Rental properties.. LLC or regular ?

Question

Which one would it be better to start dealing with rental properties, by starting my own LLC or doing it just under my name ?

Nathan Gesner · Answer

Under your own name. You probably can't qualify for a loan under the LLC so you'll need to purchase in your own name. You can move them to an LLC later or place them under an umbrella policy for protection.

Anthony Dooley · Answer

It doesn't matter.  The most important thing is to start. Until you have a substantial net worth, proper insurance coverage will protect you better than simply holding property in an LLC.

Account Closed · Answer

Its not about how long it takes to qualify for a commercial loan. It's more about are you able to finance a loan with crappier terms and survive a full rectal exam by the lender? In a personal loan, it's all about your own finances and tax returns. In a commercial loan it's all about the property financials for the last few years (they need to be stellar), the leases, your down payment. They don't care so much how much money it will make in the future, but how much money it has made in the past.  Which is basically counter intertuitve to any value add vision you might bring.

Steve Vaughan · Answer

Residential  = Regular

Commercial = LLC

Luciana W. · Answer

@Ola Dantis

I’m following this tread very good info!

But, what happens if you transfer the title to a LLC and later want to refinance?

Brad Shepherd · Answer

@Victor Morales I got my first loan in the name of an LLC after having about 10 rentals but there's no specific time or property number requirements. It's just about qualifying with a bank, which is going to be a financial as well as relationship consideration. You'll find much more success on that front with a local portfolio lender in your area. Think small regional banks.

Terrell Garren · Answer

My rule of thumb  for asset protection -

If net wealth < $1M, then $2M umbrella policy

If net wealth > $1M, then $2M umbrella policy and LLC

Best, Terrell

Account Closed · Answer

Untill you can find a good commercial lender that will give you loan terms that you can live with, do it in your personal name for the better loan terms.

But if you do personal name, then make sure you are able quitclaim the title to an LLC. But to do that, you need to make sure that your insurance company is ok with it (for free), and that your title insurance people will endorse to the LLC(for $200). You can easily get stuck or delayed on one of these steps (like me)if you don't ask about these things beforehand.

Ola Dantis · Answer

@Victor Morales

I think it's better to start under your name and as you scale your business and get more units then you can move your portfolio into an LLC.

Some say transferring into an LLC might trigger something called a Due-On-Sale clause; however, this clause isn't typically invoked by the banks anyway!

Robert D Dismukes · Answer

@Victor Morales Are just starting off or already on the ground running ?  If you are just starting off , you’ll be be okay for a while . But you better start planning on it.  If you are already operating, you better start thinking hard about it. It creates a boundary of protection that you WILL need . And that’s just one .    I have multiples.    All built for a specific use .   If you rent for $1000 a month , that’s $12,000 .    That’s income , that goes on the bottom line . Then you’re paying uncle same a 15% tax for living in this great country !  Why, why have to pay ? (That’s $1800 minimum.  That’s the cost of incorporating )Then you get to deduct your expenditures.   Corporations on the other hand , get to deduct expenditures first then pay the tax on what’s left. Fees vary from state to state , so you’ll have to check.  But you could get one up and running for about $500-$1000.  Now this is just a VERY condensed reason , which there a ton , on why you should or shouldn’t incorporate.  There’s so many classes , courses, educational materials and CPA’s out there .   Education is key .Get a D&B number to start establishing a paydex score . Bank with a smaller hometown bank . Build a relationship.  If you are going to be in the real estate business, BE a business.  LLC’s are a tool , use them correctly and it makes life a little easier .  I’m not a tax lawyer or accountant.  I’m an entrepreneur and have been one for twenty years .   And I’m still learning what to do .

So ultimately when you find yourself uncertain about something like this or anything else , SEEK a local professional and get direction . Man I could keep rambling , but I won’t . Think about this , and you ask this question again.    Hope this helps

Rental properties.. LLC or regular ?

Most Popular Reply