All Forum Posts by: Justin K.

There is some liability limit, but negligence will always come back to the person that was knowingly negligent.  

The other benefits that I consider are:

• Anonymity - I am the 'Property Manager' for the company and not the owner when dealing with tenants.  This allows me to enforce the rules and the Lease evenly among all Tenants.  Brandon Turner talks about this quite a bit in the podcasts and his book on Landlording.  When you are the owner and ultimate decision maker Tenants seem to want you to bend the rules for them, and they always want a favor.  If you dont give it to them they tend to harbor bad feelings.  When you are just an employee trying to do your job they seem to be more understanding that you are just enforcing the rules because its your job.
• The ability to separate my business assets from my personal assets. A level of protection that helps me (and my legal team) protect my assets, both business and personal. With the use of multiple LLC's we can really shield the assets from people that are willing to sue just because you have net worth. It would be a shame to have everything come crashing down because somebody made up an injury or something and sued you to steal your equity away. A stretch, maybe, but remember people have tried suing McDonald's for making them fat. Not because McDonalds truly made them fat, but because McDonalds had money and those that brought the suit thought they would just pay them to go away.
• The personal credit 'protection' I mentioned in my previous post

Remember though, it isnt all gravy. I have to find better deals in order to use my LLC and get financing, or I have to put more money down so that I get better cashflow, but that severely hurts my cash-on-cash returns and my working capital. If you can be patient and work hard to find GREAT deals and not just good deals then it can be lucrative. I also have to pay more in insurance because my company carries liability insurance on top of the dwelling fire policies for all of my properties. So long story short it does cost more to use an LLC, but I like the benefits a lot so I use mine to achieve the benefits. I am sure many people would say just put them in your personal name (many of the old time investors around me have done that and continue to do that), but I would prefer to find better deals and use the LLC. After all I can't buy every house that comes on the market (at least not yet, haha), so why buy a mediocre deal if I can be patient for a great deal and get the added benefits of the LLC?

NOTE: I am not a lawyer and I am not recommending you start an LLC. I would recommend that you seek counsel from all of your team (tax accountant, business accountant, lawyer, insurance agent, etc.)

In my area if I use my LLC it never shows up on my credit reports. I have to 'personally guarantee' the loan, but as long as it is never in default it will never appear on my credit reports. Now with that luxury you will end up paying a higher interest rate (about 6% right now with GOOD credit scores) and have to be pigeon holed into a shorter term (15 years max), but it wont throw off your debt to income and it wont even appear on your report when you go to buy your own home.

Now the trick is finding a property that has good cash flow (after all the expenses you mentioned) with those more strict lending guidelines.  If it was easy everyone would do it!  Best of luck to you, and great question!

NOTE: This is how a bank that I deal with in Western PA does things, and its working good for me, but it much more work to find the GREAT deals that flow what I need to make it worth my time while also meeting those lending guidelines.

I went to PSU, so I understand that Centre County can be a little 'behind the times' in ways.  If I were you I work on an information packet that explains your current properties and how they are operating.  Include current financials.  I would then run the same financials again with a mortgage on each of the properties.  Be conservative in your estimate of vacancies, cap ex, and repairs (the bankers you work with will be conservative and you dont want them to see you as a risk).  The mortgages you have in your numbers should be the same (term and interest rate) for each property.  The banks around Pittsburgh will not want to lend more than 75% of the property value and the interest rates may be higher (5% right now).  I would then walk into all of your local banks and ask to speak to the commercial lender in the bank and request to discuss a 'blanket' mortgage.  You put up both properties as security for the loan and they provide you with 1 mortgage for both of the properties.  Your pockets are now lined with cash that you can go buy a few more properties 'free and clear'.  Whichever bank will work with you and has the best terms I would do business with.  If you get the boots on the ground and are prepared to meet with the bank I am pretty confident you will find someone that wants to collect your mortgage payments.

In the meantime I would do whatever you can to improve your credit.  By paying down that blanket mortgage your credit will get better as well.  Best of luck, and welcome to the BP community!  

First of i would recommend that you talk to an asset protection attorney.  They will give you the best advice.  If it is owned 'free and clear' then you have a large asset that an attorney representing someone would be happy to sue you over.

I personally like the advice of @Scott Smith (Bigger Pockets Podcast Show 109) when he recommends utilizing 3 LLCs.  1 as an operating company doing all the paperwork (leases, etc.), 1 to hold your buy & hold properties, and 1 to hold any flips that you do.  The goal is to remain completely anonymous and own NOTHING, but control your assets through your entities (LLCs, corporations, etc.).  Certainly a Rich Dad, Poor Dad concept if you are curious to read more about it. 

Interested to hear what other have to say about this!  When you do ultimately hire an attorney I would also love to hear their advice to compare to my own attorneys advice.  Best of luck!

Oh, I currently own 3 properties. One in my LLC, 2 in my personal name. The LLC is a 5 unit. The personal name is a duplex and a single family. The tenants in the duplex pay their rent to the LLC and I have a personal contract with the LLC to manage the property for me. Although I still do all the work. In the next 6 months I plan to change that structure to get more out of my name if possible, although I do have mortgages on the properties owned in my personal name, so not as easy as just transferring title. Cause the mortgage terms are NICE!

I operate with both the LLC and liability insurance. Although I frequently have to remind my insurance agent that I do not want 5 MILLION in liability insurance! I keep my liability insurance a little lower and I also require that my tenants carry $150,000 in liability insurance as a part of their renters insurance. Thus if a guest of theirs sues, their insurance would get brought into it as well, further protecting me. I would consult an attorney and/or your insurance agent about the specifics though.

Remember, insurance agents get paid off commission. My insurance agent is a great friend of mine from high school and he carries almost ALL of my policies (personal and business) and he has blatantly told me that he doesnt make a lot on my personal stuff, but the commissions are higher on the business policies. Another 'downside' to an LLC I suppose.

Conrad,

Welcome to BP.  I like you am a little afraid of hard money lending.  I tend to be rather conservative and dont want to get into a spot that I lose my shirt in order to pay off the hard money lender.  Although I have kicked around the idea of using some 'hard money' from older friends and family.  Giving them a good return on their money and if I needed to restructure something then I could, but then again doing business with family is often warned against.

Personally I like the HELOC strategy because it gives you flexibility of how much you take out and when you do it. The down side to that is most of the interest rates are variable. Because of the variable rate it might even be worth it to completely refinance your current home and start over with a new 30 year mortgage. Locking in a SUPER LOW 3-4% interest rate on the now increased value of your home. That will hopefully give you the capital that you need to close on the twin properties that you are looking at, again at a hopefully SUPER LOW interest rate. I own a 5 unit in an LLC, now I know that 5 units is considered commercial and lent out differently, but one of my local banks will loan on ANY non-owner occupied property at 75% LTV with a 15 year mortgage. About 3 months ago the interest rates were 'low' at 5.75%, but the bank wanted the opportunity to reset the interest rates every 5 years (although if I went forward with the deal I was analyzing at the time I would have tried to negotiate the resets away).

Another local bank near me will loan on a portfolio loan. A different property that I was looking at (personal residence but long term live-in flip or future rental) they would give me a 15 year fixed, 20 year fixed, and 15/1 ARM (amortized over 30 years, but only adjustable in the last 15 years).

Ultimately my advice is to get out and talk to some of your local banks.  Find the banks personal and commercial mortgage lender (likely two different people) and be prepared to show that the property will cash flow.  If you are anticipating rehabbing after tenants leave it would probably be advantageous to tell the bank that and show them how you are planning to pay for that as well.  Once you have their contact info it wouldn't hurt to take them out to lunch and start asking them questions.

Another option if you are short cash could be to bring in a partner.  Not sure how open you are to that, but it could really help in some situations.  Not something I have done, but I know a lot of people seem to like that, especially when they are starting out.

Just my 2 cents.  Hope you find it helpful!  Please feel free to let me know what you do and what you think.

I am in western PA. First off, GREAT QUESTION! Ultimately my answer is going to be, go talk to a few banks. My wife and I are currently house hacking a duplex (owned in my personal name and financed with a 30 year fixed at 3.5% through a local bank) and we are also renovating a 5 unit (3 units rented and 2 under construction - owned free and clear with an LLC, but will be financed once fully rented).

Typical financing I have found recently.

Local Bank Financing: 

Best rates are for your 'personal residence' if you can buy a duplex, tri, or quad the bank will finance it with todays SUPER LOW interest rates for a longer term 30 years. I chose to lock in the low rate for my duplex because of the cashflow I can achieve with that financing. I would prefer not to have my name on the property, but to my tenant my LLC is the face of the property.

I can also get a 'portfolio loan' from my local bank. This is an option for an LLC, but in my area and with my local banks I must personally guarantee the loan. The nice part about the portfolio loans that I have seen with my 2 local banks is term flexibility. Typical terms that I am seeing are 15 yr fixed, 20 year fixed, or 15/1 adjustable rate mortgage that is 15 years of fixed interest and then adjustable rate for the remainder of the term (term length can vary up to 30 or 40 years).

Another bank that I have been working with will ONLY do a 15 year mortgage on any property owned by an LLC. Last time I met with my mortgage broker she informed me that interest rates for this type of loan were 5.75% with interest rate resets every 5 years and with a max LTV of 75%. I haven't pressed her on it, but I think that the 5 year reset to the interest rates may be negotiable.

Obviously the interest rates for things owned in an LLC are higher. Make sure that goes into your calculations. Which leads me to my previous answer of just go talk to a few banks. If you meet the mortgage broker he/she may not be able to answer all your questions in regard to the LLC stuff, but that person should know who to point you to.

As far as question #2, I have had the same bank ask for different things.  I honestly think that it depends on who is underwriting the loan and what they want.  

Hope this helps!  And best of luck!

You are a little north of me.  I am in the southern Butler county area.  

With that being said, in my area (yours is likely different), I have found it is very difficult to buy single family homes that cash flow after all the expenses are paid without supplying a HUGE (30-50%) down payment.  Therefore I have settled to investing in small apartment building (duplexs, tris, quads, etc.).  I can get good cash flow, but then again it all depends on your goals and comfort levels.  My goal is passive income so I dont necessarily have to work a day job (unless I want to).  If your goal is not managing tenants, then you should be flipping, buying notes or wholesaling.  

To ask about the area without explaining what you are looking to do makes it difficult to answer your question. I know that if I go north of Butler then the price for SFR's drop, so investing in those may make more sense there.

Welcome to the area Jon.  If you can expand on your goals and experience level we may be able to help you get an idea of where the market is and tailor things to what you are looking to do.