Hey. I am new to Real Estate Investing and I was watching a few videos about real estate and I heard the investor say they have a Holding LLC company. Can anyone explain what's a Holding LLC and is it beneficial to get one? If so when would be a good time to do so? Before I buy properties or later in my investing career?
Thanks in advance.
@LeArcashei Moore LLCs are used as an asset protection (and tax mitigation strategy). They add on an extra layer of costs. Unless you have a few properties or a decent amount $-wise under control, I would suggest to not put RE in a holding company (to avoid costs and hassle). Instead, you could get an better umbrella insurance. It will be cheaper and a better option.
@LeArcashei Moore I agree with @Omar Khan In general a holding company is only worth the cost if you have a bunch of properties. An umbrella policy will provide as good or better coverage for you. It probably makes sense though to buy property in an LLC if possible as opposed to your own name I just wouldnt set up a second llc to hold the ones with property in it.
@LeArcashei Moore An umbrella insurance is a type of insurance policy is designed to help protect you from major claims and lawsuits and as a result it helps protect your assets and your future. It does this in two ways: Provides additional liability coverage above the limits of your homeowners, auto, and boat insurance policies.
@LeArcashei Moore The LLC will protect all of your personal possessions from anything that could happen at an investment property. So if your renter sues you for any reason based on the condition of the property, they will effectively be suing the LLC and not you personally. Thus, your personal items (house/car/etc) arent at risk of being included in any damages the suit names.
This can also go the other way; if you injured someone in a car accident and the prosecutor came after you for claimable assets he/she would conduct an asset search. But if the investment property is not in your name and in the LLCs they will not find it (this assumes you setup the LLC correctly).
If you want to hold your investments in an LLC (I do with all of mine) you can either setup one and then purchase or purchase and close in your name and do a deed affidavit to switch who is on the deed. It is easier to buy real estate in your own name and then deed over b/c there are few lenders that will allow to put the loan in the LLCs name.
Hope this helps, let me know if you have any further questions.
Two other things to note about LLC's: 1) If you transfer a mortgaged property to an LLC from your own name, the bank could call the note due (unlikely, but could happen). 2) Some loans (like a 20% conventional) are not options under an LLC.
Correct me if I'm wrong, oh wise ones.
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