Forming a LLC in illinois

13 Replies

I am buying my first rental property. I have no dept and my net worth is about 150K, and I would like to keep it that way. Questions are 1. Do I open an LLC to protect my personal assets? If something should happen I don't mind losing my LLC investment, but I would hate to lose my Net worth as well. If I open a LCC would it be a asset holding LLC, or a LLC rental management co, Or both a LLC holding co, and another LLC to manage? The other option, do I just buy a lot of, and a good insurance policy? Thanks to all in advance. I am glad I found this sight. Brian

Hey @Brian Schroeder  - depending on who you talk to, you'll get different answers.  As somebody who doesn't collect a fee for my advice (i.e. not a lawyer or accountant) I would recommend getting good liability coverage on your property and structuring your business so you minimize headaches and possibility for frivolous lawsuits.

There are several discussions regarding this throughout the forum.  To summarize them:


"You have to have an LLC or the world will end!"

"LLC's are a waste of money, don't even bother!"

"You need a separate LLC for EVERY property"

"One LLC should be good if properly structured"

"What's an LLC?"

I personally have 1 LLC for multiple properties and maintain good liability coverage and strong business practices (don't rent to drug dealers and murderers, keep buildings in great shape, etc.)

Hey @Brian Schroeder  

Will you be purchasing this property with all cash or obtaining financing? If Financing, will you be looking to get more of a commercial loan product or a Fannie/Freddie 30-year fixed product?

I have 3 properties and don't hold any of them in a LLC. Everything is under my name but I also have 30-year fixed on everything. Not 100% but pretty sure if you want a 30-year fixed loan you will have to hold the property in your name.

I agree with @Michael Seeker   leaning towards good liability insurance and sticking away from renting to drug dealers.

Best of Luck!

Scott Dixon

Thanks Micheal and Scott,  

Micheal I will read up on the topic's you recommended. If you don't mind disclosing, what did it cost to form you LLC and how much to maintain it? If you don't want to disclose I under stand, and thanks.

Scott I made a cash offer and have the funds to so so. I was thinking that I would refinance afterwards. I thought you can't do Investment properties for 30 years, I thought i could only do 20 or maybe 25 years. if you have a big enough down payment, and most of thous are done with a 5 year balloon notes. How are you doing 30 years are you living them for a year or so? What kind of down payments? What type of financing FHA, VA, Conventional, or private financing?

Now you got my wheels turning, I am leaning away from the LLC.

If you only have a few mortgages (sounds like you will have 2 or less)  it's relatively easy to get long term fixed rate loans (sold to fannie/freddie). 

Call some local banks, tell them it's an investment property but you want to talk to a residential lender. 

Some banks have internal policies to send all investment properties through the commercial side where you can expect worse rates, balloon payments, but less hoops to jump through.

And yes, I had to transfer my property from my LLC to my personal name before I could get my long term fixed rate mortgages.

Brian, if you decide to keep them in your personal name, you can get a Personal Liability policy fairly inexpensive, $150-$200 per year for the first $1mil, and $50 for each additional $mil.  Most insurance companies will all up to 2-4 rental units before you will be maxed out and be forced over to the commercial side.  Just make sure the personal umbrella does not exclude "business operations".

Originally posted by @Brian Schroeder :

Thanks Micheal and Scott,  

Micheal I will read up on the topic's you recommended. If you don't mind disclosing, what did it cost to form you LLC and how much to maintain it? If you don't want to disclose I under stand, and thanks.

In KY, it costs me about $40 to set up an LLC and $15/year to maintain. It took me a LOT of research to figure out how to set it up myself and get comfortable with that idea. I've set up a handful of LLCs since, and figuring I saved $200-$300 a piece for having a lawyer set them up that time I spent researching has probably saved me around $1000.

If you plan to refinance the property shortly after buying it, you might be better of just purchasing it with the financing you're looking for.  A lot of lenders offer better terms for purchases than for refi's and many will charge higher interest rates for cashout refi's (at least that's what I'm seeing with KY commercial lenders).

If you are buying a 1-4 unit property, your best route would be to buy in your own name and get a conventional investment loan on it with a 30 year fixed rate. If you're buying a building with 5+ units, it's the opposite - most commercial lenders will require you to own in an LLC and you will not be able to get a 30 year fixed conventional loan.

LLC's in NM are really inexpensive to set up and there's no annual fee - it's one of the best deals in the country. And, I'm pretty sure, you do not have to be a resident nor does your business have to reside within NM to set up/use a NM LLC...

@Charles Hinson The one thing you have to keep in mind is that if you have a New Mexico LLC and you want to do business in Illinois, you're going to have to register in Illinois.

@Brian Schroeder I agree with some of the folks above...I would get a new loan rather than refi, and I would leave it in my personal name. Get good insurance. LLCs have advantages, but in my state you'll have to hire a lawyer for an eviction if you have an LLC. That's an extra $250-$300 per eviction.

And, as someone said above, the bank is not going to make a loan to the LLC.

Later on, after you've done the loan, there are ways to transfer the property into an LLC. But I'd wait for now, it's your first property. You have plenty of time.

Just wondering what you decided to do? I decided to go ahead and use an LLC. My wife has set up two separate LLC companies so I didn't need to do much research. Additional protection is always nice.

At this moment I am still pondering the LLC option.This house was in pretty bad shape and I am pretty good with my hands so I am doing all the repairs myself.I am seeing the light at the end of the tunnel; it's been a long road. I will be making the LLC decision shortly. The lawyer I spoke with was really pushing this Series LLC. Thanks for all your input.

Brian

Hey Brian,

I'm in the same boat you are, trying to decide to go with an LLC or not. If you don't mind me asking, which attorney did you use? I'm not sure who in town to go with and am open to any suggestions.

Thanks!

I have had a consultation with a lawyer name Mike Durr. He sounded good, pushing the series LLC though. I am not sure about the Series LLC. Again I only had a Consultation with him. I am getting so close with the rehab on this house I am thinking about calling him again, a long with a CPA. His name is Troy Washko I wasn't to impressed. I wasn't able to talk to him only his assistant. I don't know if that was because I was so Green or what. Hope this helps. Please keep me inform on how you talk to and and if you where happy with the service.

This is a good conversation. I have 1 investment property and am looking for a second right now. I have considered the LLC but thought it might not be needed at this point. PLus I think for us in IL it is kinda expensive.

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