Real Estate Investing Start Up

4 Replies

Hi BP Network. I'm excited to say that this my first start to a discussion on BP which I've been active on for a few months now. I'm looking forward to meeting like-minded individuals on here. 

First, about me, I am a commercial code consultant. I frequently work with Building / Fire Officials throughout the New England area to develop code compliance approaches for commercial projects or to assist with evaluations of commercial building acquisition. As a fire protection engineer, I can offer a broad range of assistance for fire / life safety considerations that BP members face.  Feel free to reach out if you have any questions in this field.

From everything I have read, the Law of the First Deal seems to be a consistently echoed message stating just take action! I am confident that I will be a REI by Presidential Election (my personal goal), but I want to make sure that I have a calculated method that sets forth a strong foundation.

It seems that the BRRRR strategy is a great start-up strategy but this works best with cash only purchases and rehabs (as David Green noted in his book). Alternatively, an 80-10-10 (80-20) loan with a house hacked property seems to be another solid approach that would allow me to act immediately. I am currently in a position that is flexible to either continue renting at my current apartment and buy an investment only property or to house-hack my first property.

My question is, how does an LLC fit into the leveraging with either option? For both the BRRRefinanceR or the 80-10-10 house-hack approach, it seems to be most appropriate to take advantage of the current impressive rates offered from a conventional or portfolio loan. How does an LLC fit into this? I'm interested if there are any book, podcast, forums, etc. on this topic. I certainly want to take advantage of the benefits of owning the property in an LLC but does it have to change the financing method?

Thank you and looking forward to the discussion!

Sometimes there are no benefits to owning in an LLC except the liability protection in CA for example it costs $800 a year just to have the LLC and you don't get that nice 20% deduction unless you can document hours for the "business" which may be tough to do if you only have 1 unit. It also precludes you from some of the advantageous loan terms for owner occupants if you decide to house hack.

@Shaine Grogan Hi Shaine - I would actually focus more on getting proper insurance first and then consider the LLC. When I had 2 properties I got an umbrella policy that covers $1 million. It's not expensive and will help to protect you. I'm not saying not to get an LLC, just saying that insurance will be your first line of defense if something were to happen.

Thank you! An umbrella policy would be a good avenue that would allow me to get started immediately and still use advantageous loans. The only issue I see is that the risk taken on from any potential issue that exceeds the insurance policy coverage which would be rather limited at the start of a REI journey with one or two properties. I'm interested if there are recommendations to take on that risk at the beginning or to go the extra distance and set up an LLC to take advantage of its desirable shields. Assuming I proceed with an umbrella policy, what is the tipping point where the LLC becomes necessary?

It is important to protect your business by selecting the appropriate legal entity (whatever the entity may be - corporation, S corporation, partnership, sole proprietorship, limited liability company or limited partnership). Properly research the options and the benefits of each, from tax consequences to liability exposure.