Question on operating LLC's?

[Aahil B.]

Hey Everyone!

Happy new year!

I was wondering if I were to purchase a property under my name at a conventional loan and maybe 6 months to a year from now I rent it out and were to purchase an umbrella policy, should I create an LLC to mainly deal with the operating side for collecting rent/ and creating lease agreements, etc or what should I do? Curious for someone if they only have 1-2 properties and how they go about it and if they slowly grow their portfolio?

Thank you in advanced!

[Sean O'Keefe]

@Aahil B this is a common question and a good one :) The answer is it depends and it may not be your choice.

• Generally, buying through your personal name can reduce the interest rate - commercial rates on LLC mortgages are usually higher but you can research this
• Most LLCs on incorporation don’t have any credit so it may be difficult to find.a lender
• If you own the property in your personal name you are exposing yourself to more risk and will want to transfer the property into LLC as soon as you can
• If you own property in your personal name and transfer to LLC the lender may not allow or can call the entire loan
• LLC or personal you need insurance

One solution to the above is to buy the property in your personal name and immediately transfer it to the LLC after closing, but you will need to get pre-approval from the lender before you buy a property and plan to do this since not all of them allow this. The lender can call the loan on transfer - this is a risk and you need to be careful. Finally, if you wait too long to transfer the property from personal to LLC there may be taxes on transfer.

The transfer is called a "Quit Claim". If you search the forums for this topic using the magnifying glass feature in top right corner of your screen on BiggerPockets you will find a lot of discussion on "Quit Claim" "Buying through LLC" etc.

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This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.