Starting a LLC when?

[Brad Campbell]

I will be starting the BRRRR process in late spring/early summer, and will be doing so with a LLC. Unless someone comes up with a huge reason to change my mind this is what I've decided. I will be putting CASH, my CASH, into a LLC and making the offer on the house in the name of the LLC. My question is, is there any benefit in opening the LLC early, say January, as opposed to right before I purchase? (I'm thinking credit building benefits).

[Greg Scott]

Here are reasons I wouldn't (and didn't) use an LLC for a single-family rentals. (I am not a lawyer)

1) You cannot get a Fannie loan for a property bought by an LLC. If you want the LLC to have the loan, you pay higher interest

2) You can move the property into an LLC after getting a Fannie loan but there are other risks and complications doing that

3) The best protection against a lawsuit is to not get sued.  This means you run your property well and keep them in good condition

4) Most lawyers are lazy and go after the low-hanging fruit.  They usually target your insurance first.  It usually isn't worth their time to go after your equity unless you have a ton of it sitting there.  In other words, having a mortgage helps protect you from lawsuits

5) I listened to an insurance executive talk about the number of lawsuits and sizes of awards they had across their entire portfolio.  With good liability insurance plus an umbrella liability I slept just fine at night

6) If you don't maintain your LLC properly, you may as well not have one. Some people have a false sense of security by having an LLC but then they co-mingle funds, do not keep detailed accounting records, and fail to have corporate meetings. People that create multi-layered LLC structures are often the most at risk for failing to maintain them. Plus all of that costs time and money.