LLC formation in Virginia

[Chris Susserman]

Hi All!

It's been a while since I've posted but I browse constantly and can't seem to find a great answer to my question.

My wife and I are about to purchase a property soon and I've been trying to find the best advice on whether or not to start an LLC. We currently have one other property, we lived in it for a couple years but when we moved we kept it and made it a rental.

Both properties are in Alexandria, Virginia.

I guess my question is: if we aren't able to purchase a property under am LLC right now, is it worth establishing one to for future purchases? For example maybe we can have it to run costs through the LLC and build it's credit profile in order to possibly apply for financing down the road. I know some banks will allow for the transfer to an LLC but that doesn't seem worth the headache.

TIA for any advice!

[David M.]

@Chris Susserman

I’m not a professional, but I post constantly on the pitfalls that I’ve learned. Maybe go my posts via my profile to do some research

In short, trying to use a mgt LLC is std practice, but I've heard you need to have the properties held by a LLC (a different one of course)

Trying to generate a credit history doesn’t seem to be too useful since lenders will generally have you personally guarantee the loan, unless you have a large portfolio that has a history...

If you want to use a LLC, you need to be "all in." To get the limited liability protection, everything has to be under the LLC, eg title, mortgage, etc. this trips most people up since they don't want to "pay" for the liability protection, ie the fact that you'll need commercial loans since a legal entity doesn't qualify for conforming residential loans.

Don’t forget your insurance...

Note, Unless you are investing with a non-spousal partner, the LLC has no accounting/tax benefits. You still are able to take all the same deductions. The LLC is a legal entity for legal limited liability asset protection. If you have non-spousal partners, the entity just apportions the profits/losses cleanly.

One accountant on bp put it, you can have any:

100 rentals in personal name

100 rentals with 100 LLC

100 rentals in one LLC

Its all up to you. Discuss with a qualified professional or two or more about what what risks you are willing to accept and what works for you

Otherwise, many investors (including on BP) just use insurance with unmbrella policy and just keep the property in good repair.

Everything with the LLC is about protecting/maintaining its corporate veil. The worse part is you won't know if it's pierced until you are taken to court (that's there it really matters, right?), in my opinion. Co-mingling is a clear one. Alter-ego is another which people seem to not see well.

Anyway, this is my “short” version (plus I’m on my phone right now). You’ll see longer explanations of each in various posts of mine. If you feel like chatting, feel free to direct message me with your number and I’d be happy to chat and give my layman’s opinion on the matter.

Good luck.