Buying in your name vs buying under an LLC

[James Dainard]

Hey BP Community!!

I've been getting a lot of questions over on my Instagram and I wanted to make sure I shared the answers with you all as well!

The question we got recently was, if you're starting out and are looking to buy a duplex, should you buy it in your name or should you buy it under an LLC?

There are always multiple ways to answer every question in real estate. If you're starting out, you probably want to go with a 3.5% FHA loan if you can afford the monthly just because it's going to be the highest leverage position that will jumpstart your investing.

Answer one: Highest leverage

If you're looking to get yourself into a high-leverage position to get a jumpstart on your investment you're going to want to take the property down in your own name. This will allow you to go get conventional financing through Fannie or Freddie with as low as 3.5% down. We saw a lot of this back when money was cheap, it's not working as much now that the cost of money has nearly doubled.

Answer two: Highest cashflow

If you're looking to maximize your cashflow, you probably want to put more money down and get the property under an LLC. This is the safe, stable option. A lower leveraged position will make you more bankable and make it easier for you to go on to the next deal.

Keep in mind that putting a property into an LLC is about liability control. I will often close a property in my name then transfer it into an LLC. Make sure you talk with your lender to confirm that you won't trigger a due on sale clause by doing this.

Hope that helps! Thanks for reading and best of luck out there!

[Dominick Johnson]

Hi @James Dainard! Your answers could be a bit confusing, as an LLC can not get an FHA or Conventional loan for an investment property. The work around is as you stated, purchasing the property in your name and then doing a quit claim deed to transfer it to the LLC.

The key thing to note is that these answers only apply if you are living in the property. That said, most banks and mortgage lenders won't loan to LLCs with no existing credit score or proof of financial stability.