New Investor: LLC or Individual - House Hack or BRRR Method

[Mitchell Becker]

Hello everyone, I'm looking to connect regarding investment strategies. I am first time real estate investor looking to buy in the west metro. House Hack or BRRR: I am a recent grad still living at home, and am looking to purchase a single family home to move into. I am torn between purchasing a cheaper home that needs rehab, and do the BRRRR method for future properties, or go the house hacking route into something more move in ready for my first property. At the moment I am pre approved for $200,000, and have about $30,000 for a down payment. Taking this into consideration, I would appreciate any advice as to how to approach my first investment. LLC or Individual: I am also looking for any guidance regarding the pros and cons of buying my first property in an LLC, or in my own name. Is there a better option between the two for a first time home buyer? I appreciate any and all guidance, I look forward to connecting!

[Kevin Sobilo]

@Mitchell Becker, a few thoughts:

1. If you house hack your decision is made. You will need to buy in your own name and live in the property. A house hack in desirable in part because you can use conventional conforming loans like FHA loans with low down payments intended only for primary residences.

2. If you use a single member LLC or invest in your own personal name is immaterial for tax purposes because a single member LLC is a "disregarded entity" for IRS purposes. So, the LLC's business gets rolled into your personal income taxes.

3. An LLC is only really for liability purposes and when you are just starting out, do you really have a lot of personal assets you are concerned about? The LLC IF USED CORRECTLY can provide liability protection so if someone related to your investments sues you your personal assets are protected, BUT ONLY if you use it correctly.

4. One of the decision makers for whether to invest in an LLC or in your personal name is often cost. Some states make having an LLC cost prohibitive for a small landlord/investor. In states where it is cheap, then it is a cheap liability insurance.

5. You can always buy an umbrella liability policy to protect yourself whether you invest within an LLC or especially if you invest in your personal name.

6. You have $30k to invest. Many BRRRR investors either use their own cash or hard money loans to to the initial purchase and rehab. Often hard money lenders want experience which you don't have. I doubt $30k will cover a purchase and rehab even in a very cheap market these days. So, unless you have access to more $$$, I'm not sure if a BRRRR is viable.

7. A house hack probably makes sense, but perhaps you can find something with potential for cosmetic updates so you can do work to increase its value and maximize rents.