Purchasing in an LLC?

3 Replies

Hey everyone, apologies if this has already been answered somewhere on the site. I did a couple quick searches and nothing jumped out at me...

I'm a newbie and haven't done a deal yet. I'll be using my HELOC for a down payment and financing the rest (or potentially paying 100% out of my HELOC. I gather than the "correct" way to purchase properties is to buy them in an LLC for the sake of asset protection. This seems extra important if I'm going to be leveraging equity in my residence through HELOC, but it's also my understanding that most banks aren't going to be interested in giving a loan an LLC--especially if this is my first rental property. So, how does one go about using their equity to purchase in a LLC? Surely there's a "standard" way to do that? right?

The only thing I can think of is to just pay for the the whole thing with my HELOC and buy it personally, then once it closes and we have renters and are cash-flowing do a cash-out refi with a commercial lender, roll the ownership into an LLC, and use the cash-out to pay off most/all of the HELOC. That seems fussy though.

I'd appreciate any insight y'all can offer.

Hanging been through hours of research on precisely this topic, I'll tell you how I did it:

But your first few properties in your own name. Take advantage of good conventional mortgage rates.

Get a standard landlord insurance policy for each property. This covers the house and some liability.

Then get a $1-2M umbrella policy that covers both these properties as well as your auto and homeowners. This handles just about anything life (or your renters) might throw at you.

One you're in the 4-6-8 range of homes, you'll probably be maxing out conventional loans, so then it's time to start thinking other loan options... and maybe then LLCs.

Get started easy. Worry about asset protection later (other than good insurance) since an LLC likely won't protect you when you're small anyway.

@Jon Krombein I wrote a blog post awhile back that covers this quickly. In short, if it's your first deal. I'd do it in my personal name to get the better rate and terms. That way I don't blow the money on the LLC/Tax work/Legal/worse terms if I end up hating real estate or never get beyond the number of deals I can have in my personal name.

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