when you have a C-Corporation that earns a $50,000 profit at the end of the fiscal year the corporation had to pay tax on that profit. So, the corporation may pay 20% x $50,000 = $10,000. That leaves you with $40,000 you can pay yourself. So, when you pay yourseld the $40,000 you pay another 20% x $40,000 = $8,000. Now, from your $50,000 you have only $32,000 for yourself. If you pay yourself the $50,000 before the end of the fiscal year you would pay $10,000 in tax and have $40,000 for yourself. 

You really need to do your research to see how taxes work for LLC's.

Do your research online for the pros and cons of LLC's.