When is the best time to open an LLC when investing?

Question

Hi BP Community,

I own a duplex since 2020 and just bought (01/2023) a SFR to fix and flip. I have both properties under my personal name.

In the last few months I have been trying to get more active into investing, I am getting my Real State license next month, etc

I know there is a lot of benefits on having your properties under LLC for liabilities. But also I read online, that I can't use FHA or conventional loan sold to Fannie Mae and Freddie Mac with an LLC.

I already used my FHA with the duplex and I can still use conventional primary residence home to buy 1 property.

Is there a way to use all the available personal loans, FHA, conventional primary, vacational, etc and then add those into an LLC? or do I need to keep those separate from the LLC?

Should I just focus in the LLC and whatever loans are available for it?

What is your best recomendation to take advantage of all posible loans?

Tim Bee · Answer

Don't worry about the LLC.  Just get a 5mil umbrella policy and have all your properties covered.  Tenants can still sue the LLC and take everything in the LLC.

Corby Goade · Answer

I've found newbie investors get really obsessed with the LLC stuff- when, how, etc, and it often adds to their paralysis.

There is no wrong way or time to set them up, just different ways and there are pros and cons to each.

I personally wouldn't worry about it until you actually have equity to protect. Once you do- find an attorney that you like and trust to guide you and ask them to refer you to an accountant who understands their strategy.

Whatever you do, don't let the LLC structure stall you or delay you making moves. Get out there and make some magic happen and you can move properties in and out of LLCs super easily in the future, but you can't go back in time and buy properties that might work for you today.

Best of luck!

Richard Bechtol · Answer

Hi Andres,

This is a very good and very common question many investors ask. I want to start by saying that everyone is different so there is not a right or wrong answer here. It is my belief that when scaling and growing your real estate business it is best to set up a structure such as a Series LLC or Delaware Statutory Trust to hold your assets. This allows for growth without the need to over complicate the process by creating a new LLC for each property.

What a LLC can help with is limiting liability. While I agree that a good insurance policy is important as an investor, it is important to realize that insurance companies are a for-profit entity. The business model for insurance companies to make money is to collect as much as they can in premiums while paying out as little in claims as possible.

So while insurance is important it should not be your only layer of protection. I hope that helps.

Andres Manco · Answer

Is good to know that I can add all my properties into LLC.Thank you for the reply.

Hugh Thompson · Answer

My recommendation, flips should be done in an LLC or Corporation with a tax designation of a S-Corp.  LTR should be in an (multi-member) LLC that has a tax designation of Partnership(which is default) unless you change it to a different allowable tax designation. On top of that the LLC with the LTR property(properties) should have a general liability policy.  This is how I have structured as Florida is a sue happy state.

Scott Crowley · Answer

@Andres Manco It is so easy to get lost and dazed on this topic when you're trying to get educated. I was that way a couple of years ago.

You can just create an LLC(or how ever many you determine you should have, and, at what point)...the correct way, treating it like the business it actually is, and transfer title from your personal to the LLC(s). The lender doesn't care as long as you make the payments, keeping their CF coming in.

If you decide implementing asset protection is best for your situation, just do it right. Otherwise, you're better off saving money on your annual expenses and general up-keep by not doing it at all because the protection is non-existent in both scenarios.

Side note: I wouldn't hold a LTR and a flip in the same LLC. Just a quick mention since you have different business activities.

Eliott Elias · Answer

Start looking for owner finance.

When is the best time to open an LLC when investing?

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