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Updated about 4 years ago, 09/29/2020
Should I buy the property in my name or under LLC if its a BRRRR
I am looking to purchase a property to BRRRR (Buy, Rehab, Rent, Refinance, Repeat). Should I purchase it in my name or in the LLC name?
@Haishan Peiris Talk to your lender first. That question is area specific. You will, more than likely, get cheaper and better terms in your name rather than llc. That has been my experience in my market.
- Aaron Gordy
I agree with @Aaron Gordy, it is very region specific. I am not sure what conventional mortgages are going for right now, but I just inquired about a property here in Maine and my bank gave me the option of a business mortgage 10y/20y amort, at 3.5%, 20% down. Which would be in my LLC's name.
Cost wise would be more favorable under your name but better protection under LLC.
- Lien Vuong
- [email protected]
I wonder for a BRRRR deal what should be the best practice? Is there anyone who does BRRRR deals explain what they do?
I strongly advise using an LLC just to separate real estate matters from your personal matters, since investing in real estate should be considered as a business (or passive business lol).
If you don’t mind me asking which bank. Originally posted by @Carl Hebert:
I agree with @Aaron Gordy, it is very region specific. I am not sure what conventional mortgages are going for right now, but I just inquired about a property here in Maine and my bank gave me the option of a business mortgage 10y/20y amort, at 3.5%, 20% down. Which would be in my LLC's name.
well, seems to me it's always best to buy in a land trust. Putting your name OR your company name on record always seems to be a bad idea when I think about it. Some creditor or predator could come attach any frivolous lawsuit to your name, and then you're stuck.
After talking to my lawyer and CPA I'm using a LLC for my BRRRRs I'm looking to do. I asked about a land trust, and at least here in WI, I would be sacrificing liability protection for anonymity and it would cost a bit of money to set up. It all varies from state to state.
I have been using the brrrr technique for a few years now. I purchased a 2 mil. umbrella insurance for some added protection. I buy the house in my name, fix it up, then refinance still under my name. I then move the transfer the deed into an LLC. I'm getting 30 year, 4.125% loans with next to no points at closing.
When I started off, not knowing if I would stick with real estate, I would buy properties in my personal name. But over a couple of years, after knowing that I would stick with real estate for the long haul, I started buying in an LLC.
Great thank you everyone for all the advice. I am getting started and this helps.
Haishan Peiris
@Brian Zaug @Haishan Peiris Using Brian's model works in Texas and its cheaper. One of the critical elements, not mentioned above is the ltv on back end of the brrr, dti and/or dcr. That can slow one down considerably in my market, at least.
- Aaron Gordy
It will depend what your end goal is and what kind of financing you expect to get. I refinance my BRRRRs into commercial loans with a local credit union. Doing so generally requires an LLC and to set up a bank account with them. To setup your LLC and get and EIN (required to set up a business bank account, like a social security number for businesses) it can be done pretty quickly online and for $200 or less. The perk is that it limits your liability to the holdings of that LLC, so I would recommend based on that.
You can get lower interest rates with non-commercial loans but will eventually hit your limit. But with commercial loans you can also keep them off of your personal balance sheet.
I bought my first property (turn key 3 family) in my name using an FHA loan and lived there. It was a spring board to my investing career. If your ready for a rehab get a FHA 203K loan in your name and get funds to buy and rehab the property. This is what I tell all investors looking to get started in Real Estate. Good Luck and just be careful buying right now.
@Mike D'Arrigo @Haishan Peiris
Mike, can you please elaborate on why he won't be able to refinance in an LLC? We've refinanced numerous properties in LLC's. I've encountered banks and brokers that told us it isn't possible but that was my que to find another bank or broker.
I just completed my first BRRR - still working on the last R to repeat! Short answer is keep it in your name but their are layers to that.
I purchased the property in the name of my LLC and did seller financing. When I did a refinance after the 6 month seasoning period, the lender required me to move the property into my own name. I could have refinanced through the LLC but for me it suited me to put it into my personal name.
Financing I have found is easier when in your own name, I most would agree but we want the LLC for protection. Depending on the laws of where you live a LLC may not shelter you from liability - if you are a sole owner. I would recommend consulting an attorney to make sure you would get the protection you desire before going to the work of establishing a LLC. The process of creating a LLC is fairly simple and can be done on-line and cost less than hiring an attorney to complete.
What I am doing is getting an umbrella policy that would cover me if any liability would occur at any of my rental properties. This is what suits me best, does not mean that it is best for everyone and I consulted a lawyer before making this decision.
You could purchase the property in your name and then go through the process of getting the title into your LLC. A lender I am friends with sees this - when the title changes they are allowed to request the balance of the loan be paid, though as long as payments remain on time that is not likely but possible so not recommended.
Hope this helps, reach out if you have any questions.
Best,
Jake
@Anthony Marin I'm not aware of any conventional lender that will finance in an LLC. Do you have someone that is doing it?
I have them in my name with an umbrella policy.
I had one rental under my name.. that was until my tenant sued me for falling outside the house (on ice, not really my fault, but that's a different story and doesn't really matter anyway) .. LLC is a must .. only a fool, as I was, will rent under his/her name. Set up an LLC no matter the cost.
Originally posted by @Samantha Han:
Theoretically yes, but why would you? If you go with a commercial loan for the purchase, then get a construction loan for the rehab and role that into the loan, you wouldn't need to do a refi. Your interest rate for the first couple months will be higher by a point or so, but you'll save closing costs by not doing a full refi. The equity in that property can then either be used for a HELOC or cross collateralization for another deal. You'd also need to look at the tax implications of doing part of the deal in your name and then selling it to the LLC.
At least those are my thoughts from talking to local lenders. Talk to banks in your area, run the numbers and see what works for you.
@Mike D'Arrigo
We've done refinances in LLC's mostly with local banks and credit unions. I've used SB One bank, Vally Bank and I just refinanced a 2 and 3 family this year with Statebridge.
Having a broker that has these relationships on your team is priceless.
@Samantha Han
Yes you can do this and if you have W2 income it’s the beat way to get started.
@Haishan Peiris I've seen lenders who are willing to title directly to a LLC as long as you will add a personal guarantee on the loan. How you feel about that is up to you, in my case I wasn't worried about being able to pay the loan and I wanted the legal shelter of the LLC, so it was worth it.
One super important thing that I rarely see discussed when this question comes up is this: If you do form a LLC and take the property in that entity (whether directly or by quitclaim deed shenanigans), make sure you legitimately treat your LLC's operations as separate from your own personal financial operations. If you don't jump through the LLC hoops, like annual meetings, separate bank account, etc., you likely aren't actually affording yourself any protection at all. If you don't run the LLC as a separate entity, it's not hard for lawyers to "pierce the corporate veil" and come after you personally. This is especially true if your LLC is a single member LLC. Food for thought.