Setting Up an LLC for my First Investment Property

[Paige Bostic]

Hi,

I am on the road to investing in my first multi-family property. I am going to use the house-hacking route and purchase with an FHA loan and live in one of the units. My questions are:

1. Can I purchase the property under my LLC using an FHA? Or do I have to purchase in my name and then quit claim the property to the LLC?
2. Any tips on how to start?

3. Do you have any recs in the TX area for business accountants or real estate attorneys? 

[David M.]

@Paige Bostic

You need to poke around BP a little more, this is asked all the time and your situation specifically just came up a few times.  For starters, take a look at this thread:  https://www.biggerpockets.com/...

Especially when starting out LLC's can be really oversold. Just have landlord/owners's insurance and perhaps an umbrella liability policy asyou get more assets. Its your choice if you want the LLC, but otherwise, here is why:

First, there are NO tax or accounting advantages with investing with a legal entity such as a LLC unless you are investing with a nonspousal partner. Next, legal entities are not eligible for conforming residential loans such as FHA or conventional loans. You need to get commercial financing which is generally much more expensive --- this is where the main additional expenses comes into play. Also, you need to operate the LLC correctly, especially avoiding co-mingling of funds and using it as your alter-ego. Quit claiming deeding the property to the LLC in my layman's opinion can become to look like using it as your alter-ego. You have to consider the LLC as a stranger. For example, if you quit claim deeded the property to me and found out about it, I'd sell the property and run with the proceeds. I certainly wouldn't pay YOUR mortgage (which can become co-mingling in your case) and rent out the property and handover the rent. Also, if you want the limited liability afforded by the LLC, you really should have everything under its name --- again, operate it properly. Also, its generally not advisable to hold your primary residence in a legal entity as a LLC.

To get started, unless you have some special circumstances or are really uncomfortable, just use your own name.  Lots of investors do it just fine with residential properties.  BP posts have many people with more than 10 properties in their name, and some with more than 20, 30 and even 50!!  Try out investing and being a landlord.  Understand what it takes to do your bookkeeping / accounting.  Find out how the finances really work, or at least how you end up every year.

I don't have any assets in TX.  However, I use a larger accounting firm that pretty much handles anything. So, especially if you expand (either in other states or just into different business areas) they can have you covered.  Let me know if you want a referral.  And, i'd be happy to chat if you'd like, just send me a message.  Good luck.