Setting up an LLC in Michigan

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Setting up an LLC in Michigan

Jason Rogers
Jackson, MI · Member since 2016 · 36 posts · 8 votes

I am trying to get my first rental under contract. Two questions:

1. Should I just purchase in my name before establishing an LLC and then Quit Claim it to the LLC or is it safer to just file the LLC first and purchase through the entity?

2. Anything Michigan specific I should know pertaining to LLC creation??

Thanks for any input!!

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Account Closed
Professional · Canton, MI · Member since 2016 · 296 posts · 230 votes
9y

@Jason Rogers Bear in mind that an LLC doesn't do you any good if you don't treat it like its own business. Just putting a property in an LLC isn't enough. You need to run the business of that property through the LLC that owns the property. Funding repairs out of your own pocket or another entity, making mortgage payments from your personal account, taking rent checks into a different account, etc, can allow the corporate veil to be pierced. That means if you get sued, courts won't give you the liability protection that an LLC normally affords. Make sure the LLC has its own bank account, that receivables/payables go through that account, and that you keep good corporate/legal records.

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  • Matt Souza
    Investor · Ann Arbor, MI · Member since 2016 · 69 posts · 38 votes
    9y
    Hi Jason, First off, any particular reason you need an LLC? Liability coverage should be more than enough for just one property. Plus, the bank can technically call the loan due if you Quit Claim the property and put it in an LLC. If you decided to go the LLC route, it's really easy to create one in Michigan. Follow this tutorial below and you should be done in less than an hour: http://www.nolo.com/legal-encyclopedia/michigan-form-llc-31760.html Best of luck!
    1Reply
  • Jason Rogers
    OP
    Jackson, MI · Member since 2016 · 36 posts · 8 votes
    9y

    Thanks Matt,

    I am planning to build a portfolio so I figured I may as well start it right. Good call on the Quit Claim. That one never crossed my mind. I was going to attempt a cash purchase and then refi out later, but that is something to keep in mind for the future. I'm going to dive into the tutorial as soon as I can and get this set up. Thanks again for the time!

    0Reply
  • Account Closed
    Professional · Canton, MI · Member since 2016 · 296 posts · 230 votes
    9y

    @Jason Rogers Bear in mind that an LLC doesn't do you any good if you don't treat it like its own business. Just putting a property in an LLC isn't enough. You need to run the business of that property through the LLC that owns the property. Funding repairs out of your own pocket or another entity, making mortgage payments from your personal account, taking rent checks into a different account, etc, can allow the corporate veil to be pierced. That means if you get sued, courts won't give you the liability protection that an LLC normally affords. Make sure the LLC has its own bank account, that receivables/payables go through that account, and that you keep good corporate/legal records.

    6Reply
  • Account Closed
    Real Estate Agent · Grand Rapids, MI · Member since 2014 · 493 posts · 200 votes
    9y

    Get the LLC first and purchase it from there. Avoid the issues of Quit Claiming the property. And, most of the point of having an LLC is to separate your personal assets from your investment properties. If you don't use an LLC and you get sued due to something that happens at one of your rentals, etc., all your personal assets are on the line (home, cars, boats, etc.). Liability insurance will not prevent someone from taking your personal assets to satisfy a judgment. Better to be safe than sorry.

    3Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    9y
    Originally posted by @Account Closed:

    Get the LLC first and purchase it from there. Avoid the issues of Quit Claiming the property. And, most of the point of having an LLC is to separate your personal assets from your investment properties. If you don't use an LLC and you get sued due to something that happens at one of your rentals, etc., all your personal assets are on the line (home, cars, boats, etc.). Liability insurance will not prevent someone from taking your personal assets to satisfy a judgment. Better to be safe than sorry.

    This is the way we do it. LLC first, then fund the LLC, then buy the property.

    1Reply
  • Jason Rogers
    OP
    Jackson, MI · Member since 2016 · 36 posts · 8 votes
    9y

    @Account Closed that is a great point. What are the implications of using a HELOC to fund? Could I pull of my line and then cut the business a check and be in the clear or is this not a good idea?

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  • Renee BaconPro Member
    Real Estate Agent · Saint Clair, MI · Member since 2017 · 39 posts · 28 votes
    9y

    @Jason Rogers We are having the same questions here. We're using a HELOC to purchase, and are on the fence as to whether to get the LLC set up first and purchase with that, or just buy in our own name. I guess we have more research to do. I await an answer to your question!

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  • Account Closed
    Professional · Canton, MI · Member since 2016 · 296 posts · 230 votes
    9y
    Originally posted by @Renee Bacon:

    @Jason Rogers We are having the same questions here. We're using a HELOC to purchase, and are on the fence as to whether to get the LLC set up first and purchase with that, or just buy in our own name. I guess we have more research to do. I await an answer to your question!

    Using a HELOC from your personal account shouldn't be a problem. After all, almost every business gets initial funding from the owner. I would take two steps:

    1) Make an initial contribution to your business account so that the business has at least some capital ($1,000 would probably suffice).

    2) Then, make the separate HELOC contribution for the amount you plan on using to buy the property.

    If you plan on keeping the HELOC contribution in the business long-term (i.e. a buy and hold property), you can draw up a contribution agreement between you and the LLC. If you plan on pulling the money back out after closing (flip), you could just make note of the loan in your accounting records. If you wanted to go the extra mile beyond simply a note in your accounting records, you could draw up a loan agreement and promissory note, but that may be overkill since, with a single-member LLC, you are the borrower and the lender. This step should definitely be taken, though, if there are other members in the LLC or shareholders in the corporation.

    1Reply
  • Jason Rogers
    OP
    Jackson, MI · Member since 2016 · 36 posts · 8 votes
    9y

    Thanks everyone! I really appreciate all the feedback!!!

    0Reply
  • Renee BaconPro Member
    Real Estate Agent · Saint Clair, MI · Member since 2017 · 39 posts · 28 votes
    9y

    Thanks @Account Closed! Great to know :)

    0Reply
  • Michael Ross
    Member since 2018 · 22 posts · 1 vote
    8y

    @Joe 

    Do you have to put all of the money into the LLC in order to purchase through it? I am in the process of opening up and LLC as we speak and want to do it the right way as well.

    @Joe Villeneuveundefined

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    8y

    Yes. You don't want to break the integrity of the deal with any money trail that goes away from the LLC

    0Reply
  • Matt Hurley
    Ypsilanti, MI · Member since 2018 · 189 posts · 127 votes
    7y

    Hey all! Wanted to re-start this conversation. Finding a good lender who will lend to an LLC has been more of a challenge for me. I have my primary mortgage person, but she doesn't offer commercial financing. All the banks who do offer it, don't have benefits for first time home buyer, FHA, or even amortization longer than 20 years.

    Does anyone have local recommendations for financiers who will lend to an LLC? Please correct me if I'm wrong, but if I purchase a house with the deed in my name, but run the finances out of an LLC, that doesn't really give me much protection, right?

    0Reply
  • Brian Kantor
    Investor · Brooklyn, NY · Member since 2019 · 185 posts · 205 votes
    6y

    @Matt Hurley, I am working on this right now. Getting ready to reach out to a dozen local lenders with the ask of purchasing through an LLC. Did you have any luck with this after you posted a year ago? @Joe Villeneuve and @Account Closed, I'd love to hear if you've got any thoughts on this as well. Thanks, all!

    0Reply
  • Matt Hurley
    Ypsilanti, MI · Member since 2018 · 189 posts · 127 votes
    6y

    @Brian Kantor my how the time flies :)

    I ended up going with a hard money lender out in California for my first rehab project, and I'm about to refinance out of that into a traditional loan in my name. There are some local hard money lenders (the one I know is Green Block Inc.), but their rates are higher because they're dealing mostly in lower value properties. Otherwise, you're looking at a higher rate more traditional commercial loan with a bank. Big "need to know" is owner occupancy, you can't live in the property if you have a commercial loan. Very very few commercial lenders will fund a "house hack" project.

    1Reply
  • TJ Beckman
    Rental Property Investor · Vassar, MI · Member since 2021 · 1 post · 0 votes
    5y

    This thread is very helpful. I do have a question. Looking at buing a duplex to house hack. I am thinking I will want the rent to be paid to my LLC then the LLC cuts a check to the bank to pay my mortgage? Is this beneficial if say I were to have my LLC set up that housing is a employee benifit?

    0Reply
  • Mike Stillwater
    Member since 2021 · 7 posts · 3 votes
    4y

    Hi All,

    I came across this thread while looking for information about getting conventional investment property loans under an LLC. I coincidentally just got off the phone with my broker and he said that in Michigan you cannot close in an LLC. Online I've not at all been able to confirm that is even true. If anyone has any resource links I can look at to prove or disprove it please share. Thanks!

    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    FHMA/FHLMC/FH/VA loans will not allow you to close in an LLC as they are mortgage programs primarily designed for owner occupants.

    Believe FNMA now allows you to transfer ownership to a single-member LLC without violating due-on-sale clause, but confirm with your lender.

    [email protected]248-209-6824
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  • Derek Berger
    New to Real Estate · Ypsilanti, MI · Member since 2021 · 1 post · 0 votes
    4y

    Due-on-sale clauses are a topic I've been trying to understand study more lately. Creative finance like subject to purchases all come up against this clause. Clint coons and Pace Morby have some interesting videos on YouTube that explain some of the extra behind-the-scenes detail as to why they are not traditionally enforced. As rates potentially increase over the next few years this may be something that banks pay more attention to but I've heard at this time it isn't something commonly called on if you are consistently making the payments.

    0Reply
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