When to LLC

Question

When is the "best" time to open up an LLC? Before the first purchase? After the 1st? After acquiring several properties? Do you buy a property and then put it into an LLC or do u LLC and then buy the property?

David Dachtera · Answer

@Riley Caldwell,

Yes - it would be preferable to acquire the property in the LLC to eliminate transfer issues later because of DoS.

David Dachtera · Answer

@Rickey Wallace,

I guess the preferred time would be at acquisition. That changes the financing scenario, but it also removes the "due on sale" issue.

A free-and-clear property you can do whatever you want with. Just make sure to have an attorney verify that you've dotted all the i's and crossed all the t's.

The due-on-sale issues are not unique to Fannie / Freddie - that's going to be true of any bank loan or other lender, more than likely. It's a concept which was introduced to stem the tide of loan assumptions back in the day.

David J Dachtera

Rickey Wallace · Answer

Thanks for the info! After reading the link u posted, @Flavio Zanetti, the only thing being said there is the danger of being hit w/ the "due on sale" clause. Ppl mention having them in their LLCs but there isn't much stating when the preferred time to place a property in one. Besides, they only talk about properties under Fannie May lending conditions, never any under other guidelines or free n clear

Flavio Zanetti · Answer

Also keep in mind that if you quit claim deed towards your LLC, there is always a risk of the bank demanding payment - this has been discussed here multiple times:

https://www.biggerpockets.com/forums/50/topics/203...

Flavio

Lelith Walker · Answer

Its cheaper to LLC then purchase the property.  In my case this worked because I did not borrow from the bank.  Now some banks do not like to lend to LLC so I was advised that if I buy a more expensive property that I could put it in my name and then quit claim deed it to the LLC.