First Buy, Hold & Rent Investment | To LLC or not to LLC?

[Chris C.]

I'm dying to get started purchasing property and renting it out however I have the infamous stopping point of to LLC or not to LLC. It's more costly and complicated however there is protection.

I'm wondering if it's the same thing to just focus on the property right now and transfer it into an LLC later as opposed to having all my corporate structure setup right now before I even talk to a lender?

I've been reading that when you are just starting out and have one property..don't get caught up in going nuts over asset protection and liability until you really have a few going.

Additionally.. I have an even more complex legal question here that no one saw. If anyone has any advice on the best approach to figure this out I'm all ears:

https://www.biggerpockets.com/forums/51/topics/317...

[Penny Clark]

@Chris C.,

Your first instinct to wait and establish an LLC later is correct. Most banks will not give you a loan for 1-4 unit with an LLC holding title, and if they do, they would require you to personally guarantee it. Banks seem more receptive to LLCs holding title when you purchase commercial (5 + units), however, they may still require some personal guarantee (not sure for Texas). LLCs do provide personal protection, but so does leverage and excellent landlord insurance.

We own 8 properties in Cali and have yet to put one in an LLC because each LLC would run us $800 per year and require additional paperwork. A land trust and an LLC as a beneficiary may be a wiser move. I would recommend you get a great insurance agent with a solid landlord policy for your first couple of rentals. Also opt for an umbrella policy (additional insurance once liability limits are met).

For now, focus on reading the blogs, listening to the podcasts and learning from others here on BP on property analysis and getting your financing in order so you can take advantage of a deal when it presents itself. You'll find out if you do a search on this website, property owners are divided between LLC or insurance as a mode for liability protection. You should do what is a good fit and makes sense for you.

Good luck!