When is the right time to create an LLC?

Question

Hi Everyone!

My husband and I are just starting out in REI, and before we invest in our first buy and hold -- should we create an LLC?  I'd appreciate any feedback!

Thank you in advance :)

Stephanie

Greg Scott · Answer

Stephanie:

Most people that are starting out have no assets.  (In other words, they are not attractive prey for a lawyer.)  Despite this most feel they have to have an LLC in place to hide what assets they have.

In reality an LLC (in my non-lawyer opinion) is really the 3rd line of defense.  Good management and good insurance are probably the first two.

On the other hand, you are not a low profile person.  You have a big target on your back.  I wouldn't hold assets in your name.   People will be looking for you.

If you are buying single family (small stuff) you can buy in your name but within a few weeks you may want to think about moving it to an LLC.  Better yet, buy in your husband's name and then move it.  If you are buying large properties (apartments / commercial) I would buy directly into the LLC with a commercial loan.

Good luck.

Stephanie Grady · Answer

thank you everyone for our responses! I appreciate the advice!

-Stephanie

Paul Bowers · Answer

With what you do for a living and the fact that you are in the public eye the LLC may have some value for the anonymity that it would provide you.

Troy Owen · Answer

Hey Stephanie it depends on what type of property you are looking to purchase.  For instance, if you are buying a 1-4 unit building and you want to get a 30-year fixed rate it will most likely have to be held using your personal names.  If it's larger than 4-units you won't be eligible for a 30-year fixed rate and the bank will not have any issues with you titling the property in an LLC.  If you can put it in an LLC, great.  If not, there are ways to deal with the liability when titling properties in your name.

-Troy Owen

Paul Camuto · Answer

LLCs are good for business checking accounts to organize and separate expenses and income. They do cost money on annual basis so keep that in mind.

Sam Shueh · Answer

Only if you hold multiple properties and are looking for a lower tax when to sell.

When is the right time to create an LLC?

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