Financing/organization structure

[Sergio Altomare]

Hi Everyone,

I asked a similar question to this the other day, but didn’t get any response so let me try and clarify it a bit.

My girlfriend and I are interested in starting a real estate investment company to buy rental properties. We have located 2 potential properties (besides 2 that are ours), both of which are duplexes. We have a number of friends and family who are interested in investing, but we can’t seem to get a good understanding on the best approach for making these types of deals happen. We expect to be able to raise at least 30% down on a $275k property. I have a call in to a lender, but have not gotten a call back yet. Because we already have one investment property together and are planning a second, we would be charging a nominal finder fee and providing the management of this new deal. Here’s what we’re confused about:

1) Should we shoot for establishing an LLC (or other type of partnership) first, and then get financing through it? If so, I imagine we need to get credit data, etc. of our investors? Would they do that directly with the lender, or do we have to do this? I'd rather not have to ask family and friends for personal information.
2) I understand that getting a loan through an LLC with no history is difficult, is this true?
3) Should we buy the property through a conventional loan and then moving it under an LLC or other business structure? How would we do this with multiple investors?
4) If we move a property purchased through an individual loan and then try to move it under an LLC, do we need to pay transfer tax? I’ve read yes and no, but looked through various PA and Philadelphia regs and can’t find an answer. Transfer tax in Philly is 3% and PA 1%, so this is a big impact of even considering this.

Any help that anyone can provide is much appreciated.

[Steve Babiak]

Originally posted by Sergio A.:

...
4) If we move a property purchased through an individual loan and then try to move it under an LLC, do we need to pay transfer tax? I’ve read yes and no, but looked through various PA and Philadelphia regs and can’t find an answer. Transfer tax in Philly is 3% and PA 1%, so this is a big impact of even considering this.

Any help that anyone can provide is much appreciated.

As Bill Gulley (thanks for the @mention heads up) already pointed out, that transfer will be considered a taxable event for real estate transfer tax purposes by the PA Dept of Revenue. It is a big OUCH to have to pay 4% RTT for transfers in and then back out of LLC when people try to get financing in their personal name (and then want to do a refi similarly).

This other thread discusses PA transfer taxes, and I have some more info there that you should consider:

http://www.biggerpockets.com/forums/93/topics/80878-transfer-taxes-on-contract-assignments