New Investors Needing Advice on LLC

[Amanda Crawford]

Hi! My husband and I are about to close on our first two investment properties in FL. One will be a BRRRR and the other is a flip. We have a HELOC for the BRRRR and an investment loan for the flip. Both are under contract in our personal names. Our long term goal is to flip homes to create capital for our long term rentals. We are considering doing an LLC for each business, especially if we want to start building business credit, etc. We understand that the rental property will have to be transferred into the LLC later. Thoughts on forming one or both of these LLCs now? Or should we wait?

Thanks in advance! 

[David M.]

@Amanda Crawford

Agree with Allen smith. LLC creates complexity (which has its own costs) and more costs. For small operations (and many see less than 10 single family homes as small), the LLC isn't necessary for rentals. Insurance, including umbrella policy, is sufficient.

LLC will force you into commercial loans. You need to operate as separate business to maintain corporate veil for the asset protection which requires lots of discipline. The whole buying personally then transferring is "messy" and requires legal assistance (more cost) as this commmunity as discussing just last week.

I hear some have developed business credit, but it's for small amounts. I think some people have figured out a way to get a small business loan from a local bank for the LLC to serve as the down payment somehow (so think $20k-$30k maybe). But, I believe it was intended as short term loan generate some cash.

Some people think they need the LLC for tax purposes. Really, it actually doesn't change the deductions you can make. Depending o your LLC, your tax return may actually look exactly the same. Again, the LLC is for asset protection..

Good luck