Need help with Business Plan?

[James Bradley]

Good morning Bigger Pockets Family!

My name is James and I've been considering making this move for about 6 months. I am starting NOW. Based on some early information gathering, I decided I'm starting out 2020 with getting my business set up. First step is setting up Asset protection and the Business name. I do believe this is as good as place as any to start. However, I want to make sure i'm doing it correctly. I've heard Nevada has some of the best LLC laws in terms of protection around, is it worth creating the LLC in Nevada even though my main operations will be run in Pennsylvania? Will there be any real benefit of opening it there, or am I reading too much into things online?

With that being said, I did read on here that if i'm buying property with an LLC, I wont be able to utilize the BRRRR method, because a busienss can't refiance? Anyone have some more details about that?

Main questions I have at the moment;

How do you structure your asset protection? Do you have one LLC for each property? Do you have multiple LLCs and break them down (such as: rentals, rehabs, and or price-ranges?)

Are there ways to organize the LLC so every property can go into the a giant bubble, but still be protected individually in their own bubble?

Once established, do you have to carry general liability insurance for the LLC, or do you guys get insurance policies as you acquire the properties? 

Thank you for taking the time to read my question and hopefully respond. As a new REI/Entrepreneur, any other advice is solicited and welcome at this point in my journey!

[Mike McCarthy]

Many investors (me included), start off with single family or multi-family (4 or less) homes to renovate and rent. When financing these properties the BEST rates and terms are available via conventional (or FHA) mortgages to regular people. It's the same type of mortgage you would use to buy a personal property. Most are 4-5%, 30-year mortgages. For an investment property, you'll need 20-25% down. But due to government Freddie Mac/Fannie May rules, they are only available to people.

So if you buy a house with an LLC, you're no longer eligible for these loans and you need to get a commercial or portfolio loan. These are more experience-based (they don't usually like loaning to new investors), and you'll be paying 6-8%+ on a 10 year balloon loan. Not horrible of course, but not nearly as enticing.

Lastly, will you be managing these properties yourself? A big focus of LLCs is liability protection - if someone falls down the steps, can they blame (sue) you for that? First off, of course they can. And any decent lawyer is going to name you personally in the suit, with or without an LLC.

So I (and others) feel the best solutions for liability is to keep your properties in good repair (if someone falls down a broken set of stairs, it's going to be your fault regardless. If someone falls down a good set of stairs, that you keep in good condition... it's harder to blame it on you).  And also keep good insurance.  A landlord policy coupled with a $1 or 2M umbrella policy will protect you from just about anything.

The biggest issue with an LLC is that it takes your mind off the main goal - to get a property and start making money on it. Spend that hour that you're going to read about Nevada LLCs - and spend it instead looking for properties, cold-calling, or whatever it's going to take to get that first deal done.

Good luck!