Should I form an LLC first, or buy first?

I understand that it's important to hold investment property within an entity such as an LLC. So if I'm just starting out, should my first step be to find a lawyer, form an LLC, then have the LLC buy the property?

Or do I buy it first as an individual and then form the LLC and then somehow transfer the property to the LLC?

How is it usually done?

Thanks,

Ethan

Edited: 06/26/2010 at 07:39AM

Harrison Painter

· Indianapolis, Indiana

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Mar 22 '09, 07:03 AM

If you are paying cash, form the LLC first, it will just help create a better chain of title.

If you are using financing, you might need to buy it in your name and transfer.....

The transfer you talked about is called a "Quitclaim Deed".

Have a Profitable Day!

Edited: 06/26/2010 at 07:39AM by Harrison Painter

Melissa Webb

Real Estate Investor · Redding, California

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Mar 22 '09, 07:30 AM

If you already have a property under contract, keep it in your name and then form the LLC and perform the QuitClaim. If you don't have any properties currently or under contract, get the LLC. It's like the chicken and the egg; it doesn't matter which comes first, as long as it gets done.

Edited: 06/26/2010 at 07:39AM

Joseph M

Real Estate Investor · Los Angeles, CA

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Mar 22 '09, 07:57 AM

How are you all forming the LLC through an attorney? Or are you doing the paperwork yourself ?

Edited: 06/26/2010 at 07:39AM

Jeffrey K.

Real Estate Investor · Milwaukee, Wisconsin

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Mar 22 '09, 08:51 AM

Write the offer as Ethan and or assigns. Once you get an accepted offer form the LLC (takes only 15 minutes or so in Wisconsin) and assign.

Edited: 06/26/2010 at 07:39AM

Melissa Webb

Real Estate Investor · Redding, California

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Mar 22 '09, 10:41 AM

My tax consultant helped me form mine (although there is a tax attorney in the building).

Edited: 06/26/2010 at 07:40AM

Corey Demuth

Real Estate Investor · Queens, New York

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Mar 22 '09, 11:26 PM

can someone explain why you would need/want to form an llc if you buy investment property?

Edited: 06/26/2010 at 07:40AM

Jeffrey K.

Real Estate Investor · Milwaukee, Wisconsin

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Mar 23 '09, 12:30 AM

So if something happens it is harder to go after your personal property and credit.

Edited: 06/26/2010 at 07:40AM

Ethan Michaels

Renter · Alameda, California

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Mar 23 '09, 03:31 AM

Corey, the reason is "asset protection." It doesn't necessarily have to be an LLC -- could be another corporate entity depending on your situation. The idea is that property is owned by the LLC, not by you directly. If someone falls down the stairs (or pretends to) and sues you, they can only go after the assets of the LLC, not everything else you own.

Edited: 06/26/2010 at 07:40AM

Rich Schroeder

Real Estate Investor · Wisconsin

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Mar 24 '09, 12:42 AM

to answer your original question, I would recommend getting a property under contract, then set up your LLC and operating agreement. Then call the title company, lawyer, and agent to let them know that you're changing to an LLC and address to PO box. It doesn't make sense to pay for an LLC until you get a property under contract. Then you can set it up quick and easy.

Thanks,
Rich

Edited: 06/26/2010 at 07:41AM

Jack Fremont

Developer · Frederick, Maryland

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Mar 25 '09, 05:55 AM

An LLC is good to form from a risk protection standpoint. However, don't let anyone tell you to form one so that the LLC will be liable for the financing. Even if you hold title as an LLC, the bank is going to want a personal guarantee.

Edited: 06/26/2010 at 07:42AM

Jeff Corpuz

Real Estate Coach · Atlanta, Georgia

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Mar 26 '09, 07:24 AM

If you can afford the setup fees, etc, and are serious about investing, form the entity FIRST. I usually don't tell people to get that lined up first, however it seems like you've already jumped in the game and serious about investing, so by all means get the entity up and running and start doing business under your company name...

Edited: 06/26/2010 at 07:43AM

Jen Tra

Residential Lender · Las Vegas, Nevada

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Mar 26 '09, 10:02 PM

I've been investing in RE for 10 years, using LLC

It is very hard to qualify for a mortgage under a LLC.

What you do is

1.buy the property.
2.set-up a llc
3. wait a couple of months-for the deed and everything to be record
4. deed the property into your llc

Remember a proper llc requires separate books, members documents, a separate bank acct, etc.. Do Not use your personal bank acct to conduct business, otherwise you will lose the protection a LLC offers.

Also for those of you that think LLC triggers the due on sale clause, it does not provide that the deed holder is the only member on the LLC. This fall under estate planning, I've talked to my RE Lawyer.

And if your LLC has all your buddies, then dont worry the lenders have more pressing matters to attend to right now. Like millions of foreclosures. :mrgreen:

Edited: 06/26/2010 at 07:44AM

Jen Tra

Residential Lender · Las Vegas, Nevada

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Mar 26 '09, 10:04 PM

I needed to add this. If you're starting out. I would just buy a pre-packed template LLC from a website and save on the lawyers fee. I've gotten over 20 LLCs done, some by lawyers, some using these forms and their all the same.

the only difference is you save a lot of time, but you'll have to pay for it.

Edited: 06/26/2010 at 07:44AM

Josh Green

Banker · Tampa Area, Florida

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Mar 26 '09, 10:38 PM

depending on your state, you may just be able to go online to your secretary of states website and form it yourself.

here in fl, we use sunbiz.org....easy!

Edited: 06/26/2010 at 07:44AM

Corey Demuth

Real Estate Investor · Queens, New York

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Mar 26 '09, 11:23 PM

does the llc have to be in the same state as the property you want to add to it? what if you own properties in multiple states?

Edited: 06/26/2010 at 07:44AM