SHOULD I BUY REAL ESTATE IN AN LLC?

So the first part of that question is should you buy a property in an LLC? And this is kind of a dividing point. Let's say you borrow money from what's called a soft hard money lender. Someone who's lending institutional funds at a rate of eight percent with two points. So they're a soft hard money lender where a hard money lender would be asking twelve and two or twelve and five any of those lenders cannot lend to you directly as an individual.

A hard money lender is going to require that you put that asset in an LLC, and then they'll lend to the LLC so that it's a business loan and that's how that's normally done. If you are going to get a conventional loan or a Fannie Mae Freddie mac loan or an FHA loan, you're gonna need to have that asset in your name. Because then they're looking at that home being a personal loan and so the banks are gonna require you to borrow personally. So that's usually the other dividing marker on that the other thing is let me get it out to you.

I have rarely seen banks lend to llcs even if they're seasoned and they show gains. Your normal banks out there have never seen them. If they rarely see them lend to a company that's been in business for a long time and has a history of cash flow. Does that happen? Yeah but it's going to be more along the lines of a commercial loan. Most lending right now that's still on houses is done through a homeowner financing it, through a normal conventional lender right or an fha lender. So this ideology of let me build up my llc and show it as having cash, by inserting cash into it or by having that llc generate cash. You're gonna have to have a stabilized income for several years and be able to produce profit and loss statements that get a commercial lender to fund.

Your deal normally is going to come in the form of a soft money lender or a soft hard money lender. So this ideology of building a company that is going to be able to eventually borrow money for itself, that's possible but not one of the main streams of the market. It's less likely that that type of scenario is really going to happen.

What you're looking at at the end of the day is you're either going to borrow money as yourself, and if you do that it's not going to be in an llc, you're going to buy or borrow personally. Then after you get that money personally you're going to deed that property out into your LLC, for liability purposes which does trigger the due on sale clause.

However, if the bank came and said, we're going to call the note. Then what you simply do is transfer the asset back into your personal name and then it takes that due on sale clause. You know it cures that provision. On the other hand if you're going to borrow money, it's going to come from a soft hard money lender or a hard money lender. In which case they're going to want you to put in an LLC and they're going to lend to you based on the asset. Not so much on the longevity of the company although that can happen. It's more rare in form so you're looking at those two main venues, or those two paths that normally the lenders go down.

The thing that bothers me most is that you get these gurus out there that say you know build up this llc, give it longevity of time and then show it has income and you'll be able to borrow money like crazy. I'd say basically at the end of the day the lenders are on to that type of strategy. It's one that I hear and talk about a lot. It sounds really good and it excites the mind because you're going to get a business that's going to borrow the money, but in practicality I just don't see it in the market like what they say it's going to do for you.

A lot of times what you get with these gurus and these educational programs that you spend thousands of dollars for, or that local RIA rep. Who's going to tell you that he's the king or the or she's the queen of something, all of these methods that they're using. You got to remember, they're on the circuit to make money. And they're not making it because they're executing on their strategy, they're making their money because they're selling you on the strategy.

And you've got to pay attention to those types of catches. So to speak this business has been around for many years, and at the end of the day those types of things are few and far between. You have to be careful of who the snake oil salesman or saleswoman is. As a general rule these types of strategies are out there and they can be executed and done.

So i'm not saying they can't be done, it's just that they're few and far between for the average Joe out there. So the options out there are to go with the traditional type of financing, i.e Fannie Mae Freddie mac fha, your normal mortgage lending. That's one avenue where you're going to get your lowest interest rate with your least amount of money. The other way is to go to soft hard money or to hard money lenders or institutional lenders that lend on a hard money basis, and get your money through those venues. Those are the two main paths that you're going to travel. You can start to get into hyper technical strategies which are more what I'd call an owner carrying back a lease option, or taking a deal down. Subject to these types of strategies, the risk element goes up, especially on sub 2 deals. I've seen many people talk about sub 2 deals in the REA in the meetups all over the place. There's been classes on it and everything else but when no one tells you how litigious a sub to negotiation is.

If you go in and get a property under contract and take it subject to the existing debt, and then you flip that out, or you make money on it, and the owner gets wind of that they can come back and sue you. Not because you did something wrong but because it looks bad in equities, If you take a property from someone and then carry it subject to. Also if the market collapses and you've agreed to make a payment on that loan and then you can't, they can come and sue you.

If you contractually agreed to make the payment on the loan, there are a lot of reasons why a sub 2 transaction is better left for those who have an army of attorneys, and can withstand a lot of lawsuits. For the average Joe or Jane out there those types of strategies are probably left for the experts in the industry as a whole.