How to Buy and Own a Property

9 Replies

So, what’s the best way to own a property as an investor/ landlord? I’m assuming some sort of LLC or similar. Is LLC the proper vehicle? Do I buy and quit claim to the LLC, or does the LLC need to buy it? Any other thoughts? Property location would be New Mexico, likely Albuquerque or vicinity.
You don't need an LLC. It will make financing more expensive and unless you have a lot of net worth, isn't really protecting anything. I formed an LLC to purchase my first property, but would not do it again if I knew what I know now.

First off talk to an attorney for local laws but in general I think LLCs are usually well worth the expense. Most banks dont charge anything different for LLCs from a financing perspective as long as you sign a personal guarantee on the note. LLCs are very affordable often they can be set up for a few hundred dollars in fees. The liability protection is the main reason to do them and in general I figure that even if you dont think you need it you are better to have it. If you own a proeprty for 10 years your situation might be significantly different and the LLC offers protection with flexibility for relatively small cost.

So, my gut, past experience, and research tells me LLC (or some other form of protection) is the way to go. I know I need to talk to a local attorney. What about buying the property? Buy it AS the LLC, or transfer it to the LLC.

Background: I have enough cash to buy a property outright. I'm still struggling with what property - mostly, the deal I can get, cap rates, etc., but also logistics of buying remote, structure of purchase (personal vs. LLC), and other things. My plan is buy and hold, as I want income to supplement retirement, which is in about 10 years. In the meantime, I'm working full time, unfortunately, on the other side of the country from Albuquerque, which is where we'll finally "settle".

You'll get better terms if the loan is in your personal name, you can then transfer the property into your LLC. Banks don't love when you do that and it may cause issues, so you may want to make sure the lender you use is ok with that strategy. Make sure you get a good insurance policy as well. That will give you more protection than any LLC can at this point. You may also want to contact an attorney about the LLC because, as far as I know, a single member LLC offers little asset protection when push comes to shove.

I will be engaging an attorney, but I’d like to have an idea which way to jump when I do. Or at least what questions to ask. And I’m trying t avoid the Nike “just do it” approach. I’d like to proceed in a planned way.

I am not an attorney nor a cpa nor an insurance agent but have a few LLC's.

If your networth is  under a $million, this is your first few properties I would just buy it in your personal name, get great insurance on the property and have a liability umbrella.

1. If financing personally you might qualify for Fannie/Freddie debt which is the cheapest

2. You can always put it into a trust then make the trust beneficiary an LLC at a later date.

3. After amassing >$500,000 in rental assets you might put them into an LLC

4. I use different LLC's for different asset classes (ie mobile homes, SFH, MFH) based upon risk, and ease of taxes

I agree w tim. Depends on your situation. I had less than 3 rentals for over 5 years and covered under umbrella insurance, also because I was self managing them and doing have work myself which the LLC won’t really cover against (ie the LLC would be solid but if I personally repair something or do the lease/screening wrong as the property manager they can just sue me directly). Now that I have more properties and am slowly turning over more units to property managers I have an LLC to hold the properties. I do Purchase agreement in the name of the LLC, which is easy if you are purchasing all cash, little trickier depending on financing, in that case you can move over after the fact. I actually still need to change over a couple rentals into the LLC Still so that’s a good reminder for me to do! :) But I still keep the umbrella policy as well for good measure. Hope this helps.

@Irv Rollman Definitely consult an attorney, but me personally, I would wait until you have a property. 

My advice is to purchase under your name, then consult an attorney about an LLC. If he says that would be best, you can transfer title to LLC (most likely).

The reason I say that is because so many people get caught up on the small details like forming an LLC. The important thing is getting started. Unless of course your first purchase will be a major one this is what I would do.

To add a few details:

I'd definitely use a property manager for a few reasons, among them I'm not local, and I want to insulate myself from the management (i.e., I can be a softie).

First purchase "major"? I'm looking at single family homes in ABQ NW or Rio Ranch SE retailing (is that the right term) at about $175K. I'd like to find a deal, but I'm not in a position to BRRRR, and I'm not particularly "connected" in ABQ. Actually, by personality, I'm kind of a loner, so I'm not really "connected:" anywhere. Yeah, I know, I should work on that....

Nike: Yes, I want to "just do it", but I want to be smart about it, or at least not dumb. I've already got my mortgage guy upset at me - I'm fully qualified for two mortgages for my target range, but haven't moved forward. I've looked at properties on a recent trip there, but as I alluded, they are retail pricing, and cap rates on them are ~1%, less than optimal as I was advised in another post here. On the other hand, my goal is buy and hold, so that may not be completely bad.

I have an umbrella policy already, which my insurance company says covers me as a landlord. 

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