Is starting an LLC in the beginning stages of investing ideal?

Question

Hello BP Community!

I'm looking for some guidance on whether or not starting an LLC for your real estate investment assets is a great move when you're just starting out? Is it worth the hassle or is this step something that most would recommend could be delayed? I am leaning more towards starting one from the beginning so that I am not back tracking later but there seems to be many steps I do not understand. Can anyone recommend an LLC service used to help file?

Thank you in advance.

Billy Daniel · Answer

We set ours up after we bought our first property. It's pretty painless. We used a local attorney that other investors use so he handled everything. It may have been a little more expensive, but it very quick and he gave us all the documents we will ever need.The only hassle was transferring that property into the LLC. We spent way more time getting all the proper organizations informed of the change than we ever did getting the LLC set up.

Brandon Rush · Answer

Hey LaMiracle,An LLC is not required in order to get started on your real estate journey. Purchasing your first property or two or three in your personal name is no big deal. In order to get the best financing, you may have to purchase the properties in your name. There may be opportunities that may be best suited for an LLC such as a partnership with someone on a deal. Also, I am not sure how you do it in TX, but creating an LLC is not really a hassle. In CT it takes literally 2-3 days to get one established and all that is required is going to the state's website and filling out an online form. There are some follow up steps such as stating your business's physical location and register agent's address (if applicable).My recommendation, sure go ahead and create one and keep it in your back pocket. Worst case scenario you don't use and and you do not renew it. Good luck on your journey!

LaMiracle Schaefer · Answer

@Jessica Semrad Hi! Thanks for the update, congrats to you all on getting that LLC set up! Thankfully, I just finished getting mine filed today. Incfile made the process so easy. You’re the second person who hasn’t had an issue with transferring their property. I’m feeling a bit more optimistic that I won’t have any issues with my bank. I’ve reached out to them and are getting similar sentiments that it may not matter to them. I’ve heard similar things of people having an LLC for each property. I hope to understand things a bit more so I can completely utilize all the advantages of that. Good luck to you as well!! 😊

LaMiracle Schaefer · Answer

@Billy Daniel Thanks for the follow up! That’s great to hear, I’m hoping my situation works out similarly. So far, I’m getting the same sentiments from the bank since essentially the repayment doesn’t change. Good to know it worked out well for you!

LaMiracle Schaefer · Answer

@Jashmine Cook Good luck with your investing! I just got my LLC formed and think I’m going to just hold it in back pocket until I’m ready to purchase my next property under it. I’ll manage the property for now on my own.

Jessica Semrad · Answer

Hey my husband and I got our LLC in June and we’re here in Texas. Super easy did it ourselves. Hardest part was thinking of the name that wasn’t taken lol. Just paid the Secretary of State after getting our free EIN# then had our 2 properties transferred to the LLC. We did just hear an episode from Ken McElroy on he has each property under its own LLC to keep the protected from each other so if someone sued they couldn’t go after multiple properties. We haven’t done that yet since they’re both under 1 but will probably do that moving forward to be safe. Hope this helps a little. Good luck girl. ☺️

Billy Daniel · Answer

We didn't have any issues with transferring the property over to the LLC. We signed new documents with the PM, but the tenants were not required to sign anything. The bank didn't care that it was transferred over since the risk really didn't change from their standpoint. We have good working relationships with both the bank and the PM, so an honest conversation was all it took!

Jashmine Cook · Answer

I was also considering this option with forming an LLC. I am looking to get started in investing and trying to get my ducks in a row. I am currently living in the SF bay area but I am open to local and out of state investing. Thank you for the question and responses!

LaMiracle Schaefer · Answer

@Timothy Frazier I was a bit worried about that from what I have read so far. I agree that it probably is best to leave the property instead of trying to transfer over. Using and LLC going forward if the pricing is right does make the most sense. Thank you Timothy!

Timothy Frazier · Answer

@LaMiracle SchaeferYou will have to be a bit careful when transferring the property from your name to your LLC if you have a mortgage. That mortgage will be in your name. When transferring to LLC the bank could look at that as a transfer of title and execute the due on sale clause as if you were selling the property to someone else. I think it’s best to just pick one way from the get go and leave the property in whichever you choose. As someone else pointed out the financing terms if you deed LLC will not be as good as conventional mortgage but if you can afford it on those numbers I would do that.