I'm new to real estate.

19 Replies

Last Friday I went to a company to set up my llc and to establish the business so I can begin to build credit under the llc. I would like my first property to be 3-4 unit buy and hold rehab. So my question is what should I be doing next while the process I mentioned before is happening.

@Joseph Whitney

Yikes.  What market are you in?  What are your long term goals?  Are you planning on managing the unit yourself, or what?  At this point, it seems you should be the one asking a lot of pointed questions, after you've done a lot of thinking, yourself.

Why'd you do an LLC? There are tons of opinions on both sides of that. We don't have LLC on our stuff and rely on good insurance.

Joseph - welcome to BP and the investment world. :)

There's a lot of knowledge out there to get yourself started. If you want to ramp up your forward movement start finding a way to talk to distressed sellers. Decide if you have more money or more time and create a marketing strategy that fits your budget and schedule.

Search BP for ways to get free seller leads if you lack money. If you lack time work with an established agent that can help you out.

You've got this!


@Jim Goebel thanks for reaching out. I'm in the Chicago/ Joliet market. Long term I would like to get buy some land in the Joliet area and get some commercial investments if I'm saying this correct along with acquiring property in Texas. For my first 2 maybe 3 properties yes i would manage them, then I would get a property managing company that works off a percentage of my rents instead of a flat rate. I don't know if I have better answer to why I started the llc other than from other real estate investors it was good to set up my business in the beginning oppose to along the way.

My experience is that investors feel that "good insurance" is the dollar amount or overall umbrella.  When the claims come in, the investor begins to understand that the fine print often protects the insurer from many of the claims that are experienced.  That is why in my article I say that it is a false choice, each protects from common situations that real estate investment is exposed to.  https://www.biggerpockets.com/blog/insurance-asset-protection

I recommend both.

@Scott Smith

@Joseph Whitney

Truly not trying to swipe at Scott or lawyers in general here, but it shouldn't be a surprise that an attorney that works on drafting LLCs and operating agreements and profits from their involvement, would advocate a direction that necessitates their involvement.  Of course Joseph, that doesn't mean that Scott's wrong - just that for you to be successful in the big world of business you need to become independently informed, and know where you're getting your information.

In our case, of course there's risk and the obfuscation of an LLC in certain situations may help, however with good insurance and our bias towards managing risks effectively and handling disputes ourselves, the idea is that we will take care of our insurance company and in turn they will take care of us. There's lots of resources and discussion on both sides of this issue as Scott alluded to. I'd just suggest doing that independently, as with any number of upcoming needs to be informed on upcoming decisions, as well.

Also, I wouldn't get hung up on this stuff.  For most things and Scott might also disagree, you'll be best off keep the lawyers out of your contracts and leases and all that.  You need to run your business and you need to be informed to do so.  Our main value add at this point and when we involve an attorney is for transactional stuff (closings on deals, etc) or for open ended questions for misc real estate situations.  If we're doing our job in executing, then our attorney will know we're passing along enough closings that they'll be interested in answering questions.

I'm not really sure what you mean by credit under the LLC - no doubt if you have income, credit, etc under the LLC you'll be able to buy property.... But how are you going to buy property under an LLC if you have no income?

By the way, I don't know your Chicago market/legal environment but one trip over to see 10+ houses and review of their $5-6k property taxes was enough to say 'no thanks' from an investment standpoint.  Kills the bottom line.

Originally posted by @Joseph Whitney :

Last Friday I went to a company to set up my llc and to establish the business so I can begin to build credit under the llc. I would like my first property to be 3-4 unit buy and hold rehab. So my question is what should I be doing next while the process I mentioned before is happening.

1st thing you need to recognize is that you're LLC has to be in business for at least 2 years before any traditional bank will consider lending to it. Until that time you'll have to borrow in your own name then figure out where the LLC fits in. One potential strategy to leverage your LLC is to consider using a hard money lender (HML) to fund the purchase and renovation. Many HMLs can only lend to LLCs. You still have to personally guarantee the loan, but the money goes to the LLC. The challenge with this approach is the HML money is short term. You'll need to make sure you have a company ready to take you out of the short term HML loan. There are some HMLS that have products to take out the short term loans. Do this a few times and you'll build up a track record for the LLC.

As an investor myself, I agree with Jim's comments above.  I was just trying to answer the "good insurance" question, and unfortunately my experience is with client's who felt they had good insurance.  Keep you eyes open and get advice from investors who have been there and done that.

Originally posted by @Joseph Whitney :

@Crystal Smith Thank you for the information. After looking into private and hml's I did get the information on the only way to to get funds I would have to have an llc but wasn't sure on the terms. Thanks again I will be looking into that strategy.

You'll have to learn that as a newbie you're not going to get favorable terms; but once you prove you can manage your business and bring the HML good deals, the terms will become more favorable

 

@Joseph Whitney Walk through at least 50 houses, attend at least 2 REI meetups and talk to at least 10 people that are in the game. Worrying about LLCs and such seems to be step 10 in the 15 step process.

@Joseph Whitney@Jim Goebel, @Scott Rogers - I agree, establishing an LLC is a crucial way to shield yourself from liability in the future even despite the potential financing challenges (which is a good reason to start one sooner rather than later in-and-of itself, but regardless). However, it does sound like you're a bit early in the process to be worrying about that right now. One thing at a time - there will be plenty to do every day!

@Scott Smith very true. I’ve recently litigated a case where I sought to file a claim on my clients behalf so that he may limit his exposure and also out of pocket attorney expenses, and I was surprised at the exclusions the insurance company used to exclude the matter from coverage. Long story short, my client was involved in protracted litigation and because he was a named Party this effected his ability to finance future deals during the litigation.

H