Indianapolis, Indiana - Should we buy in our names or in LLC?

Question

Hello everyone,

My wife and I are in the process of buying our first rental property in Indianapolis, Indiana, Marion County (we live in New York City). We are buying and fixing the property up with all cash, but we're hoping to be able to cash-out refinance the property when all is said and done (BRRRR).

It's our first property, so I'm not sure how much equity we'll build in the property through the repairs, so let's assume it's ARV is just what we ultimately pay in cash for it, which would be fine because it's got fantastic cashflow.

Our question is how do we purchase the property so that we will be able to refinance and pull cash out to buy another one, while still being protected from liability? We've already established an LLC in Indiana and we're planning on purchasing the property through the LLC, but our options seem so much more limited on the back end when trying to refinance.

I hear @Brandon Turner talk on the podcast about quick claim deed transfer after you refinance, but it sounds risky. Any advice from investors that have gone this same route or lawyers who have suggestions would be fantastic! My wife and I are both W-2 earners with good credit, so I'd love to leverage our personal situation in financing the first few properties before we get into portfolio loan territory.

Thanks everyone!

Dan Perrott · Answer

In my opinion you should do all of your business inside the LLC.  That being said, most banks will not finance or refinance properties inside the LLC.  If the LLC has not owned property and been in existence for at least 2 years, most banks will not finance or refinance properties inside the LLC.

We did everything without LLCs for the first years of our investing.  Working with a lawyer, we made sure we had enough insurance liability coverage to reduce our risk.  As our business grew, we created LLCs for asset protection and additional liability coverage.

What many investors do is purchase the property personally, refinance it personally, then quick deed it into the LLC.  The quick deed should not be an issue since you are the owner of the property deed being QC'd.  We have been working with a lawyer in Indiana that has assisted us with the deeds in the movement of our properties.

I am not a lawyer and I am not giving you legal advice.

Louise A. · Answer

@Leon Greene

The issue I ran up against with the LLC is that you can't get 30 year fixed rate money.  If your cash flow is good enough that you can live with commercial loans, then its fine to buy with the LLC, but when you're starting out and planning to use financing, I would do everything outside the LLC and then flip into it when your financing is in place.  A large insurance umbrella policy should cover you until you flip to the LLC.  Just my personal take, others only buy within LLCs.

Michelle T. · Answer

Congratulations @Leon Greene!  and welcome to the hot Indy market.

I may know a bank here that can work with you to refi and keep the property with the LLC.  PM me if you are interested.

Best wishes with everything and happy investing!

Alain Perez-Majul · Answer

Congrats @Leon Greene! Welcome to investing in Indianapolis; glad to hear you chose to finally pull the trigger on your first property, as this is always the most difficult obstacle to overcome. Hope everything goes well with your first!

Shawn Holsapple · Answer

@Leon Greene welcome to BP and Indianapolis!

All good advice above.  I'm a big fan of the "Rich Dad Education" format of having multiple Corps and LLC's to mitigate exposure.

Personally, I buy in a LLC and manage it with the S-Corp.  Then when the long term financing is place, I put the asset into a Land Trust to further the privacy and limit exposure.

It sound like you're on the right track.

- it's always good to see another investor utilizing this great site!

Of course, you need to read The Ultimate Beginners Guide to REI here on BP

If you haven’t already, please read/listen to these books ASAP!

Flip2freedom episode 77http://www.flip2freedom.com/a-3-step-formula-to-a-successful-balanced-and-insanely-profitable-2012/ - LISTEN TO THIS TODAY!

Rich Dad Poor Dad

Rich Dads Cash Flow Quadrant

Rich Dads Increase your financial IQ

The Real Book of Real Estate

The ABC’s of RE Investing

The ABC’s of PM

Rich Dad RE Tax Advantages

The 10X Rule

The E-Myth

The 4 Hour Work Week

BiggerPocketsPodCast -I hear #136 is exceptional!

Wholesaling101 You Tube Channel

Kent Clothier – You Tube Memphs Invest channel

Jesse Danzig · Answer

@Leon Greene great question, i look forward to hearing the responses. and congrats on the first property!

Narayanan Krishnamoorthy · Answer

Great advise Shawn! Thanks

Leon Greene · Answer

Thanks for the advice @Dan Perrott. I think we are going to take a conservative approach and buy the property under the LLC. We're not going to try to refinance out of the property for a while so that we can focus on learning the process, learning the tax accounting, learning how to work with a property manager, and learning if we even like the concept once we own it.

This is our "take the plunge" purchase to get over the analysis paralysis we've been in for a long time, so hopefully just being in the game will open doors and get us more involved (as well as be a legitimate tax write-off when I visit family down in Martinsville and drive for dollars).  Thanks Dan!

Thanks for the advice also NA Plevy. We're fine with personally guaranteeing business refinance, if it's a reasonable path. I think we want to leverage our strong personal financial situation while our business is new. I see that you also work in NYC; if we were looking for business financing down the road, would we need to be looking in Indiana where the property(s) and the LLC are, or could we explore options here in NYC since we live here? Is this where an umbrella LLC that manages the LLC's the properties are housed in comes into play? Thanks!

Louise A. · Answer

@Thomas Wurfel

I felt exactly the same way, but my lender actually coached me through the transfer process, so that made me feel pretty secure.  Its a personal decision though.  Buying in LLCs from the beginning is probably a better business plan.  Plus that means your properties are cash flowing the way they should be.  Our early purchases relied on the longer amortization period to cash flow.

Thomas Wurfel · Answer

Congrats @Leon Greene on the first purchase. Took the plunge myself this month and happy I did. I'm located in NYC investing across the state. Would love to hear how you landed on Indy as your market if you want to speak or meet up one time for coffee. I stuck with arm's reach but have thought about opening up the search to out state for a medium-term plan/aspiration.

@Thomas Giganti & @Louise Alexander coincidentally hit on the two points I'm facing. I'm looking to purchase another cash flow property and would love to take advantage of residential terms but we're afraid of triggering the due on sale clause. To be honest, we don't fully understand the implications so it's tough to quantify to make the decision but feel it's best to be safe and suck it up w the worse terms. I also have a partner (colleague) so I feel that adds an additional layer of complexity if one of us were to hold it personally for a month then deed to over to the LLC. Not sure how taxes play out here too. When I talk to lenders, I keep hearing whatever you do w the deed is up to/they're not the mortgage police but still feel it's risky and out of our control.

Indianapolis, Indiana - Should we buy in our names or in LLC?

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