Multi-Family and Apartment Investing

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Newbie investor--want suggestion for financing options

Posted Jan 15 2022, 13:42

Hello there BP community. I have a 9-5 stable job. but want to get my feet wet in the real estate world for financial independence and flexibility that will better suit my lifestyle.

i have friends and family who are interested to invest as well and we are planning to share any workload, profits etc. equally. we are mainly interested in Multi Family.

my questions are,

1. since there are multiple people involved, is it better to form an LLC and then proceed?

2. since we are just starting out, is it possible to get a loan for our first property? Would anybody be willing to give out loan to a just recently formed LLC?

3. If getting loan is not possible for first few investments, is it better to look at cheaper markets and pay all cash?

4. Would the possibility of getting a loan higher if we do not form the LLC and apply for loan. lenders would probably look at our personal profiles individually? this is just an idea. i am not sure if that's even possible!

5. If we pay all cash, would it make any difference whether we form the LLC or not, assuming we have good understanding and offline written agreements among the partners? what could be the risks of not having an LLC in this case?

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Tanner Sherman
  • Real Estate Agent
  • Omaha, NE
179
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281
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Tanner Sherman
  • Real Estate Agent
  • Omaha, NE
Replied Jan 15 2022, 14:13
Originally posted by @Sunayna Bashar:

Hello there BP community. I have a 9-5 stable job. but want to get my feet wet in the real estate world for financial independence and flexibility that will better suit my lifestyle.

i have friends and family who are interested to invest as well and we are planning to share any workload, profits etc. equally. we are mainly interested in Multi Family.

my questions are,

1. since there are multiple people involved, is it better to form an LLC and then proceed?

2. since we are just starting out, is it possible to get a loan for our first property? Would anybody be willing to give out loan to a just recently formed LLC?

3. If getting loan is not possible for first few investments, is it better to look at cheaper markets and pay all cash?

4. Would the possibility of getting a loan higher if we do not form the LLC and apply for loan. lenders would probably look at our personal profiles individually? this is just an idea. i am not sure if that's even possible!

5. If we pay all cash, would it make any difference whether we form the LLC or not, assuming we have good understanding and offline written agreements among the partners? what could be the risks of not having an LLC in this case?

I will start with the standard disclaimer that the best person to answer all of these questions would be a qualified real estate attorney, so please consult with one prior to making any decision regarding the entity structure you will form. 

My personal opinion is to form the LLC especially because you have multiple people involved, so that you can have a crystal clear operating agreement and everyone knows their roles and responsibilities.

As far as lending goes, if you can qualify for a loan in your personal name alone, you should have no problem getting approved for a loan with your partners on it as well. Before you have the history with your LLC, it will likely be recourse meaning you and your partners will have to personally guarantee the loan.

Even if you pay cash for a property, an LLC is still necessary in order to protect your personal assets from your investment property.

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Replied Jan 15 2022, 22:56
Originally posted by @Tanner Sherman:
Originally posted by @Sunayna Bashar:

Hello there BP community. I have a 9-5 stable job. but want to get my feet wet in the real estate world for financial independence and flexibility that will better suit my lifestyle.

i have friends and family who are interested to invest as well and we are planning to share any workload, profits etc. equally. we are mainly interested in Multi Family.

my questions are,

1. since there are multiple people involved, is it better to form an LLC and then proceed?

2. since we are just starting out, is it possible to get a loan for our first property? Would anybody be willing to give out loan to a just recently formed LLC?

3. If getting loan is not possible for first few investments, is it better to look at cheaper markets and pay all cash?

4. Would the possibility of getting a loan higher if we do not form the LLC and apply for loan. lenders would probably look at our personal profiles individually? this is just an idea. i am not sure if that's even possible!

5. If we pay all cash, would it make any difference whether we form the LLC or not, assuming we have good understanding and offline written agreements among the partners? what could be the risks of not having an LLC in this case?

I will start with the standard disclaimer that the best person to answer all of these questions would be a qualified real estate attorney, so please consult with one prior to making any decision regarding the entity structure you will form. 

My personal opinion is to form the LLC especially because you have multiple people involved, so that you can have a crystal clear operating agreement and everyone knows their roles and responsibilities.

As far as lending goes, if you can qualify for a loan in your personal name alone, you should have no problem getting approved for a loan with your partners on it as well. Before you have the history with your LLC, it will likely be recourse meaning you and your partners will have to personally guarantee the loan.

Even if you pay cash for a property, an LLC is still necessary in order to protect your personal assets from your investment property.

Thanks for your response. I understand that for few initial deals myself or partners will have to guarantee the loan personally. but then will LLC be still able to provide me with limited liability. i am trying to understand what would be the function of the LLC in that scenario. how can we protect ourselves.

User Stats

281
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Tanner Sherman
  • Real Estate Agent
  • Omaha, NE
179
Votes |
281
Posts
Tanner Sherman
  • Real Estate Agent
  • Omaha, NE
Replied Jan 16 2022, 16:23

If you were to get sued for any reason the LLC would protect the members' personal assets from being seized in the case you lose your lawsuit. The damage is limited to just the property owned by the LLC. I would ask your attorney for clarification when setting up your LLC