Answer to - Should I Buy in Personal name or LLC?

[Jonathan Bombaci]

I get this question pretty regularly from clients so I figured I'd document my answer here to refer back to. Full disclosure, I am not an Attorney or CPA so I recommend you consult with yours however this is what I came up with for my personal situation after talking to my Attorney and CPA. There is no one-size fit all answer to a question like this. It all depends on your specific situation and your goals.

For me the 2 multi's that I househacked were in my name and it would have been foolish to setup an LLC for them since I wanted the residential terms on my loan, 30 year fixed at the prime interest rates at that time. If you buy in an LLC you now have to go with a commercial loan which typically has a higher rate and most are 5 year arms with 15 year terms.

It s here that many people as if they can buy the property residential and then transfer it to a LLC they create after the fact. They want to have the residential loan but in a LLC, the proverbial have their cake and eat it too. Technically speaking almost all residential loans are "non-transferable" so when you transfer it to an LLC you could trigger a payoff. Now many people do this anyway and I hear banks have a 1 year look back period so most people wait 18+ months and then do it and as long as they don't fall behind on the mortgage the bank should never look back at the loan. That being said it is not something I would gamble with. If you're determined to go down the path of trying would suggest consulting an attorney on that and understand the risks, but I've never done this.

Now the 3 commercial properties I have in Northern NH (5 unit, 7 unit 12 unit) are all in 1 LLC. I was buying them with a commercial loan and the total value of all the buildings isn't substantial enough to make sense opening a separate LLC for each property. We are working on buying a 23 unit fix and flip project in Leominster/Fitchburg and a 12 unit in LOWELL MA. Since those are larger and have different goals each of those will be in their own LLC. We're closing on the Leominster/Fitchburg project next week, we just created the LLC and are still in the process of opening a bank account. So you really don't need to be setting these up too far ahead of time. I'm a firm believe in "just in time" management. It saves money and it makes it so you can adapt to situations as they unfold without having a stake in the ground.

If you're going to buy a TRUE investment property and go through a commercial lender (or HML) then having the LLC makes sense. Almost all HML I know require you to buy the property in a LLC to conform with federal laws. Having the property in a LLC in this scenario won't hurt you from a loan standpoint and it offers some additional protections against lawsuits. I'd then recommend doing everything in that 1 LLC until you outgrow it. The only person that will benefit from you having each small multi you buy in it's own LLC is your CPA and attorney. If you were buying 20+ unit buildings with lots of exposure or different types of risks then yeah separate LLC's per property makes sense. When were talking small buildings, I'd recommend scaling within 1 LLC until you out grow it.

I hope this helps, let me know if you have any questions. 

Best, 
Jon