Buying 1st Property

9 Replies

I'm looking to buy my first rental property. I was wanting to make my business an LLC. Is it better to buy my property and transfer it later to an LLC or start the LLC first and buy the property under the business? Not sure how the financials would workout with a business that does not yet have an income. Any help or suggestions would be appreciated!

I heard that you can do the transfer with out any problems later on....

I heard that you can do the transfer with out any problems later on....

I believe @Alexander Loango is correct. I have a similiar decision to make and am leaning towards transferring it to the LLC later.

My rationale is that I cannot see a clear benefit of purchasing the property through the LLC yet, as I will still have to personally guarantee the loan since I have no track record for the bank to examine. I could be missing huge advantages to setting up the LLC first, so I would be interested to hear others opinions as well.

I have personal experience on this topic. The first rental properties I purchased I used all Cash and bought them in an LLC. The problem that you face is if your LLC is newly established the financing will be almost impossible to get if you are seeking a loan for the new LLC.

I would purchase the property in your personal name first and then transfer to the LLC after you have possession of the property and are looking to take on tenants to lesson your overall risk.

I have no experience in this situation, but keep in mind that the bank can use the "due on sale" clause when you quit claim deed it to an LLC. Apparently it doesn't usually happen, but it's something to be aware of. There is a discussion going on now in the forum on this happening.

Do you guys think it's better to transfer rental property into an LLC or does it make more sense to put it into a trust? Just curious.

@Nick Pendleton
I do have an llc set up for my rentals however I cannot obtain a conventional loan if I purchase through my llc.
I would check with your lender (if your using one) to see if they would allow it.
You could always transfer into it after.

I use an S Corp, but would recommend you spend all your time locat in ng the best deal you possible can.  I here many people spend a lot of time on this subject, and if you have assets that need protecting spend the time to protect them.  Then move to locating the be deals in your area.

Good luck 

Jim

As @Will Koederitz mentioned there is a due on sale clause that some lenders are exercising.  See link below.

http://www.biggerpockets.com/forums/311/topics/183825-due-on-sale-clause-was-called-by-bank

Also, be aware that transferring from yourself to an LLC (even if you are the only member of the LLC) can trigger an audit from your friendly state department of revenue requesting to send them doc stamp fees including penalties. In Florida, doc stamp fees are due on an encumbered property that is transferred in this manner.

I'm not a lawyer nor am I offering legal advice.  Consult your attorney or contact your title company for state specifics.

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