What will be the best way to BUY investment properties.

Question

Hi guys, 
I am new to this business, but decided to start big. I am trying to acquire at least two investment properties in the next two months. Here is the challenge; the price range of each of the properties is about 350k. I have the cash for the down payments, but the thing is that my income is about 60k per year and I already have one mortgage on a property I own. Probably I won’t have a problem obtaining financing for one property, but I really want to buy two or more.
Could you please give me an advice what will be the best way for me to structure the deals? My plan was to buy one on my name and then start LLC to buy the others, but I am not sure that I will be able to get financing using a brand new LLC.
Your time is highly appreciated.
Thank you

N/A N/A · Answer

Delaware LLC?

I can not answer that question because 1) I do not know what state you live in and 2) I do not have enough knowledge (yet) about Delaware LLC for rental properties.

The other knowledge I have about Delaware LLC is that it's pretty darn good (not the best) for business purposes. For example, dental business or doctor business or Engineering Firm, etc.

It is best to stick with LLC of where your rental properties are located.

For example, you can have one land trust and one LLC for each of your properties followed by, let's say, S or C Corporation. Mind you, make darn sure that S or C corporation does NOT own any properties! S or C Corporation just manage your one or multiple LLCs.

To answer your question about multiple Land Trusts into one LLC. The answer is: You can but I wouldn't do it.

I'll explain a little further. Assuming you do not have the S or C Corporation (it's a public face). Then your one LLC is forced to be the public face. The plaintiff sues your one LLC. Prior to file a lawsuit, the plaintiff has no knowledge that your one LLC has multiple properties, in part, because of Land Trusts. Before you know it, the plaintiff's attorney investigated and found those multiple properties within your one LLC. Plaintiff and it's attorney will say "BINGO!"

How would I do it? One land trust, owned by one LLC for each properties managed by an S or C corporation.

Overkill? Yes and No. Yes, it is an overkill if you're never sued for the rest of your life. But, on the other hand, No--it is not an overkill when you can lose all of your properties.

Some states are cheap when it comes to LLC. Other states are more expensive. In my state of Illinois---just for one LLC---it costs $500 to create and file with Secretary of State, then $250 to file annually.

Other states are lucky---some only requires $75 just for one LLC! UGH!!!!

Debbie

N/A N/A · Answer

I could but it would take quite awhile because there's already existing public information that has my name on it. Not to mention that the mortgages are in my name. So, I decided not to. I just make sure that they are leveraged.

Next property(ies) I purchase will be put into Land Trust and LLC in order to prevent my name listed in public record and mortgage. However, I may have to personally guarantee the mortgage(s) in order to have LLC's name on the mortgage(s).

Debbie

Account Closed · Answer

All Cash, just curious why do you say a 350k property is not likely to cash flow. A six-flat sure can.

Chavdar Kehayov · Answer

Thank you very much Debbie! Now I know the right questions to ask my lawyers. I have to figure out only one more thing. I was thinking to establishing Delaware LLC and acquire properties in multiple states. Do you think that one LLC and multiple land trust is good idea? I know it’s not the best possible asset protection, but it’s good start and it’s much better than having everything on your name.

Thank you again for your time.
Chavdar

Chavdar Kehayov · Answer

Hi Debbie, Could you please explain how the land trust and the LLC works. On which name the mortgage is going to be? Thank you

N/A N/A · Answer

Ckehayov,

I'm not an attorney. I can only offer you free advice that I receive from my attorney brother and a friend of mine, a trial attorney Howard Spiva . He's that GOOD! My only problem is that it's hard to find good attorney in my state because neither are licensed in my state nor personally know any Illinois attorneys. So, I'm on my own in that department.

Before I go any further----each state has it's own rules for Land Trust and LLC. Therefore, a GOOD and KNOWLEDGEABLE attorney is a must. You could do DIY for SUBSEQUENCE Land Trust/LLC but you MUST know what you are doing. You do NOT want to do any "Cookie Cutter" type asset protection. Nor do you want to run ineffective entity that can easily be thrown out by court Judge.

Here's goes:
Land Trust----this is a trust that provides anonimity only. Nothing else. It is NOT a true asset protection. It can provide you different purposes.

In my case for Land Trust, I can have this Land Trust created because I do not want my name in public view. I can put a newly purchased property into a Land Trust. Then use a Manager Managed by a LLC.

LLC---Limited Liability Corporation (FYI: there's no such thing as "Limited Liability Company"). This trust has a fairly broad use. It can be single managed. It can be multi-members. It can be Manager Managed. It can be "checked off as C-Corp"  or "checked off as S-Corp", etc on IRS form.

It is really too complicated for me to explain here on this forum.

But to answer to your question, the manager-managed LLC would be listed on the mortgage. Do be aware that if it's brand new or fairly new LLC, most lenders will want you to personally sign as a guarantee payor. That is okay because this form is not for public information. Eventually, any future mortgages under that specific LLC, you will no longer need to personally sign for it.

I hope I shed a little light for you but I suspect that I created more questions or theoretically ideas for you.     :idea:

I do want to point out one more thing-----A very good trial attorney such as a friend of mine has resources (private investigators) can help pierce asset protections (entities). So do not assume that with asset protection, you'd be 100% protected. Asset protection with layers of entities do help a great deal because majority of attorneys do not want to take the time to pierce. But it still takes one aggressive attorney to pierce.

I highly recommend that you study asset protection before you contact RE attorney or Estate attorney.

Debbie

Chavdar Kehayov · Answer

I am going to keep the properties and they are going to cash flow. The advice I am looking for, is how to acquire multiple properties on my name when I already have one mortgage on a property I own and my income is not sufficient to carry two or more other mortgages. I do have the cash for the down payments and %10 or %20 is not a problem. I was thinking to establish LLC, but I am not sure how the financing will work. Please advise.
Thank you

Chavdar Kehayov · Answer

Thank you Debbie, your answer, is very helpful. Let me, ask you something else. You said that you have multiple properties on your name. Is it true that you can take off the mortgages from your credit report when the properties are placed into trusts? Thank you

N/A N/A · Answer

I have two personal homes with mortgages (one current about to sell with another being built) plus two side by side duplexes and a house.

They're all in my name.

If I were you, first thing I'd do is to talk to your current mortgage lender and ask plenty of questions. You just may find that you can get another mortgage.

BTW---your income is NOT the only income the lender looks into. The lender looks at rental incomes as well. Of course, they look into whatever 401K or Deferred Comp or ......methinks you get the drift.  :wink:

Debbie

Frank Adams · Answer

Like dealman said; there is no "best" way. One solution is to look at your EXIT STRATEGY and let that be a guide. I'm guessing you're planning on quick flips as I can't imagine that a $350K property is going to cash flow.

all cash