When Do I Set Up a Single Asset LLC?

Question

I guess I am still confused on the proper time to set up an LLC to protect a rental property. Do I set up an LLC now even though I do not have a property under contract? Or do I wait until I offer on a property, get it under contract, then set up the LLC for that property?

I have had investors tell me to set it up now and others say wait since they are easy and quick to set up. If I wait, what name do I put on the offer to purchase contract? I am getting close to making a few different off market deals work and I just want to make sure I do the LLC thing correctly as my last two properties I bought in my name.

Thank you for any advice you can give!

Matt M. · Answer

I don’t know why everyone is so eager to set up LLC’s. It’s really unnecessary.  Get high limits on your landlord policies and an umbrella policy.

Alex Talcott · Answer

I have a professional opinion on this, as a lawyer-investor in NC. You're welcome to message me.

Steven J. Umaña · Answer

My recommendation is always to wait to form the LLC and until you are sure you are going to close.  Sometimes that timing does not match up with what the lender is requiring in terms of due diligence, but in Ohio at least, LLCs are quick and easy to set up so you have plenty of time to set up an LLC once you get through your inspection period and prior to closing.  Some people want extra protection and do not want to enter into a purchase contract in their individual name, and in that case, you would want to form an LLC prior to making an offer on the property.

Henry T. · Answer

Start your LLC now, then when you buy the property you have the LLC for the title company. Doing LLC after the property purchase,  you'll have to pay the cost of title transfer and recording.

Justin Winn · Answer

There are likely many ways you could approach this. But as I understand it, and I’m not a lawyer, unless the business is going to hold the property you don’t need the LLC. If the property is going to hold the property and financing is involved it could be difficult to get financing until the business has income and a track record.

What I’m doing with my properties is I am getting the financing in my name, using an umbrella policy until I have paid off a property and will then transfer them into an LLC. I understand I could transfer them prior to paying them off but would risk triggering a due on sales clause with the lender… slight risk though it may be, my wife and I have decided to transfer when the property is paid off.

I hope this is helpful.

Basit Siddiqi · Answer

There are many real estate investors and everyone does something different - hence why you are getting conflicting information.Gather up all your legal concerns and bring them to an attorney / insurance agent.Ask them at what cost it would take for you to sleep well at night - go with the approach that is simpler and more cost effective.

Carlos Ptriawan · Answer

For my purchase that CAN NOT be made with a conventional FM loan, I need to use LLC, and the LLC that I used had been established a few months before.Why do I need to set up it months before?? there're just too many complicated, the city asked what's the entity name, insurance is different between LLC and personal , the tax system requires the LLC name, all to be established prior to closing.So practical answer to your question, create one now before even placing a bid.

Joseph Gisler · Answer

Thank you Justin, this is but my circumstance is a little different. I am attempting to use Hard money lending which in the state of north carolina, I believe it is required or at least every lender I have spoken to say they require the property to be purchased in an LLC to receive funding. I am confused on how people write an agreement of purchase and im assuming put their name but then create an LLC and continue the process in the LLC with the title company etc.? It just does not make sense to me how people create a specific LLC for a specific property without creating it first. Hoping you or someone else can better explain this.

When Do I Set Up a Single Asset LLC?

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