Should I form an LLC first, or buy first?

Question

I understand that it's important to hold investment property within an entity such as an LLC. So if I'm just starting out, should my first step be to find a lawyer, form an LLC, then have the LLC buy the property?

Or do I buy it first as an individual and then form the LLC and then somehow transfer the property to the LLC?

How is it usually done?

Thanks,

Ethan

Jen Tra · Answer

I've been investing in RE for 10 years, using LLC

It is very hard to qualify for a mortgage under a LLC.

What you do is

1.buy the property.
2.set-up a llc
3. wait a couple of months-for the deed and everything to be record
4. deed the property into your llc

Remember a proper llc requires separate books, members documents, a separate bank acct, etc.. Do Not use your personal bank acct to conduct business, otherwise you will lose the protection a LLC offers.

Also for those of you that think LLC triggers the due on sale clause, it does not provide that the deed holder is the only member on the LLC. This fall under estate planning, I've talked to my RE Lawyer.

And if your LLC has all your buddies, then dont worry the lenders have more pressing matters to attend to right now. Like millions of foreclosures.   :mrgreen:

Harrison Painter · Answer

If you are paying cash, form the LLC first, it will just help create a better chain of title.

If you are using financing, you might need to buy it in your name and transfer.....
            
            The transfer you talked about is called a "Quitclaim Deed". 
            
            Have a Profitable Day!

Samuel Cervantez · Answer

Found the answer on episode 196 go to the one hour mark.

https://youtu.be/JSwMOR2H-Po

Samuel Cervantez · Answer

@Michael Volek Did you ever figure out the answer regarding rehabbing and LLC?

Corey Demuth · Answer

does the llc have to be in the same state as the property you want to add to it? what if you own properties in multiple states?

Josh Green · Answer

depending on your state, you may just be able to go online to your secretary of states website and form it yourself.

here in fl, we use sunbiz.org....easy!

Ethan M. · Answer

Corey, the reason is "asset protection." It doesn't necessarily have to be an LLC -- could be another corporate entity depending on your situation. The idea is that property is owned by the LLC, not by you directly. If someone falls down the stairs (or pretends to) and sues you, they can only go after the assets of the LLC, not everything else you own.

Melissa Webb · Answer

If you already have a property under contract, keep it in your name and then form the LLC and perform the QuitClaim.  If you don't have any properties currently or under contract, get the LLC.  It's like the chicken and the egg; it doesn't matter which comes first, as long as it gets done.

Joseph M. · Answer

How are you all forming the LLC through an attorney? Or are you doing the paperwork yourself ?

Michael Volek · Answer

For a rehabber, wouldn't it be impossible  to wait a couple of months before transferring the deed to the LLC? The first month alone carries the highest risk for injury and/or lawsuit, and I wouldn't want to take that chance before transfer. In that case I'd have to form it before buying, correct?

Should I form an LLC first, or buy first?

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