Is the LLC path common?

23 Replies

I like the liability protection an LLC provides, but everything I read says that banks won't lend to LLC's (or allow to deed to an LLC normally). So do most of y'all not go the LLC route? I am assuming then you would just get insurance?

@Chandler Ludwick Unfortunately it depends. I established an LLC in my home country many years ago and still have it to this day. So far I haven't had any use for it, except for learning how to file my taxes as an LLC and dealing with the government's legal requirements.

Originally posted by @Matt Horwitz :

@Chandler Ludwick , you can take title and get financing in your own name, then later quitclaim deed the property to the LLC. I'd speak with a few attorneys in your area for details. They'll speak with you for 5-10 minutes for free by phone usually.

 Why wouldn't you do a warranty deed? Is there that much extra work vs. a QC? 

@Scott L. Your deeding the property to yourself. Unless you don't trust yourself to not disclose info to yourself, or stab yourself in the back, assuming you can reach around that far, a simple quit claim will be sufficient.

Generally, what I have been told is that if you don't have a good amount of properties under your belt yet, it's not worth getting an LLC to put your properties under. But it's always a good idea to talk to a bank and get their opinion on your situation! Good luck on your journey @Chandler Ludwick !

Originally posted by @Steve B. :

Scott L. Your deeding the property to yourself. Unless you don't trust yourself to not disclose info to yourself, or stab yourself in the back, assuming you can reach around that far, a simple quit claim will be sufficient.

Doesn't it make it somewhat harder to get title insurance later and/or when you sell? I guess it depends on how "clean" the title is when you buy the property. If the title is QCed to the LLC and then a buyer wants a warranty deed with a title policy from the LLC seller, I could see the title insurer balking. If you own the LLC you don't have to be afraid of defending the title as Grantor, because the the Grantee is you(r LLC). But the buyer from the LLC may not like that you didn't personally warrant the deed to the LLC..

Delete that comment. I was trying to when I fat fingered it and hit post. :-)

But in AZ there seems to be additional effort or cost associated with signing a warranty deed vs a quitclaim deed. Unless you don't actually want to warrant title....

In Ohio a warranty deed requires a notary to sign which may or may not have a cost associated to it. You local bank may have notary service for free and the auto title agencies have a notary service that you must pay for. The warranty deed must then be first be registered with the auditor for a fee and then be registered with the recorder for another fee. The fees vary by county. The deal I just completed was sold with a warranty deed and I had a total cost of $100 to register the deed with the county. I do own an LLC and I registered the property to that LLC.

As a couple of others have stated, don't use Quit Claim Deeds in Texas.  When you sell, the title companies will require a Warranty Deed to be executed so you might as well execute one to begin with.  Banks do loan to LLCs.  They may require the individual member(s) to sign a personal guaranty for the loan.  Don't borrow money in your personal name with the intention of immediately deeding to an entity.  Your lender may consider this fraud- read your loan agreement.  It happens, and the lender likely wont accelerate but going into the loan with the intention of transferring title is not a great idea.

The ratio is approximately 50/50 for investors actually using a LLC. It is costly and more difficult to operate under one. Those that choose to go the LLC route likely do so because someone told them it is necessary. Since insurance is your first line of defence with or without a LLC a LLC is basically double protection.

As a side note there have been many, many LLC posts and to date no one has ever posted that having a LLC has actually benefited them. They are highly recommended by lawyers but that may be just them generating income. There are many ways to protect yourself without ever needing the psychological protection of a LLC.

Well one of the other reasons is that we have multiple partners so I feel (uneducatedly) that it would be more above board and clean through an LLC rather than one investor take the mortgage out.

I created my LLC for other reasons than REI. I just happen to have one when I bought my property. With an LLC you have a tax id to use other than your personal tax id so you can easily separate what is business from what is personal. You can get a different line of credit under the LLC name and the LLC credit card interest can be deducted on the tax as an expense. I am not a lawyer and you should talk to one, there are as many benefits to an LLC that don't involve protection of assets. My advice would be to create one regardless of the REI.

Originally posted by @Earnest Boyd :

In Ohio a warranty deed requires a notary to sign which may or may not have a cost associated to it. You local bank may have notary service for free and the auto title agencies have a notary service that you must pay for. The warranty deed must then be first be registered with the auditor for a fee and then be registered with the recorder for another fee. The fees vary by county. The deal I just completed was sold with a warranty deed and I had a total cost of $100 to register the deed with the county. I do own an LLC and I registered the property to that LLC.

The registration for a Warranty Deed in my county in Texas is $24.00. I get free notary services with my Mailbox at UPS Store, but the most they charge is usually $6.00. I don't know why anyone would do a QC deed without a notary even if you could. The only thing about a warranty deed is you are promising to some extent to defend the title. I could see the argument that you're QCing to yourself(entity), but why not do it, since when you sell, you'll have to do anyway...? Is the boilerplate or state form for a QC, so much easier than a one page Special Warranty Deed. As suggested above it seems to vary by state, but in Texas it really seems no need not to...?

Originally posted by @Thomas S. :

The ratio is approximately 50/50 for investors actually using a LLC. It is costly and more difficult to operate under one. Those that choose to go the LLC route likely do so because someone told them it is necessary. Since insurance is your first line of defence with or without a LLC a LLC is basically double protection.

As a side note there have been many, many LLC posts and to date no one has ever posted that having a LLC has actually benefited them. They are highly recommended by lawyers but that may be just them generating income. There are many ways to protect yourself without ever needing the psychological protection of a LLC.

 Do you have a source for these claims?

What value do you place on anonymity? Not everyone likes publishing their ownership in public records 

@Chandler Ludwick

It depends on your personal goals and the type of the deal you are working on. If it's buy and hold, I'd check with local ordinances as well. For instance, in Philadelphia you have to have a rental license to be able to rent your property. If your property is in your name and you have any unpaid city taxes or bills, you won't get your rental license until you clear all debts with the city. LLC in this case is a layer of protection not just from your tenants but from local government as well.

@Chandler Ludwick The only drawback I’ve found to using an LLC is that Fannie Mae (FNMA) will not back a mortgage to an LLC. Meaning your LLC cannot get a conventional 30 year mortgage through a bank. You most likely will be limited to commercial loans from local banks that are normally 15 or 20 year amortization.