Starting my LLC, but I already have the properties

[Kyle Meyers]

I've been reading all the posts and blogs about having an LLC in addition to my insurance policies and I thought I should get to it before I get much further into my investing. I have a few questions though that I'm hoping some of you will be able to give me advice on.

1. I already own 2 properties and 3 tax liens in my own name, what would I have to do to transfer these to my new LLC to protect myself from liability? Are there costs to do this?

2. Should my LLC name include my name? I figure it is public information who owns the company so someone could find out, but I have seen that many investors seem to think it is nice to pretend to be a lower level employee of the company. I had been planing to name the company after myself, but now I am starting to rethink that.

3. How would loans work if the properties are going to be held in an LLC, I don't have any loans on the properties currently, but I am looking to finance them when I can so I can continue to invest. Does it change the financing available to me if the properties are in an LLC? I am doing buy and hold rental investing, buying distressed properties and fixing them up to be rentals.

4. Are any new financing opportunities available for me with and LLC? Can I issue bonds or something to fund the business? I would prefer to have as many forms of financing available as possible and I really like the idea of offering a note to an investor with a specified interest rate that I know I can pay than partnering and having someone else have a say in how I run my business. I love getting advice from others, but at the end of the day I want to be able to make the important decisions on my own.

Thanks in advance for any help you can give.

[Mitch Kronowit]

Originally posted by Mandy Morrow:

Mr. Kronowit-
First, thank you for taking the time to reply.

I have question, I have heard that I should have my LLC BEFORE purchasing my first propertry, is that correct? The idea being that the LLC would have the property from the beginning and offer protection.

Hi Mandy,

First of all, the name is "Mitch". "Mr. Kronowit" is what my daddy's called. :wink:

Next, I really wish someone with more experience and knowledge, like an attorney (I know you're out there!) would contribute to this post. I'm not comfortable handing out a lot of advice on this topic because all I have to go on is my own 1 year experience owning an LLC and what I've heard from others. That is why I retain the services of an attorney who specializes in asset protection.

Ok, that being said, in an ideal world you would form your LLC, then purchase a property shortly afterwards. After all, there's little use in paying for and maintaining an LLC for years prior to making a purchase, especially in California. Forming an LLC and sitting on it for 2 years or more before making a purchase is NOT going to get your LLC a home loan.

In an ideal world, you would locate and buy a prime piece of investment real estate and take title in your LLC's name at closing. However, with most lenders today afraid of their own shadows and sitting around with a 3' lead pipe up their posteriors, you may have to take title in your own name and transfer it to your LLC after closing.

In an ideal world, the lender would never care that you transferred your property over to an LLC, even if it was for "estate planning" purposes, so we could all be open about it up front. But as it stands now, we rely on the fact they either don't know, don't care, or simply have too many other things to worry about. Hopefully, interest rates stay relatively low so lenders don't begin getting the itch to call all these loans sending us into another real estate meltdown. They wouldn't be THAT stupid, would they? Don't answer that! :roll:

In an ideal world, once the equity in your investment property is over 50% of its value, you would be able to refinance it in the name of your LLC. After all, what idiot would default on all that equity? Don't answer that either! :mrgreen:

My final piece of advice is hold your rental properties, i.e., your PASSIVE investments in an LLC and perform your ACTIVE operations, such as flipping, wholesaling, etc. under your S-Corp. There's plenty of info right here on BP why your real estate empire should be structured this way.

Best of luck and keep in touch.