Loan/title in own name vs LLC

[Sumit Sehgal]

I feel like Bigger pockets would be an ideal place to get some answers to this question:

I want to use leverage to buy my first investment property (single family home).

How do you guys go about the initial setup:

Take mortgage in your own name? And title in your own name? Then create an LLC? Then quit claim deed property to LLC? Hope that due on sale clause is not activated? What about title insurance transfer?

I just realized that i asked like a million questions in one question but your thoughts on initial setup from the time you see the property to when you are renting it out will be highly appreciated.

[Randall Alan]

You can't buy under a Fannie Mae residential program in an LLC name. So if you are doing an LLC up front, you are likely actually saying, "buying it with commercial financing". Commercial financing's terms usually aren't as good as residential. With commercial, you usually get a 5 year lock, versus a 30 year lock with residential. Also, the amortization is usually across 20-25 years for commercial, versus 30 years for residential. Deeding to an LLC after doing a residential mortgage is probably your best bet early on. But know that Fannie Mae has limits on how many properties you can have financed in your own name. It ranges from 7-10 depending on credit, whether you own a primary residence, etc. If you are married, always buy your properties in one person's name. This way you can get 7-10 in your name, and 7-10 in your wife's name. We are at a point where we don't have any residential mortgages left available, so we had to switch to commercial. We did a consolidation refi - merging 5 properties into 1 commercial loan - but just know that the Fannie Mae guidelines say, "how many financed properties are in your name" - not "how many loans do you have in your name. So even though we consolidated 5 into 1, it still counts as 5 on our Fannie Mae count.

The other consideration in doing them in your personal name is liability. We carry an umbrella policy for $2m to cover us for liability issues. That is where the LLC's benefit you more. But, in Florida, it costs something like $150 per LLC to keep them in good standing with the state each year. Multiply that times 24 properties, and the umbrella policy is cheaper - so we have more of our properties in our own name, and just count on the liability insurance to give us the protection we don't get by having the LLCs.

Hope it helps!

Randy