How to buy or put a property in an LLC?

Question

Hello! I am excited to learn a lot from you all! I am very new to REI and have a question regarding an LLC. Is it best to open an LLC in Wyoming or in my home state (WI)? Also, how do you buy a property under your LLC or move a property you already own into your LLC? I talked with a lender and they said they would not do a conventional mortgage to an LLC, so I am wondering how it is done with multiple properties. Thank you!

Greg Scott · Answer

Without writing pages and pages, I will just say this.

For many, an LLC is overkill. Operating your property well and having good insurance covers the vast majority of problems.  Also, many LLC gurus would have you build castles in the sky.  The problem is if you don't manage your entity structures properly, they are simply illusions of defenses that really provide no protection. To manage an entity structure properly there is a cost, both time and money. The more complex the entity structure, the higher the cost and more opportunity to make mistakes.

Get inputs from key advisors and others in the industry, and then choose wisely.

Jerry W. · Answer

@David Johnston, welcome to BP bud.  First where to file will have lots of opinions.  Since this is your first property I would just file in the state where you will own the property.  Next if the property is already in your name then you simply do a deed from you to the LLC.  If there is an existing mortgage on it the lender could call the note due because of the due on sale clause, but very few do.  If they throw a fit just deed it from the LLC back to you.  I would suggest doing a meeting with minutes showing you are transferring the property to the LLC as a capital share for you, just like you would put cash in to start running a company.  If it is just you or you and your spouse that should do it.  If there is another different member you should probably set the value and how you will be paid back for it in the future or if the LLC closes.  If you wish to buy using an LLC you will need to find a bank to lend you the money to buy in the name of the LLC.  All banks I have dealt with make me sign a personal guarantee   Typically I pay about 1% higher interestfor the loan for a loan to a corporate entity than if I get the loan in my personal name.  Often when I make an offer on a property I put the offer in my name and add or an entity I have an ownership in.

I would suggest that you open a separate bank account for the LLC that all income and all expenses go through.  It is the correct way to operate and it will make your accountant very happy.  LLCs are not magic, but they really do help reduce liability.  A lot will depend on the nature of a claim or lawsuit and how personally you were involved to see how effective it is.  That protection can vary a bit from state to state, but they are authorized by statute so judges follow the statute unless there is a clear violation of how they are operated.

Best of luck to you on your journey.

Jay Hurst · Answer

Perfectly said!

Lacey Arrington · Answer

Thank you for asking this question! I was wondering the same

AJ Exner · Answer

Yeah, most conventional lenders don't like doing an LLC, but LLCs can provide some flexibility. Like, if you wanted to do a 50-50 JV within an LLC where one guarantor has a better FICO and the other has more experience, there are some means where that would be beneficial.

There are some lenders that actually only lend to LLCs (or some kind of business entities), but it does really depend on what you are going after and your general growth strategy how you would want to go about it.

Andrew Postell · Answer

@David Johnston thanks for the post.  You have some great comments above.  To answer your question directly though, to move the ownership of a property to an LLC we usually go through a title company to help with that.  In most states it's one piece of paper and maybe $150 to do so.  To purchase a property in an LLC name, we use specific loan types for that as well.  You can also purchase with a "traditional, conventional" loan and change to your LLC after closing.

Hope all of that makes sense.

How to buy or put a property in an LLC?

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