Investing through LLC or individual ?

Question

I see lot of RE investment folks here. Do you invest on your personal name or you do on a LLC ?

If u r a multi property investor, will each property separate LLC ? Or all properties into one LLC ?

Javon Dixon · Answer

Account Closed what is the name of that website?

Account Closed · Answer

From my experience it is easier to get financing if residential properties are in your personal name. If the property is commercial or more than 4 residential units then it would be a commercial loan and LLCs have been just as easy to get loans for.

If you own 20 houses do you want to deal with 20 different LLCs and bank accounts?

If you take care of your properties and are properly insured you won't need the protection of an LLC, however, if you have an LLC and are negligent, a good attorney will be able to "pierce" the LLC and go after you personally anyway.

I spread my properties out because I have different goals with each of the separate businesses and I want some privacy. In Baltimore, where I live, there is a website that you can go to and if you type in a person's name you can see everything that they own in Baltimore.

Anyway, this really is a question of personal choice and you are probably going to get some people that have some strong opinions on this topic.

Good Luck.

Scott McClelland · Answer

I pondered this question a good bit before I started buying properties.  I got different answers depending on who I talked to:

CPA - He suggested not using an LLC(s).  They are $300 a year (at least in my state) and he also noted that you are more likely to be audited.  He suggested an umbrella policy only.

Lawyer - She suggested getting LLCs set up once you have significant assets.  She said if you do not have a lot of assets (retirement accounts don't count) it doesn't provide much protection since there isn't much to take anyways.

Property Manager - He made a similar suggestion to my lawyer and swears by having an LLC.

I currently only have one property in an LLC (I bought the LLC and not the house technically) and the rest are in my name.  I also found it is difficult to get a loan for a property you plan on having in an LLC and the bank gave me a hard time about the one property I did have in an LLC.  Once I own a dozen or so houses and my net worth increases a good bit I plan on putting my properties in LLCs (probably after they are payed off since the bank probably won't allow it beforehand).  Until then I have a $1M umbrella policy to cover them all.

I think it is a judgement call and it is not a one size fits all.  Do you homework and make the best decision for you.

Good Luck,

Scott

Chad Clanton · Answer

I agree with Ellis. I've been thinking about structure (i.e. distracting myself) for a few months now, and have decided to just move forward and work it as I go, at least for a time. That said, I've got a friend who has been doing residential and commercial properties for decades in the sub-100k to multi-million dollar range, and he still separates his properties out into individual LLC's. I can see how this could get to be very cumbersome over time, and am personally trying to figure out how LLC's gathered under a "parent company" behave, but it's worked for him for years. Whatever you do, just don't paralyze yourself with the details. Good luck!

Ellis San Jose · Answer

Asset protection, though important, is a very individualized process one size doesn't fit all.  The alphabet soup of entities can be a distraction, especially early on.  Best use of time is on creating profitable deals.

Hopefully, you don't get sucked into overthinking in the beginning. That's why you pay attorneys, not paying a professional is like doing  surgery on yourself to save money.

Bienes Raices · Answer

I thought LLCs were a good solution but now it seems there may actually be some truth in the idea that you are still personally liable if you manage the property yourself (see below). Perhaps an umbrella policy is a better option for a lot of people.

http://www.nolo.com/legal-encyclopedia/limited-liability-protection-llcs-a-50-state-guide.html

http://constructionlawcarolina.com/2012/05/14/sc-supreme-court-holds-llc-member-personally-liable-for-construction-defects/