should I open an LLC before purchasing property

Question

Hi BP, Newbie here, I will be looking to purchase a small apartment complex this year and I'm not sure if I should open an LLC before or after purchase. And could you direct me to a buyers checklist if there's such a thing.

Thank you in advance

SoniaT

Thank you in advance

SoniaT

Evan Polaski · Answer

Account Closed, for clarification, when you mention small apartment complex, how many units are you thinking?

There are a few factors that play into this.  Titling as an LLC at purchase will force you into the commercial side of the bank, which typically means lower LTV, higher interest rate, and quite frequently shorter terms and amortization.  (If you are looking at 5+ units you will be on commercial side regardless of LLC or personal).

Alternatively, buying and mortgaging your name, then transferring title to LLC can cause the lender to call the mortgage immediately.  But with a 4 unit or smaller, personal ownership will allow you to qualify for conventional financing: typically lower rates, higher LTV, and 30 yr term and amortization.  Fannie does explicitly state on their website that owner-occupant financing can be transferred to an LLC AFTER any owner-occupied period is exhausted without prompting any acceleration, but I would always confirm this in the documents and potentially with an attorney.  Your loan officer will likely not know, and could give you wrong advice.

David Swedberg · Answer

Here is an article that discusses using an LLC when you need to get a good rate on a loan.  There are mitigating issues with this advice if you are trying to not get your name on the title.  You can set the LLC up before you buy, the issue is whether you want to get better rates with a personal loan, and then transfer the property to the LLC.  If you own the LLC, you can bypass Due-on-sale clauses on the mortgage to get the benefits of both your personal loan and the LLC protection.

Nicole Heasley Beitenman · Answer

I'd worry more about finding a deal first and an LLC later. LLC's are just one more way to delay yourself from actually having to jump in.

Bjorn Ahlblad · Answer

Account Closed If you have decided to use an LLC then do it before you buy and arrange financing if you intend to finance. You need to borrow the money and take the title using the LLC if that is what you want. I don't have a buyer's check list written down-it lives in my head.

Account Closed · Answer

@Bjorn Ahlblad

Thank so much for this valuable information.

should I open an LLC before purchasing property

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