To LLC or NOT to LLC, that is the Question!

[Tanikka Myers]

My partner and I have been "off paper" partners for almost a year... Now we are ready to make it "official"... Our current focuses in real estate are buy and holds and wholesaling. Our primary reason for getting the LLC is to ensure we can get hard money financing, however, I am having second thoughts... We have been researching this for a while, but the only TRUE benefit to LLC-ing is that we would be able to get hard money financing. Considering that we are not getting into rehabs currently, HML is a great option to have, but is it necessary? We both have 740+ credit scores, one of us has a higher debt-to-income ratio, but the other doesn't, we have a decent amount of capital between us, so qualifying for a loan in general isn't the challenge, we just want to be smart. Smart with the minimal amount WE put out of our pockets (both in purchasing and in operating), smart with the financing (making sure it makes sense and is the best way to buy) and smart with our accountability. We wanted to purchase multiple properties at once for buy and holds (2-3 at the most), but is LLC best, or should we act as "co-homeowners"... We were trying to avoid the 20% down payment for investing, but it seems inevitable. All advise from you wonderful vet investors are welcomed... I hope I gave enough information/background to understand our scenario. Thanks in advance!

Tanikka

[Justin R.]

Tanikka Myers To sum up everything I've learned in the past 6 months trying to convert a buy-and-hold portfolio from personal name (financed conventionally) to LLC: There's no real point to having the LLC so long as I want to keep my really attractive financing.

I realize this is a favorite topic to argue about, and not interested in debating the point. Just know this is my conclusion after reading everything I could and getting top shelf legal and financial advice... And that it's important to me that I get this right.

In short: until I'm using commercial financing, the LLC is not helpful.

The only place it makes sense for us is on the development-and-sale side (meaning, new construction), but that's a different story. Even for rehab-and-hold, using the LLC simply complicates the picture relative to doing it as sole proprietor.

I trust anyone reading this does so with all the normal caveats about everyone's situation being unique and blah blah blah.