Making an offer/closing a deal with an LLC-basic questions

5 Replies

Hi - I'm setting up an LLC with a friend partner and looking at multiunit residentials in Maryland. I've looked at the forum posts on LLCs and do not see answers to these very basic questions. One potentially relevant detail is that my partner will secure the loan (not commercial b/c 4 units or fewer) in her name.

Once we set up the LLC, do we write the offer using the LLC?

Once we purchase, do we use a quitclaim deed (since the loan would be in her name) to sign the deed over to the LLC?

Do we get insurance in the LLC name?

Can anyone share their Articles of Incorporation or refer me to a good example? Want to be sure ours is solid.

Thanks for any advice.

Annie

@annie bolinni,

You are correct, these are all very basic questions. But the main issue you have not addressed is the fact that even if you do QC the deed to the LLC, your friend/partner will still be totally, completely and solely on the hook for the mortgage and note.

If things go sideways, it will be her ASSets on the line, not yours nor the LLC's.

OK, for the other questions: 1. If she is taking title and doing the loan, you would NOT make offers in the LLC's name, rather offers and title all are on her. 2. Your original insurance will be in her name, then once the title is transferred to the LLC, a new policy will need to be written naming the LLC--the insurance must follow the titleholder.

3.  Asking to look at someone else's articles of incorporation is, imo, a mistake.  Speak to your attorney for that kind of legal advice if you are serious about making this a real business with a sound footing.  

4. (Not your question, rather mine): Do you really need an LLC at this point? Shouldn't a well-constructed partnership agreement spelling out your business relationship come before an LLC? Take out a large umbrella policy to cover contingencies; if/when you find some success, then go for the LLCs or other title-holding entity.

Good luck to you on your adventure.

@Marc Winter Thanks for the helpful answers! Will offer in her name and sign/reissue to the LLC.

We are clear her responsibility for the mortgage. 

Will work with an attorney but thought it might be helpful to see someone else's document to generate ideas and discussion before meeting with an attorney. 

We have other property separately (not in an LLC) and think an LLC makes sense from the start rather than transferring later.

Thanks again.

Originally posted by @Annie Bollini :

Hi - I'm setting up an LLC with a friend partner and looking at multiunit residentials in Maryland. I've looked at the forum posts on LLCs and do not see answers to these very basic questions. One potentially relevant detail is that my partner will secure the loan (not commercial b/c 4 units or fewer) in her name.

Once we set up the LLC, do we write the offer using the LLC?

Once we purchase, do we use a quitclaim deed (since the loan would be in her name) to sign the deed over to the LLC?

Do we get insurance in the LLC name?

Can anyone share their Articles of Incorporation or refer me to a good example? Want to be sure ours is solid.

Thanks for any advice.

Annie

 Hey Annie,

Good questions! When working with new entities for the first time I really encourage you to talk with an attorney who can guide you through the process. Not only do you need to form the entities correctly, but you also need to operate them in a specific way to gain the benefits - which are primarily liability based, but some can find tax advantages through it too.

When setting up a join LLC I would recommend checking out this article covering the basic questions any partners should have answered before going into a partnership together. You would probably be leaning toward a Joint Venture LLC, so some reading on that topic would also be beneficial for you. But even beyond that I would recommend you read this article on asset protection, which is my "beginners" guide to understanding the different tools used for beginning real estate investors.

There are going to be several roadblocks you will run into in what you are proposing. At a glance I would caution you about running into the Due on Sale Clause with the transfer of a property from someone's name directly into an LLC, so I would talk with the lender about this before trying to do it. Some lenders will also work directly with an LLC, but otherwise the best strategy to work around the DOS Clause is by involving a Land Trust as outlined in this article. I would also recommend using a Warranty Deed for this type of transfer rather than the quit claim, since you could lose your title insurance using a quit claim.

You have great intentions and are asking good questions, but I get the sense this is all very new and you are trying to tie it all together on your own. While many people DIY these entities (with varying levels of success,) I really do recommend having a professional do it the first time so you can see how it is done properly. After seeing it done you can choose whether to move forward on your own, but if you don't form it or operate it correctly you might as well not even have the LLC.

Best of luck to you moving forward! Let me know if you have specific questions and I can try tie back and help out.

@Scott Smith This is most helpful, thank you. I will read these. I've read a decent amount about LLCs and want to set it up and manage it correctly. I'll definitely work with an attorney the first time. I might follow-up with specific questions. Thanks again!