Create LLC for duplex in Massachusetts ?

Question

Hello everyone,

I am in the process of looking for duplex or triplex in Boston suburbs like Malden, Waltham area. I have found a property that I like and I might send out an offer. My question to you guys is, do you guys create LLC when investing in these type of properties? If yes, do you have to put 25% down if it is contracted as LLC?

Are there other ways to protect yourself as I saw LLC seems quite expensive in Massachusetts.

Also, do you have to create LLC even before you send your offer?

I am just starting out so this will be a small investment property..

Any suggestions would appreciated!!

Thanks

Yuzi

Lien Vuong · Answer

I wouldnt suggest you getting an LLC until you have acquired the property. LLC properties will automatically make you use a commercial loan which is 25% down and higher rates rather than putting it into your personal name and either using an owner occupied FHA purchase of 3.5-5% or 25% down investment loan.

Corey Melkonian · Answer

Hi Yuzi,

There are several lender programs out there and great suggestions here @ BP. I wouldn't suggest putting down 25% either, put down as little as possible and don't worry about an llc now, this is your first purchase & you'd most likely want to house hack to get a better mortgage rate.

Roger Evans · Answer

@Ujjwal Shrestha Do you work with a CPA?

Julie Williams · Answer

@Ujjwal Shrestha did you buy the multi-family? I agree with Cal about the importance of putting a property in an LLC. Umbrella policies do not cover all type of claims, including environmental. Environmental includes black mold and COVID-19. It all depends on your assets and your tolerance for risk. One successful lawsuit where the payout is greater than the policy limits of your insurance or if it is a type of claim not covered by your insurance, you could lose everything. I am 58 and I am not about to risk having to start over. The advantages are as stated- that you can get better loan rates and have lower down payments. You also won't get the $250,000 capitol gains tax deduction when you sell. Even given these advantages, I still will put properties in LLC's. Each LLC will contain a single property, although I may choose to group two or three inexpensive properties in one LLC. That way if someone successfully sues you for an incident at one LLC, the others are not under threat as well.

Cal Dunagan · Answer

@Ujjwal Shrestha

Although you don't necessarily need an LLC, it is always a good idea, especially if your state is favorable for LLCs. Some states, like California, aren't very good on LLCs, but others are. Here's a good article about asset protection I think might help you out. In addition, read over this article. It is written by an attorney and gives a few tips and tricks that real estate attorneys use to protect RE investments.

David M. · Answer

@Ujjwal Shrestha

Yup, this comes up all the time...  For many investors, you don't really need a LLC for asset / liability protection.  Just keep your properties in good order and your landlord insurance and umbrella insurance policies.

Instead of creating the LLC first, you would submit your offer with the buyer as "Ujjwal Shrestha or an entity to be formed."  Consult with some qualified professionals in case there is a difference in your State.

There are posts nearly daily on the "LLC or not" question.  I'm posted many times to them (if you want to just go through my post history).  The main sticking point is part of your question about the loan.  Legal entities such as LLC's are not qualified to obtained conforming residential loans.  They have to use commercial loans which generally are more expensive and have less favorable terms.

Especially since you are just starting out, you don't need the LLC unless you are investing with non-spousal partners.

Feel free to direct message if you want to chat about this instead of writing back and forth.

Good luck.

Todd Wheatley · Answer

Hi @Ujjwal Shrestha

There is already some great advice in this thread. Unless you are purchasing this property with an investment partner I see little advantage to purchasing the property in an LLC. In fact there will be significant downside as folks have already mentioned like using a commercial loan with higher down payment and likely an adjustable and higher interest rate. You will also need to purchase commercial insurance on the property, again likely more expensive than a personal home owner's or landlord policy.

Speak with your real estate attorney to get their professional expertise. I wouldn't be surprised if they recommend purchasing the property in your own name and then ensuring you carry high quality home owner's insurance supplemented by a personal umbrella policy.

Good luck and if you ever want to connect about the Waltham market let me know! It's my backyard :)

-Todd

Roger Evans · Answer

@Ujjwal Shrestha I would suggest getting one, they’ll be able to provide you with better guidance depending on your specific financial situation.

Yuzi Stha · Answer

@Roger Evans hi Rogers, I currently do not have CPA

Create LLC for duplex in Massachusetts ?

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