The New Guy with LLC / financing questions

[Wesley W.]

Greetings All!

I’m brand new to the forums as well as being brand new to the business. I’m really looking forward learning from the collective wisdom from the members of BiggerPockets; someday I hope to be able to provide the same assistance to future newbies. As I am sure many of you can relate, I have (and will have) a number of questions as I approach my first deal.

My wife and I are looking at starting our foray into real estate investing by purchasing some rental property (single family or duplex, probably) and becoming landlords.

We'd like to set up an LLC. In talking to our CPA, our understanding is that a married couple is considered one entity, so we could set up the business as "multiple members" and "disregarded" which would give us the least headaches as far as tax returns and income reporting (we currently file our personal returns jointly).

I have few questions that I would really appreciate everyone’s help with:

First - would you recommend setting up the LLC before or after buying the property? Setting it up beforehand would avoid having to do two transactions and the commensurate fees/taxes (one to buy the property personally, another to transfer it to the LLC), but I'm afraid it would create issues with financing, i.e. the bank would consider it a "commercial loan" with all of the appropriate interest rate hikes and LTV restrictions.

We both have excellent credit, and would like to finance this first deal with the equity in our home (and take advantage of the extremely low rates right now), but we're not sure how to do this with the LLC. We want to be protected, but don't want to pay those exorbitant commercial rates when we have equity to use. What do you think?

I assume many of you out there have encountered a similar problem when first starting out, so I’m hopeful you have some suggestions and advice for someone following in your footsteps.

Thank you in advance for all of your input,

Wesley

[Ben Leybovich]

Wesley Williams Welcome to BP!

You will not be able to achieve salable Fannie/Freddie type financing unless the property is in your name. LLC would kick you over to the commercial side.

Furthermore, while you could transfer the property into an LLC after closing, if you were to follow the letter of the contract this would trigger the Due on Sale in the Note. I would request the lender's permission, which you may not get.