Forming LLC?

Would/ Can you form an LLC before you buy a property. I was told that most banks wont loan to an LLC real estate if you dont have a lot of business history with the banks. What my mentor said was once I bought a property in my name for my first property was to get a "deed of transfer"? to move the property under the LLC. Also once in the LLC, what would the advantages of switching it right away to the LLC? Security? Credit Score? Im a little hazey in this area of the real estate. BTW, I plan to buy my first property in Chicago, IL in the next 6-8 months; so this is my time frame. Am I too early to think about LLC?

Edited: 06/26/2010 at 06:18AM

Will Barnard

Rehabber · Santa Clarita, California

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Nov 06 '08, 04:17 AM

Your hold length, exit strategy, and equity position all need to be considered before the LLC.
If you are flipping, an LLC is a "pass through" entity in which the income and expenses are passed onto your personal. The liability protection is to protect your equity in the property. It does not, however, protect it if you are drunk and kill someone's kid. They can still sue you for "your" equity in the LLC. (The liability protection is one way only, protecting the asset from renters, etc. not you from the asset)

It is very common to buy the property in your personal name, then transfer it into the LLC as your mentor explained. The title company can do it at the same time during the closing if you wish for a small fee and the filing fees. Usually around $100 depending on your state.

Edited: 06/26/2010 at 06:19AM

Will Barnard, Barnard Enterprises, Inc.
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Website: http://www.barnardenterprises.com
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Tyler Carpenter

Real Estate Investor · Aurora, Illinois

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Nov 06 '08, 07:29 AM

With this being said, if I buy a property under an LLC and lets say the LLC tanks (worst case scenario), would it go against me personally and completely ruin my credit as well?

Edited: 06/26/2010 at 06:19AM

Will Barnard

Rehabber · Santa Clarita, California

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Nov 06 '08, 08:12 AM

Regardless of the property in the LLC or just in your name, YOU are the one personally guaranteeing the loan, so yes, your credit would be negatively affected if you and/or the LLC does not pay the mortgage.

The only way around this is with a non-recourse loan. Google the term fro more info or go to my website. It would most likely require a 30% down payment on rental properties.

Edited: 06/26/2010 at 06:19AM

Will Barnard, Barnard Enterprises, Inc.
E-Mail: info@barnardenterprises.com
Website: http://www.barnardenterprises.com
info@barnardenterprises.com

Lee V

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Jan 16 '09, 12:18 AM

Have anyone ever switch the guarantor of a loan to an LLC? For example, if i bought a investment property under my personal info, and 2 years later, create an LLC because I want to invest in more properties, can you switch the name on the loan to put it into the LLC only? I guess what Im trying to say is, can you somewhat refi a loan from your personal side into an LLC to clear the debt from your credit ?

Edited: 06/26/2010 at 06:57AM

Edwin Brown

Real Estate Coach · Jackson, Mississippi

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Jan 16 '09, 01:35 AM

I have to agree, when buying your first property you will most likely need to buy in your personal name in order to get financing. As soon as your loan closes you can execute a Quit Claim Deed, or its equivalent and put the property into your LLC. This does shield you (up for debate in legal circles) from some liability with the property, but you will always be on the hook for the loan.

Edited: 06/26/2010 at 06:57AM