Should I create an LLC to buy my first property via BRRRR

Should I create an LLC to buy my first property via BRRRR

Member since 2020 · 10 posts · 4 votes

Hello BiggerPockets Community! Hope all is well. I am planning to purchase my first property to house hack via the BRRRR strategy with my boyfriend. I am trying to figure out the best strategy to protect myself but also set up an entity to use for buying houses as I acquire more. I know there are many first time home buyer incentives so I am not sure if an entity buying the house changes that or not. I also want to structure things in a way to protect myself and my boyfriend from any financial disputes or complications- keep everything 50/50 between us. The goal would be to follow the BRRRR strategy until we could begin investing in multi unit properties, rather than the single family homes we want to start with. We are looking in the Knoxville area and are hoping we can find a mortgage with 20k down, and both of us will be newly graduated (less than 2 years full time working) so we know there may be some challenges with mortgage companies but we both have great credit. The goal is also to be as tax and passive income efficient as possible from the beginning so we can retire from our full time jobs into the world of real estate and other passive investing!

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Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
6y

Adelaide- I highly suggest you get hold of a lawyer.  There are many things at play here that you cannot make a mistake on.

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  • Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
    6y

    Adelaide- I highly suggest you get hold of a lawyer.  There are many things at play here that you cannot make a mistake on.

  • Real Estate Agent · Nampa, ID · Member since 2017 · 439 posts · 361 votes
    6y

    Most lenders will not loan to you if you purchase the property in an LLC. You will need to purchase in your individual names. If your biggest goal is to protect you and your boyfriend in the event of a fall out, I would highly suggest having an attorney draft up an agreement that you both sign.

  • Real Estate Agent · Knoxville, TN · Member since 2015 · 23 posts · 6 votes
    6y

    Really good advice on here to work with an attorney on this! It's VERY important for everything to be clearly laid out in situations like these.

  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Adelaide Wolcott

    There are definitely some tax considerations to consider when you create an LLC that owns real estate.

    You and your boyfriend will need to file a partnership return for this entity which is normally due March 15. The partnership return will need to be completed before you both can file your individual return.

    Another thing to consider is if you have a house-hack within an LLC - you may potentially not be eligible for homestead exemption(reduced property taxes for living in a property).

  • Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Adelaide Wolcott

    Well, investing with a non-spousal partner you need some sort of entity to address your concerns.

    Legal entities do not qualify for conforming residential loans. So you will have to get commercial lending. Make sure find a commercial lender as opposed to all the residential lenders out there

    Usually, a big sticking point is protecting/maintaining your corporate veil. But, if your main concern is keeping things straight between yourself and your boyfriend, it may not matter much. You might just be fine with a partnership.

    Definitely consult a few qualified tax and accounting professionals. Good luck.

  • Realtor · Knoxville, TN · Member since 2020 · 17 posts · 10 votes
    5y

    @Adelaide Wolcott from my experience in real estate for Tyne past few year. I would highly suggest holding off on creating an LLC until your account tells you that you have to

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