LLC needed to invest with a partner?

Question

Is an LLC a practical requirement to investing in buy-and-hold with a partner?  If so, is there any way to get around the financing issue with buying under an LLC without having to risk the due-on-sale clause?

In my research, I've basically concluded that for a few SFHs, an LLC isn't practical/worth it from an asset protection standpoint if I want to finance, but what if I want to partner with someone?  How do I do that and finance as well?

Paul Brockmann · Answer

Yes, but I would think a LLC might be the way to go incase the other partner gets sued or goes bankrupt for other reasons other than your partnership.  With the LLC, it will be harder for their creditors to reach your co-investment.  I would not want something to happen to my partner and have to give up the investment despite you doing anything wrong.

Crystal Smith · Answer

If you're going to partner, whether you use an LLC or not, you should create an operating agreement similar to an LLC that lays out how the partnership will work.  When you go for financing you & your partner(s) will have to meet the underwriting requirements & most likely provide personal guarantees.

Regarding asset protection- If your lender won't let you close in an LLC, check if they will allow you to close & have the property recorded in a Land Trust w/ you & your partner as the beneficiary.  There's never any guarantee, but the Land Trust can be used as an asset protection tool.

Account Closed · Answer

Thanks for all the replies.  Didn't expect to start such heated debate.

What about the lending aspect of my question though?  This is one of the main issues I am struggling with and why I was pretty set on going with a good insurance policy and umbrella policy for asset protection.  My understanding is that you can't get conventional lending using an LLC, and you can try transferring title but then risk the bank calling the loan on the due-on-sale clause.  Is the only way around this to go all-cash or higher rate private money?

Reed Starkey · Answer

I stand by what I said, and will not sink to your level.  I will continue to use an LLC in all of my endeavors.

Good luck

Reed Starkey · Answer

Sorry Account Closed  I must respectfully disagree with you, an LLC is cheap to set up, and should be established from the beginning.  You have to protect yourself one way or another.  Some might argue the insurance angle, and others prefer the LLC angle.  Some even go full C corp.  To go unprotected is purely ignorant.

Chris Holmes · Answer

Yes, Squire, you might be right that I'm showing my IGNORANCE with regards to this LLC issue. And as my dear mother would say, "It takes one to know one"

So what do you mean by going "unprotected" If you think forming a LLC or a 'C' Corp is going to save you from lawsuits, then think again. I have a 'S' corp in another industry and despite me forming it RIGHT FROM THE BEGINNING, it had very little impact on my day to day operations and tax ramifications.

Asset protection is a whole different world, and it takes a lot more than forming a corporation, if you haven't figured that out already. It going to take money to set it all up, ASSUMING you have substantial assets to go after. Not just half baked FREE seminar from BP.

I work with very knowledgeable people, people that would say the exact same thing I've suggested. Maybe you sir, with respect, should gain a bit more knowledge before criticizing others. IMHO you have no idea what you are talking about.

Chris Holmes · Answer

Have you made any $$$ yet. Is this a new venture? Sounds like you are just in the research stage.

If so, don't even worry about such issues until you have made some money. An LLC or similar entity is fine but if you haven't done any deals yet, then wait til you get your feet wet.

Good luck.

Richard Dunlop · Answer

If you are dealing in your home market insurance is very cost effective way to provide protection. Individual properties AND an umbrella liability policy.

Richard Dunlop · Answer

The most important factor not volunteered in your question is:

Do you or your partner have other assets of value? That need to be protected from any possible liability arising out of the new acquisitions?

LLC needed to invest with a partner?

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