I am about to close on my second income property in about a week or so. the first IP that i have is under my name; when is the right time to open an LLC and have all properties under it??
What advantages are there to having an LLC and also keeping the properties under my name?
Hi @Josip Galic , Congratulations on the acquisition!
I spent some time trying to understand the uses of an LLC for this purpose and will recount what I was told. I'm no legal expert here, and invite corrections from anyone if this is wrong or unclear!
It sounds like you're already aware of how an LLC works by grouping assets under separate legal names to protect them. But you may or may not want to put all your properties under the same LLC depending on the value of the properties, if you intend to sell in the near future, etc.
I believe the biggest advantage of an LLC is the legal protection it offers. Any suits directed at an investor cannot easily touch assets under the LLCs because they're protected under a different legal name.
One possible disadvantage is the due on sale or transfer clause in most mortgages. It will give the bank an option to call your loan due if they choose. I think it's quite rare that any bank would call this on a loan that's in good standing.. but it's something to consider.
(Of course, there's also a small fee involved - maybe $300 or so depending on who sets it up - hardly enough to be called a disadvantage)
That's about what I know. Hope it's at least a little help!
I would also consult with your CPA on this, as I'm sure he has a preferred entity strategy and would make things easier to handle if you are on the same page.
Rafael Norat, RN Business Management | [email protected] | 908‑419‑3665
Search "why an LLC" that's not the name of the thread, but it should get it. The thread is about a year old, last post was in July, it has most of the pros and cons.
IMO, you have more risk driving your car than in owning single family homes! If you have an apartment building, that's different.
If there are business reasons to have an entity, by all means, see your accountant.
You only need one LLC, not multiple LLCs, also check on a Series LLC.
If you have a personal judgment against you, all of your ownership interests in any LLC is personal property, just as stock would be.
If you're the only member, then you are the manager and there is where your personal liability can enter the picture.
I suggest tons of insurance and good property management, if you aren't negligent you don't have an issue. :)
Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com
thanks everyone for the advise!
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