2 year wait on using LLC funds for property

[John Lard]

Hello,

I am a member of a recently established 2-member LLC. We are looking to purchase our first property using leverage. In order to qualify for more conventional loans, we will each purchase a property with the mortgage in one member's name. That way, we could each qualify for 4-5 loans.

What I learned, however, is that when an LLC has been in existence for less than 2 years, the purchase of the property by the individual cannot use funds from an LLC bank account. E.g. the check used to purchase the property must come from the individual's bank account.

My question is with regards to the accounting of these transactions. Member A and B have 50% equity in the LLC. Say the purchase requires $20k up front, to come from a personal bank account of Member A. He purchases the property and then deeds it to the LLC. How do we account for this in terms of the equity accounts of the LLC?

One potential way to handle this is for each of us to make capital contributions to the LLC, say $20k each. And then transfer $20k to Member A's personal account for the purchase of the property (must wait 60-90 days to become seasoned). How then would this be accounted for on our books? It shouldn't be classified as a draw since Member A's equity level should not change.

Thank you all,

John

[Craig Rismiller]

Since you mentioned that you both are going to be 50 / 50 equity members and you both seem to be able to qualify for mortgages (i.e. your have good credit), what is the advantage of you guys joining forces to form a partnership?

If you do decide to go the LLC / Partnership route, you should search on the forum regarding potential title issues if you decide to quit claim or warranty the deed to the LLC. In terms of the down payment, most banks want to see the cash seasoned in your personal bank accounts for at least 2 bank statements (i.e. you don't want to see a $30k deposit on any bank statement, it should only show up in the balance).

Personally, I would never form a partnership unless there was a true advantage (i.e. 1 person has cash, the other person real estate experience, etc.).