Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Raise your hand if you long for a good lawsuit. No? Well, I don’t blame you. Anyone in real estate (new to the game or a veteran) is always thinking of how to mitigate risk in the event of a lawsuit. However, when you are first starting out and wanting to capitalize on your 10 "golden tickets" of conventional financing, purchasing a property in an LLC is not an option since the lender wants to see the loan and title in your personal name. Full disclosure, I am neither a lawyer nor a CPA. I’m an investor. This is one area of real estate operations where investors get bogged down and scared—with good reason! So, we’ll set the legality piece aside and go over the basics of why and how to use an LLC to purchase a property. Why Purchase Property in an LLC? The main reason to purchase a property in an LLC is to insulate your personal assets from activities that occur at the property. Meaning, when you hold a property in an LLC and run the LLC properly (this is key!), your risk ends at the LLC should anything occur on the property—like a slip, trip, or fall. This does require you do 3 things: Keep the property in repair in order to not be found negligent should something happen. This is HUGE (and really is the first step in not getting sued). Hold the title of the property in the LLC. You wouldn’t believe how many investors open an LLC and never move the title of the property into the LLC! If the property is not titled to the LLC, you do not get to benefit from the legal structure of the LLC. Run the LLC as a business in order to maintain your corporate veil. With regard to the third point, the LLC must: Have its own bank account to receive income and pay expenses. Maintain standard bookkeeping records. Maintain corporate records (think meetings and minutes) according to the laws of the state of incorporation. Remain in good standing with the state of incorporation (see above point). Not co-mingle business funds with personal funds. Doing so could blow your “corporate veil.” How to Purchase Property in an LLC Purchasing property in an LLC will require you to use commercial financing since the loan is made to a business rather than an individual. Up until recently, commercial financing received a bad rapâmost commercial lending programs did not offer 30-year fixed financing, did not have competitive interest rates, required 25 percent or more down, and were riddled with high closing costs and prepayment penalties if you sold the asset within three to five years. Today, there are many commercial lending programs that offer 30-year fixed rates, 20 percent down payment programs, competitive rates, and reasonable fees to close. In addition, they are oftentimes more competitive than a conventional loan should you do a cash-out refinance in the case of a BRRRR. Personally, I like commercial lending over conventional lending, as I don't feel like my DNA is being taken each time I close a loan. Related: Investment Property Loans: The Ultimate Guide to Funding Your Deals The Nuts and Bolts Purchasing a property in an LLC is a straightforward process. Let’s break it down into its integral parts. Consult with a lawyer and CPA regarding your investing strategy and best legal and tax structure to protect you. Don’t skip this step! If you are flipping, you may need a different legal structure than if you are buying and holding. Don’t let cost deter you from getting solid legal and tax advice. You can pay a lawyer and a CPA for an hour to put together the strategy and use a reputable incorporation firm to set up the advised structure. My personal choice is Corporate Direct. Set up your LLC and file your Articles of Incorporation with your state business office. Write your Operating Agreement and sign it. While there are templates available online, I highly suggest using your lawyer’s template or one from a reputable incorporation specialist like Corporate Direct. Again, don’t skimp here as the Operating Agreement will determine how assets are structured in the business in the event of a lawsuit. Once your Articles of Incorporation have been approved, download a Certificate of Good Standing from your state business office website. Secure an EIN (employer identification number) from the IRS. Now, you have your full LLC package ready to deliver to your lender (or bank) to secure your loan! Considerations When Using an LLC to Purchase Property Remember, I’m not a lawyer or CPA (and this is not legal advice), but here are some hot questions from personal experience to consider when setting up your LLC: You don’t have to have each property in its own LLC. It’s more about how much equity can you afford to lose in that LLC should it be subject to a lawsuit. Individual LLCs are expensive to form and maintain. Work with a lawyer to understand your equity exposure. Work with your lawyer about filing the LLC in the state the property is in rather than your home state. This can help keep costs down, as well, as the LLC won’t be transacting as a foreign business. Work with your CPA to discuss keeping rental real estate activities separate from your flipping activities. The two types of income are treated differently. Your CPA can help you figure out which type of LLC is right for you. You will find many posts on BiggerPockets regarding holding companies in Wyoming and Nevada (or any state with strong charging order protection). This means that if you had something happen on a property, it would be harder for a lawyer to unravel all of your LLCs or get to your personal property. Or if you got in a car wreck, it would be hard for your business assets to be seized as part of a settlement. Work with your lawyer to understand if this is a good option for your situation or if it’s even needed at this point in your investing career. These are higher-level tactics; however, a one-hour consult with a lawyer and CPA should set you on the right path to understanding which asset protection and tax structure strategy is best for you. Related: The Traditional LLC vs. the Series LLC: Which Is Better for Real Estate Investors? Conclusion We’ve touched on very high-level whys and hows of purchasing property in an LLC from an investor’s point of view. So, what are the next steps you should take to see if this the right avenue for you to pursue? Consult with a lawyer and CPA regarding your particular investment situation. You want to be sure they both agree on what is best for you. Work with a lawyer or reputable incorporation company to set up the legal structure. Explore options to set up pieces over time as your investment portfolio, income, and asset protection needs grow. Put together an LLC packet for your lender, including Articles of Incorporation, Operating Agreement, Certificate of Good Standing, and EIN. Maintain your LLC like a business with a separate bank account, good bookkeeping, and annual minutes and records. Lastly, go close that loan, tenant that property, build your wealth, enjoy the passive incomeâ¦ and repeat! Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation. Questions about any of the above information? Advice to add? Share in a comment below.