When to create LLC for REI?

Question

Greetings,

I am curious of the following regarding LLC:

1. When is the best time to create an LLC for your investments?

2. Thoughts on having multiple properties under one LLC.

3. Can I sell my first purchase to my LLC once it’s converted to a rental property?

David M. · Answer

@Michelle Garcia

It might be "never" to create a LLC.  I think they are sometimes oversold.  The main issues are learning to and actually operating the LLC correctly to maintain and protect your corporate veil.  That presents an extra overhead mgt cost.  Also, legal entities such as LLC's are not eligible for conforming residential loans, so you will have to use commercial financing.  That is another cost.

You might want to read this thread about LLC's:  https://www.biggerpockets.com/...

Many investors will put about $1mil of value (not necessarily equity) per LLC as a balance way to approach the risk.

Consult a qualified professional or two, but normally you "capitalize" the LLC with a property.  So, you don't really "sell" the property to the LLC.  Remember to refinance the property's mortgage so the mortgage is under the LLC's name instead of yours.  Otherwise, you present yourself with a potential co-mingling issue, not to mention the risk isn't entirely borne by the LLC.

Good luck.

Greg Scott · Answer

An LLC costs money to create and maintain and it takes time and effort to maintain it properly.  It doesn't make sense to me to create an LLC until you have enough assets that a lawyer would want to sue you for your assets and not just the liability insurance coverage.

How many properties you put in an LLC is up to you and your risk tolerance.    High value properties (e.g. Apartment) should always have their own.  Simple, low cost rental houses, its up to you.

"Selling" your property to an LLC makes no sense unless you like paying property transfer taxes.  Most people quit claim the property into the LLC