First time investor

[Oscar Parada]

Hello, I'm looking into buying my first investment property possibly two this year. Area of interest is Alabama. With 20%down for both properties, should I consider llc or do it under my own name? Thank you

[Anna Laud]

@Oscar Parada

Hi Oscar! 

Yes, as Stephen said there are different thoughts on this and pros/cons, but I personally prefer using an LLC. Not a CPA or lawyer but maybe a little insight to offer before you speak to one (most often you can at least get a free consultation from either of these types of professionals!) and have a better idea of what you might want to ask about;

In going with an LLC, taxes should be more streamlined as well, and you might benefit from having the rental income 'pass through' the LLC as it's designed to do- and the cost for taxes can vary, I'm paying around $600/yearly/per LLC- to me worth it, but you can ask when speaking to CPA how much they might charge each year at tax time too.

Another benefit to having an LLC set up is the corporate veil of protection it offers, limiting personal liability- some investors also obtain an umbrella policy as well.

LLC's can be so beneficial in fact that some investors have a separate LLC for each property- this way if a situation goes into lawsuit with one property, the lawsuit is contained to this property (and this LLC) alone, not all of the investment (or personal property!) the investor owns.

(You might be thinking why would someone sue me over an investment property?? Unfortunately, that's actually as close as the wrong lawsuit happy person stepping in a hole on your property and twisting their ankle- but an LLC would offer your personal assets {and other investments} safe)

If it's just yourself, taxes are not so complicated with a SMLLC (single member LLC) so that shouldn't be a huge reason not to use an LLC(s), as the protection benefits offset/outweigh the small steps during tax time.

For future note, it's simply a matter of attaching Schedule C form to your Individual Income Tax Return (IRS Form 1040) and showing a total profit or loss as part of your total income that's being reported.

During the stages of setting up your LLC, you can include provisions in your operating agreement to have it survive beyond your lifespan and seamlessly transfer to another named individual. In other words what you set up now can last beyond a lifetime and keep working for any future heir as well.

Quite a few people that end up setting up an LLC do so in the state of Delaware, for tax breaks and lower fees, as well as a pretty quick turnaround time in organization.

Obtain an EIN with each LLC at it's organization (usually an option online in set up) and be ready to provide lender with the following when applying (as you mentioned using financing for with 20% down)

-Articles of Organization and an Operating Agreement for your LLC, for you or all LLC members

- State Secretary's proof of good standing (like business entity report aka fees paid to State yearly- can be as easy as paying the $30 fee (just what I know I pay in IN as an example) to your State and getting the email receipt of your payment /filing)

- EIN (that you obtained at set up as mentioned)

- Bank account info for LLC (just transfer purchase funds into accounts you set up after you've obtained EIN- plus usually bank perks to new business accounts like free checks, waived fees etc!)

- Personal credit and financial info

- business plan outline or proof of any real estate history (even like acting as PM before your first personal investment - something to show good record)

Financing might be more of an effort to obtain, but not impossible by any means and if you're putting down 20% on each loan - that's already better than some borrowers putting down less on one loan, going the entire PMI route etc.

So yes, for minimal set up (easily done online too, even after consulting with a professional) it does seem to be the best option for many investors to purchase with an LLC- and I hope that info/steps help = )