Buying & Selling Real Estate Discussion

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James Dainard
  • Real Estate Broker
  • Bellevue, WA
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Buying in your name vs buying under an LLC

James Dainard
  • Real Estate Broker
  • Bellevue, WA
Posted Nov 15 2022, 14:15

Hey BP Community!!

I've been getting a lot of questions over on my Instagram and I wanted to make sure I shared the answers with you all as well!

The question we got recently was, if you're starting out and are looking to buy a duplex, should you buy it in your name or should you buy it under an LLC?

There are always multiple ways to answer every question in real estate. If you're starting out, you probably want to go with a 3.5% FHA loan if you can afford the monthly just because it's going to be the highest leverage position that will jumpstart your investing.

Answer one: Highest leverage

If you're looking to get yourself into a high-leverage position to get a jumpstart on your investment you're going to want to take the property down in your own name. This will allow you to go get conventional financing through Fannie or Freddie with as low as 3.5% down. We saw a lot of this back when money was cheap, it's not working as much now that the cost of money has nearly doubled.

Answer two: Highest cashflow

If you're looking to maximize your cashflow, you probably want to put more money down and get the property under an LLC. This is the safe, stable option. A lower leveraged position will make you more bankable and make it easier for you to go on to the next deal.

Keep in mind that putting a property into an LLC is about liability control. I will often close a property in my name then transfer it into an LLC. Make sure you talk with your lender to confirm that you won't trigger a due on sale clause by doing this.

Hope that helps! Thanks for reading and best of luck out there!

Seattle, Washington

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Dominick Johnson
  • Rental Property Investor
  • St. Louis, MO
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Dominick Johnson
  • Rental Property Investor
  • St. Louis, MO
Replied Nov 15 2022, 14:27

Hi @James Dainard! Your answers could be a bit confusing, as an LLC can not get an FHA or Conventional loan for an investment property. The work around is as you stated, purchasing the property in your name and then doing a quit claim deed to transfer it to the LLC.

The key thing to note is that these answers only apply if you are living in the property. That said, most banks and mortgage lenders won't loan to LLCs with no existing credit score or proof of financial stability.

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James Dainard
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James Dainard
  • Real Estate Broker
  • Bellevue, WA
Replied Nov 15 2022, 14:30
Quote from @Dominick Johnson:

Hi @James Dainard! Your answers are a bit confusing, as an LLC can not get an FHA or Conventional loan for an investment property. The work around is as you stated, purchasing the property in your name and then doing a quit claim deed to transfer it to the LLC.


 That's what I meant, thanks for the clarification!

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Dominick Johnson
  • Rental Property Investor
  • St. Louis, MO
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Dominick Johnson
  • Rental Property Investor
  • St. Louis, MO
Replied Nov 15 2022, 14:34
Quote from @James Dainard:
Quote from @Dominick Johnson:

Hi @James Dainard! Your answers are a bit confusing, as an LLC can not get an FHA or Conventional loan for an investment property. The work around is as you stated, purchasing the property in your name and then doing a quit claim deed to transfer it to the LLC.


 That's what I meant, thanks for the clarification!


 I realized what you meant after my response and edited it. This is a question I see a lot from early investors, so thanks for the post!

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Sam Choi
  • Rental Property Investor
  • Bellevue, WA
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Sam Choi
  • Rental Property Investor
  • Bellevue, WA
Replied Nov 23 2022, 14:00

Hi James

Would you be able to recommend few companies that can help newbie investors create LLC that is legitimate for WA investment?

THanks

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Olia Fogel
  • Attorney
  • New York
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Olia Fogel
  • Attorney
  • New York
Replied Nov 24 2022, 07:11

For anyone that wants to purchase a property into their name and then transfer to an LLC, I would recommend using a combination of an LLC and a land trust to avoid triggering the due on sale clause. Using this combination also helps with transfer taxes and keeping your real estate holdings private.

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Replied Nov 24 2022, 07:18
Quote from @Olia Fogel:

For anyone that wants to purchase a property into their name and then transfer to an LLC, I would recommend using a combination of an LLC and a land trust to avoid triggering the due on sale clause. Using this combination also helps with transfer taxes and keeping your real estate holdings private.


Doesn't a living trust only play a role if you actually own & live in the property, not as an investment property? Or is the combo of LLC/Living Trust somehow negating that?

Also, how hard is it to re-finance a property once you transfer it to an LLC? I'd like to buy my first one soon, I imagine rates are going to be quite high and would like to refi in 2-4 years. But by transferring, does it eliminate the refinance option or make my available pool extremely narrow?

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Amby Bhagtani
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Amby Bhagtani
Replied Nov 24 2022, 10:33

I had the same question I thought interest rates go higher when you transfer to LLC?

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Olia Fogel
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Olia Fogel
  • Attorney
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Replied Nov 24 2022, 11:13

@V.G Jason Not a Living Trust, a Land Trust. Also called an "Anonymous Land Trust"  or a "title-holding trust". Transferring a property into a Living Trust would not provide you neither limited liability nor anonymity.

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Replied Nov 24 2022, 13:09
Quote from @Olia Fogel:

@V.G Jason Not a Living Trust, a Land Trust. Also called an "Anonymous Land Trust"  or a "title-holding trust". Transferring a property into a Living Trust would not provide you neither limited liability nor anonymity.

I see. Is this like a two-structure facility that helps keep the assets from the activity, or is this just total wrapping of the entity where you have full liability and protection? And if so, I imagine re-fi options are extremely minimal then. 

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Ashton Karp
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Ashton Karp
  • Real Estate Agent
  • Bonney Lake, WA
Replied Nov 24 2022, 19:32
Quote from @James Dainard:

Hey BP Community!!

I've been getting a lot of questions over on my Instagram and I wanted to make sure I shared the answers with you all as well!

The question we got recently was, if you're starting out and are looking to buy a duplex, should you buy it in your name or should you buy it under an LLC?

There are always multiple ways to answer every question in real estate. If you're starting out, you probably want to go with a 3.5% FHA loan if you can afford the monthly just because it's going to be the highest leverage position that will jumpstart your investing.

Answer one: Highest leverage

If you're looking to get yourself into a high-leverage position to get a jumpstart on your investment you're going to want to take the property down in your own name. This will allow you to go get conventional financing through Fannie or Freddie with as low as 3.5% down. We saw a lot of this back when money was cheap, it's not working as much now that the cost of money has nearly doubled.

Answer two: Highest cashflow

If you're looking to maximize your cashflow, you probably want to put more money down and get the property under an LLC. This is the safe, stable option. A lower leveraged position will make you more bankable and make it easier for you to go on to the next deal.

Keep in mind that putting a property into an LLC is about liability control. I will often close a property in my name then transfer it into an LLC. Make sure you talk with your lender to confirm that you won't trigger a due on sale clause by doing this.

Hope that helps! Thanks for reading and best of luck out there!

Follow up question to this, for accounting purposes.
Lets say I purchase a SFR under my name with conventional financing then quit claim into my LLC for liability reasons. The mortgage is under my personal name but will still be paid from my business account. Would the mortgage interest still be a qualified expense? Could there be a commingling situation since the mortgage is still under my personal name?

Thank you

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