Investor · Frisco, TX · Member since 2016 · 93 posts · 23 votes
Hi, I am planning to owner finance a home for the first time in the DFW metro area. I have so far bought a few homes under my own name vs buying them through an LLC. I haven't setup an LLC yet.
Can we even owner finance a home to buyer as an individual or do we need a company to do that ?
If so, can someone please suggest the pros/cons, costs of owner financing under an individual's name vs an LLC ?
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
8y
@Sonu Sharma Financing and liability are separate issues you seem to be combining.
Yes you can owner finance a property you own in your own name. (Possibly subject to Dodd Frank laws. They probably don't apply to a single transaction. Ask a local TX attorney)
As a lender you have no liability for the property. An LLC for that purpose probably won't help.
However as the SELLER you may be liable to the buyer for hidden defects. In MD for example, even when selling "As Is" you need to disclose any hidden defects that you are aware of. This is simply one of the risks of rehabbing.
If you are going to continue to rehab properties, insurance is definitely recommended, whether you have an LLC or not. Whether to create an LLC is a complex issue. Wil the LLC have multiple members? Who controls the LLC, who hires the contractors, your personal risk tollerance, your financial and tax position are all issues to be considered.
There are many threads here on the pros and cons af LLCs for background information. LLCs are far from perfect protection from liability. Contact an attorney and CPA in your state for guidance.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
8y
We have owner financed as individuals. Our title company set up the transaction, to include the note, and they also handled the collection and distribution of funds on a monthly basis, until the note was paid off.
Visit with a lawyer as to the pros and cons of using an LLC.
Investor · Frisco, TX · Member since 2016 · 93 posts · 23 votes
8y
Thanks Kerry Baird for clarifying.
I was asking it from the context of any liability going in as individuals into such a transaction. Did you have to take any additional umbrella insurance to cover yourself for the liability ?
Also, as a seller owner financing a cosmetic rehabbed property, do we have to provide any special sellers disclosure (SPD, i think it is called) to the buyer, since this is an owner financed kind? I dont know the full history of the property when I bought it as an AS-IS property. Not sure if I can owner finance as an AS-IS myself !
Any help/thoughts are appreciated.
Real Estate Broker · Bradenton, FL · Member since 2017 · 544 posts · 363 votes
8y
Good question. I know I see people on craigslist offer owner financing for 10k pigs they bought for 1k at a tax sale. These things are barely standing. It seems to be some type of national company, but I havent researched it to much. They post them in bulk. Talk about a profitable business model!
I don't know if they have to make any type of disclosures, but these are definitely AS-IS properties.
Investor · Frisco, TX · Member since 2016 · 93 posts · 23 votes
8y
Thank you Rob Drum Jr. I understand that some people/companies do that. However, in my case I rehabbed the home (cosmetic) before offering it as owner financing.
Hence, not sure what disclosure I would need.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
8y
@Sonu Sharma Financing and liability are separate issues you seem to be combining.
Yes you can owner finance a property you own in your own name. (Possibly subject to Dodd Frank laws. They probably don't apply to a single transaction. Ask a local TX attorney)
As a lender you have no liability for the property. An LLC for that purpose probably won't help.
However as the SELLER you may be liable to the buyer for hidden defects. In MD for example, even when selling "As Is" you need to disclose any hidden defects that you are aware of. This is simply one of the risks of rehabbing.
If you are going to continue to rehab properties, insurance is definitely recommended, whether you have an LLC or not. Whether to create an LLC is a complex issue. Wil the LLC have multiple members? Who controls the LLC, who hires the contractors, your personal risk tollerance, your financial and tax position are all issues to be considered.
There are many threads here on the pros and cons af LLCs for background information. LLCs are far from perfect protection from liability. Contact an attorney and CPA in your state for guidance.