house hacking under an LLC?

[Nick Mazzarese]

hello BP,

I am preparing to purchase my first investment property which I plan on living In one of the units and renting out the others.  Something along the lines of a duplex/tri-plex is what I am leaning towards.  

I was was wondering if there were any benefits to purchasing this property under a business name/LLC knowing that I would like to purchase more rental properties in the future? Also, I recently wholesaled my first property so this has also got me thinking about creating an LLC or other type of business entity.

Can someone educate me on when / when not to create a business entity and what the benefits might be?

[Darrell Shepherd]

Yeah, read up on what LLC's do and S-corps and such. Ask advice, learn that stuff. I use several LLC's. I just think its cleaner on the books to have a company and get a small salary and such, and you better believe my company pays for a LOT of stuff I would have to if I had a 'real' job.

On the lending, the "house hacking" thing (which is all over the place now and until the posts here recently I've never heard it called that) works great with Fannie Mae money on 30yr mortgage loans at the crazy low rates we have now. If you form an LLC and go for a loan, first off, the LLC has not income or assets so will have trouble qualifying, second, you will be in a commercial loan which will raise the rate a point or two and have a shorter amortization and probably a balloon payment.

This may be a little over complicated, but if it were me, I'd do the loan in your name, put the house in a trust right after you close and make an LLC the beneficial interest of the trust (basically just run all the expenses and income out of the LLC because a piece of paper in your filing cabinet says you can). Get some help/advice on that before you do it, but that's what I'd do. I dont like having anything in my personal name.

Your LLC offers some lawsuit protection, but its not an end all. The anonymity of what you own is more important IMO. Lawyers dont like to work for free and if they see a lot of work to pierce a corporate veil with very little payoff they'll go away. Tax wise its about the same, but I like corporate expenses vs. write offs and my company is pretty crazy generous with not firing me when I buy dumb things on the corporate check card...