The Number One Reason to Get an LLC

We’ve all had some variation of the showing-up-at-school-naked dream and can probably think of a time when we showed up to life metaphorically naked. If you’re like me, you try to keep those embarrassing “your dimples are showing” moments to a minimum—like zero times…ever. 

And despite your best efforts, sometimes you mean to go for a skinny dip in the country pond but take the wrong turn and arrive at the city pool on strobe-and-party night without so much as a towel.

This was the case for me with my most recent home acquisition. I hadn’t expected to buy for a couple months and was getting funds in order for a spring marketing campaign. Then, by word of mouth, an impossibly good deal fell in my lap, the kind of good deal where you look at your business associate across the living room where you relax at night when the whirling dervishes—i.e. children—are down for bed, and you say, “We’d be flipping crazy not to buy this thing.” Except flipping is not the word you use in that situation.

The house is so cheap, and you’ve made saving a priority, and so you’re only a stones-throw from having every penny in cash to do this thing, which makes you feel very powerful, and you say to yourself, you say, “Self, you’re pretty awesome.”

So you discuss matters with your business associate—some people call her your wife—and you say, “Here’s what we’ll do. We’ll get a hard money loan for a few thousand dollars and not worry about asking our friends and family for private money, because we both remember what happened last time we asked friends and family for a loan."

Oh…we don’t remember what happened last time? Apparently our lives here aren’t TV shows, so you don’t know what happened the last time we asked for private money.

Aside

Okay, so this other very good deal came up over the summer, and we knew it was a killer good deal, and we made plans to buy it, and there was a frenzy of activity, and we had our real estate agent offer the asking price in cash—cash we didn’t have but believed we’d find no problem—and began calling everyone we knew, me telling my wife all the while if everyone refused we’d just grab a hard money loan. And, yep, you guessed it, everyone refused because

Aside to an Aside

We’ll write about this one as its own topic at a later time, but when it comes to money, friends and family will tell you their unadorned opinions. Even though my business associate and I are well known as frugal, diligent, spenders and investors, even though we have a rental property, even though we showed what we could do with real estate, people still said, “What do you think, this is: HGTV? We know how this kind of thing goes. You’re going to lose your bottom sides” (you’re right, they didn’t say bottom sides.) “Don’t come crying to us when you’re past your eyeballs in debt and sustaining on saltines and water. Heck, no we won’t give you the money!” That was a lesson unto itself, plus we lost the house to a higher offer, and I still kick myself every time I remember it (Ouch!)

Back to the Main Point

Well, we figured a few grand in hard money wouldn’t hurt anybody, but when we called our local—and may I add, incredibly competent, generous, and good-for-the-entire-community—hard money lender, Liquid Lending Solutions, the business owner informed me I needed an LLC to borrow hard money.

Full stop.

Brief Sample of Dialogue Formatted as Stage Drama

Us: Say what? An LLC? And if I don’t have an LLC, can you lend us the money?

Them: To steal from a TV show long forgotten but still mildly humorous: ‘No can-doozeville, baby doll.’ Fine print yada-yada-yada. Frank Dodd Act. Wild West. 65% interest rate. Commercial lending. So on and so forth.

Summary of Brief Dialogue Formatted as Stage Drama

Yes, there was a ton of valuable information we learned that we’re summing up rather casually here as “yada-yada-yada,” but you would too if you were confronted naked at the pool party you thought was a rural pond. Holy shnozebuckets, Batman! We now have an accepted offer to buy a house that’s a flipping good deal, and we’re a few thousand dollars short of a Happy Meal, to mix our metaphors, and our only choice is to call our friends and family and ask for a loan.

Another Aside

It’s hard to keep track of the aside numbers at this point but here’s a-quick-nother: We offered 14% simple interest our first time around. So we weren’t begging for charity, folks.

At Last Back to the Main Point Again

I picked up the phone and did the whole dog and pony show, thinking, at least I’m not asking for one hundred thousand this time, and one by one all the people I thought had the money and might say yes for 14% interest on a bridge loan of sorts to be paid in full with interest in 60 days—the time it would take me to get my LLC— they said, “No.” “No.” “No.” “No.” “No.” And, “No.”

So for all you readers who are like, “Hey, get to the point.” Let me number it for you:

1. Don’t get an LLC to CYA (Cover Your Assets)

1.2. Insurance will CYA plenty well if you buy the right policies.

2. Don’t get an LLC to be fancy.

3. Don’t get an LLC because everybody’s doing it.

The number one, most compelling, and single reason to get an LLC is to give you access to another kind of money when the great deal falls in your lap that Uncle Joe thinks is only a 2am toilet call but you know is a future of wealth and well-being for your family.

And for you readers who missed the clue in the second paragraph, we acquired our second investment property, meaning, after I abandoned all my dignity calling everyone I knew, I found someone, he was one of my groomsmen, a guy who ten years later I barely stay in touch with anymore, who agreed to lend me the money at 14%.

For those of you who like at least two pointers to make reading a written-text-thing worth your time: keep in touch with your groomsmen or bridesmaids. They may lend you a metaphorical towel when you show up naked to the pool party someday. Just make sure you pay them back. With interest.