Personal or LLC

21 Replies

I am purchasing my first property fairly soon. Wanted to get a little help on if I should purchase it under a LLC or under my name.


@Andre Ross - What type of loan are you applying for? A residential loan can only be funded to your personal name whereas commercial loans can do both but usually go to a LLC

I think it depends on your comfort level of risk. I recommend to my clients they get an entity formed.

If you are planning on getting a loan for the purchase you should check with your lender before going the LLC route, especially if it is a standard residential loan. Most lenders will only make those to individuals. Buying in the name of an LLC could necessitate using a commercial loan - much more expensive. Also, be aware that switching the title over to an LLC after the sale could potentially activate the "due on sale" clause in a mortgage agreement.

I am not a lawyer (disclaimer!) but I think most people are fine holding properties in their own name until they have amassed quite a bit of a portfolio. Just make sure you have adequate liability insurance. How much liability insurance you need just depends on your net worth. An additional umbrella liability policy from your insurance company is very inexpensive and probably provides better protection than an LLC.

@Patrick O'Sullivan  

curious what your rationale is for the LLC? I see you are a commercial broker- it makes sense to me that someone buying commercial property would be buying through an entity but I don't see how it's advantagous for a start-up residential investor.

@Jean Bolger

The attorney I sent my clients to can explain it better than I can, but for the most part, it has to do with liability exposure.

If you are trying to limit liability exposure get a good insurance policy.

Joe Gore

Thanks for all the help, just gathering all the info I need before I start investing. I have 2 friends that also invest one uses his personal other one has an LLC. Both have residential properties. Of course one said use an LLC the other said it's not needed.

As far as loans go, wasn't really going to apply for one. Houses in the Detroit area are rather inexpensive but I'm sure having the extra cash flow wouldn't hurt. Wouldn't mind working with an investor/mentor in the beginning, with the houses at such low rates right now the buy and hold approach seems best in that area until the market makes a turn around.


Originally posted by @Andre Ross :

Thanks for all the help, just gathering all the info I need before I start investing. I have 2 friends that also invest one uses his personal other one has an LLC. Both have residential properties. Of course one said use an LLC the other said it's not needed.

 Haha! of course.

I tell you what. If I were faced with a liability lawsuit and I could only have one of these (LLC or umbrella liability insurance) I would go with the insurance. every. time.

So if you go with an LLC, just get the insurance anyway!

@Andre Ross,

This is very interesting indeed. Andre, If you are going to be buying properties as a business, why would you not treat it as a business, get an entity formed and get to enjoy the peace of mind associated with it?

The advantages associated with buying in an entity set up correctly cannot be over stressed.

Buying properties in your own name is okay if you are looking at just one or two properties, other than that, you need to take a closer look. 

Furthermore, it is advisable to buy in different entities - one property per entity - you do not want to put all your eggs in the same basket, just in case....

A word to the wise....

Good Luck and Happy Investing.

This post has been removed.

Umbrella policy I bought recently was only $272 a year via Liberty Mutual for $1,000,000 in coverage. That's over and above the individual property liability. 

I know investing in Detroit seems enticing because of the low prices but please do your research on growth/turn-around patterns (which I heard are happening right now). I think if you dedicate some time to understanding these patterns, you could be in the path of prosperity. If you buy in the wrong area, you may end up owning a property that is not useful. Perhaps you could align your purchases with plans of a larger developer.

@Andre Ross

There are so many advantages to using LLC's for asset protection that it basically becomes a no-brainer.

I believe @Ali Boone addressed this issue in a past write-up on the BP blog. She writes for beginner investors and has a fresh outlook on the subject. You may want to connect with her. Hope this helps!

Everyone, thanks for all the information. Everyone has been very helpful in making sure I make the right decisions.

To piggyback on @Andre Ross question, I have been looking into setting up an LLC as well. I have read a little on setting up an LLC and purchasing investment properties under the owners name.

An attorney can draft up paperwork to transfer the properties to the LLC and the owner can execute. These docs don't get recorded but if anyone ever comes after you the investment properties are transferred to the LLC so they are shielded as far as liability concerns. This also avoids triggering the due on sale clause by not recording. The executed transfer docs are just kept in a deposit box or fire safe.

I have barely started to look into this but it seemed like the best solution for liability concerns for those who do not have investment loans. Has anybody dealt with this? Or have any advice?

If piggybacking on people's posts is against etiquette on BP, please let me know. I'm new.

@Andre Ross not legal advice because I'm not a lawyer, but mine told me that in many states a single owner LLC is ripe pickings for a good lawyer, and that it doesn't negate other reasons to have one but for assets protection it is not great. Multi-owner partnership, much more so, if done right. Certain situations it effects taxes. Many will tell you not, and they are only partially correct. If you are doing buy and hold and flips, you want separate entities so the buy and holds are not held by a "dealer". But talk to a good accountant about your situation.

Very nice thread <- Other People Knowledge

@Daniel Smilansky  this might be useful thread regarding your questions a few days ago.


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