To LLC ot not to LLC?

19 Replies

I think I have finally hit the dreaded tmi analysis paralysis! I have read and read and read trying to find the right road but finding only a mental dead end. I am approved for a rental loan already through my bank. I have all my down payment money and several properties in mind with roi's ranging from 9% to 15%. I am more confused on how to setup my business than ever before. All the rules between llc's and what state to use and how to structure it has me at a stand still. I make over $100k at my job now and I'm single so I pay a ton of taxes already. I just worry about setting my business structure up wrong from the beginning and blowing my future in real estate before I even get started. I have been reading and searching for over a month now looking to get into my first rental property. I'm located in albany ga. Just hoping someone may can shed some light on how exactly you go about choosing an llc, what states and should I use more than one state? Should i wait until i have several properties to worry so much about the asset protection? Thanks to anyone in advance for any advice and also any recommendations on a cpa or attorney for setting this all up with a proven reputation and track record. Thanks for reading 

This is just my opinion, but I would use your mental energy to get a property first before you think about how to setup LLC. Don't worry about asset protection when you don't have one.

You want a instate llc to own your property and then a Wyoming llc to own your state llc and then get your membership units certified pm me I know a company that can set everything up for you

I bought my first property, then set up a series LLC with the intent to add more properties to my portfolio. I now have four properties under my series LLC. Rentals are located in central Texas.

And then, I met a guy who had 32 doors and no LLC.

But, Texas is far more Landlord friendly than most of other states.

Good luck and enjoy the process.

Originally posted by @Derek Smith :

I bought my first property, then set up a series LLC with the intent to add more properties to my portfolio. I now have four properties under my series LLC. Rentals are located in central Texas.

And then, I met a guy who had 32 doors and no LLC.

But, Texas is far more Landlord friendly than most of other states.

Good luck and enjoy the process.

Here's another guy, me, doing it for nearly 40 years that never had an LLC. I know people with S Corps/LLC's where when they got sued individually and the LLC both. I used an LLC for a business, not real estate, and my insurance broker got an endorsement that covered me with the LLC. The guy I bought the business from had the business covered, but not himself, and he and his entity both got sued. His insurance company told him, get an attorney for yourself, our attorney is for the entity only. He's sweating bullets because he was sued for $2 million, and he only got coverage for $1 million.

Originally posted by @Joseph Watson :

Wow! So 40 years no llc that's pretty wild. So your advice is you really dont need one?

 No, not in my case, and in the case of OP, a new investor, not for him either. Get insurance, plenty of it, with umbrella insurance on top.

For a small investor just starting, just him and the property, it's easy to pierce the corporate veil, which is one approach lawyers get after you. Another is you're acting as your property manager, thus you're an investor as well as a negligent manager. That's how the business owner I know got sued, he acted as the manager of the business, a negligent one.

It would be different if a property manager was used, with his own E&O insurance, then the LLC and the PM be sued.

This is in addition to if you have a wife, and/or partners, in an S Corp or LLC, attorneys check to see if you follow corporate protocols, like annual meetings etc. So it's like "you mean you don't have minutes of your last annual meeting?"

I also have a million dollar umbrella policy too.

Personally, I would get the LLC after your first property.

Recently, I applied for a primary home Loan and since I have my properties under my LLC the bank didn’t even want to hear about them.

Better to be with than without.

I also am curious about this. From what i am gathering from everyones comments, it is a good idea to have an LLC after you get a property under your belt. My question is, can you add your first property to your LLC after the fact?

I didn’t read any of this’s besides the title. You don’t need an llc to buy residential properties which is what most people start with. There are no tax advantages really.

You can see my more detailed post on my profile, from earlier today on this topic.

The big problem with LLCs are that once your property is in your LLC, you’re dealing with commercial loans.

That means higher rates, shorter balloon periods, and harder to get - especially if you’re new.

Buy as many properties as you can using conventional 30yr mortgages. At some point, you’ll max out you DTI or hit the 10-property max for conventional mortgages - then start figuring out LLCs and asset protection.

Insurance can go a long way in the near-term.

This is an interesting topic and I'm still learning about this. From what I know, buy the property in your own personal name. Then transfer the title to your LLC once the dust is settled. From this process, you can get the convention 30 year mortgage

@Joseph Watson Looks like you have done your homework!  Great first step!  I always recommend to be proactive, rather than reactive.  It's never too early to think about asset protection.  The good news - there are several options out there and you can find the one that works perfect for your real estate portfolio.  One thing I will mention is when looking at asset protection, always think about your goals and where you want to be and ensure your asset protection will grow with you.  LLCs, Series LLCs, and trusts are all good places to start when thinking of asset protection.  You can find more information herehere, and here. If you have any questions, please feel free to reach out!

Best of luck with your real estate investing!

Originally posted by @Joseph Watson :

I think I have finally hit the dreaded tmi analysis paralysis! I have read and read and read trying to find the right road but finding only a mental dead end. I am approved for a rental loan already through my bank. I have all my down payment money and several properties in mind with roi's ranging from 9% to 15%. I am more confused on how to setup my business than ever before. All the rules between llc's and what state to use and how to structure it has me at a stand still. I make over $100k at my job now and I'm single so I pay a ton of taxes already. I just worry about setting my business structure up wrong from the beginning and blowing my future in real estate before I even get started. I have been reading and searching for over a month now looking to get into my first rental property. I'm located in albany ga. Just hoping someone may can shed some light on how exactly you go about choosing an llc, what states and should I use more than one state? Should i wait until i have several properties to worry so much about the asset protection? Thanks to anyone in advance for any advice and also any recommendations on a cpa or attorney for setting this all up with a proven reputation and track record. Thanks for reading 

 I would wait until you have some assets to protect.  If you are just getting started, get an umbrella policy.

One of the big issues you have is that banks wont lend to a newly formed LLC, so in reality you will be personally guaranteeing the loan anyhow. And there wont really be enough equity, at least initially for any legal action to really get any money out of you.

@Bart H I already got approved even with the llc. I used Watson family rentals but haven't filed it yet bc I wasnt sure how to go. I just figured you the low initial cost I should prolly go ahead and have one in place. Still weighing the options

@Joseph Watson I have been pondering the same thing too, just starting out myself. Many of the posts on BP seem to say that it's not worth forming an LLC to start with. However I just attended my first local REI meetup where the professional advice there was that it was strongly recommended to purchase rentals under an LLC. They pointed out that even though you won't be able to take out a residential loan, there are more commercial loan options and it's not as hard to get a commercial loan as you might think. Sorry, I think I'm contributing to your analysis paralysis.

@Bart H. If I already own and live in my own home, as probably most RE investors probably do, then don't they already have assets they need to protect even when purchasing their first investment property?

@Steve H that's my understanding to is to do it from the beginning but seems to be a lot on conflicting theories. Also how are you guys tagging people? When I put @ before the name it doesnt tag them lol

Originally posted by @Steve H. :

@Joseph Watson I have been pondering the same thing too, just starting out myself. Many of the posts on BP seem to say that it's not worth forming an LLC to start with. However I just attended my first local REI meetup where the professional advice there was that it was strongly recommended to purchase rentals under an LLC. They pointed out that even though you won't be able to take out a residential loan, there are more commercial loan options and it's not as hard to get a commercial loan as you might think. Sorry, I think I'm contributing to your analysis paralysis.

@Bart H. If I already own and live in my own home, as probably most RE investors probably do, then don't they already have assets they need to protect even when purchasing their first investment property?

 How much equity do you really have in your home?  Does your state even allow for foreclosures on homestead properties?  In Texas they don't.

If you go out and get a 5% down loan on say 200K, you'd have what 30 or 40K in equity a few years out?  Whats will it cost for someone to win a court cast, get a judgement, go after your home, do a foreclosure, evict, rehab, sell it, pay the realtor fees etc.  

Would there really any equity left in your house for someone to go after? wouldn't you just be better off getting an umbrella policy and avoid the extra hassle of filing extra tax returns, and in some states paying fairly significant fees.

Not to mention that its tough to get loans inside of an LLC, and the loans you get cost significantly more and are commercial not personal, so the loan terms are typically a lot shorter than 30 years.

I know that the gurus tell you to run out and get an LLC. and yes eventually its probably necessary. (we have one but haven't yet used it in a significant way up until now.)

But when you are first getting started, you priority is to find a deal.  Find something that makes money, then worry about the bells and whistles when you are making a lot of money and have something to protect.