My wife and I are about to make the leap. We have been approved for $100k interest only home equity line (3.99%) and have spoken to another lender (who is also an investor) who said we'd be good initially for 3 mortgages ($1mm combined limit.)
Our plan is to rehab and sell initially so that we can slowly buy and hold rental properties as we accumulate equity with the ultimate goal of owning a portfolio of income properties that we can retire comfortably with. We don't plan to do much (if any) of the work ourselves, but my wife is getting her RE license (Keller Williams) and I may do so as well if the business generates enough income that I can leave my current job (which is my primary motivation for starting this business.)
We have met with agents (friends) who also work at Keller Williams. My wife will be their mentee under the KW program. They are a husband/wife team and are also investors who have rehabbed and flipped in LA and here in Richmond. He also has a GC license.
I know this topic has been beaten to death, but we're going to meet with an attorney soon and wanted any thoughts on LLC or INC? Also, any reason not to use the home equity line of credit for everything? I'm sure we're missing tons, but any advice is always welcome.
Bill & Tina Morris
All the research that I have done on the subject of a LLC indicates that it is not the protection that investors think it is. The primary reason for placing properties in a LLC is to reduce owner liability. Well, if you and your wife are the only principles, it won't take long for an attorney to link the LLC back to you and figure out some loopholes to get their fingers on your assets.
Another reason for a LLC is to reduce buyer/renter liability caused by a lawsuit. The best way, in my opinion, to protect yourself is to have a large umbrella liability insurance rider. This is perhaps a better way of protection.
Now, you may want to look into forming a S-Corp. This can be a great tax/income shelter and would provide the corporate protection as well. You would need to talk to a tax consultant to see if it would help you. Also, forming a corporation could affect your ability to mortgage.
Thanks Simon. I'll definitely look into the rider.
LLCs can offer a good deal of asset protection if used properly. I'd recommend, however, that you look at the discussion in the other thread regarding "To LLC or Not to LLC" that is active. It will provide you with some good feedback on the topic. As you and your wife are the only principals, I don't know that an LLC would be a particularly good strategy for you. I believe they typically make sense when unrelated investors (or at least non-spouses) are involved, as some of the benefits (as as indemnification options) don't make as much sense in a spousal context (where, for example, the indemnity is flowing from one spouse to another).
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