Rental Property Investor · Orangeburg, SC · Member since 2019 · 73 posts · 16 votes
Hello BP,
I have been actively trying to find my first property for buy and hold. However, there are so many things that can go wrong and that makes me wonder if I should get a LLC before doing any kind of REI or should I just go ahead and get that first property under my belt and get my LLC along the way?
I have not found my first property despite being on realtor.com, zillow etc. all day every day, so i am about to start doing yellow letter direct mail, and that's when I began thinking i might need an LLC before I start doing that. Any advice is appreciated.
@Shonari Wynter While you can choose to form an LLC before purchasing your first property, you certainly don't need to. Just make sure you speak with an insurance agent and get a good insurance policy on the property and you should be covered. While you are correct that anything can happen, the odds of someone coming after you with a single property that is likely highly leveraged at the beginning is slim. You can always transfer the property into an LLC at a later time. Don't let this question hold you back from taking action. Lots of people come up with repeated concerns that prevent them from pulling the trigger. Keep looking for a deal and when you find one go for it.
Rental Property Investor · Batavia, IL · Member since 2018 · 452 posts · 672 votes
6y
@Shonari Wynter While you can choose to form an LLC before purchasing your first property, you certainly don't need to. Just make sure you speak with an insurance agent and get a good insurance policy on the property and you should be covered. While you are correct that anything can happen, the odds of someone coming after you with a single property that is likely highly leveraged at the beginning is slim. You can always transfer the property into an LLC at a later time. Don't let this question hold you back from taking action. Lots of people come up with repeated concerns that prevent them from pulling the trigger. Keep looking for a deal and when you find one go for it.
@Shonari Wynter While you can choose to form an LLC before purchasing your first property, you certainly don't need to. Just make sure you speak with an insurance agent and get a good insurance policy on the property and you should be covered. While you are correct that anything can happen, the odds of someone coming after you with a single property that is likely highly leveraged at the beginning is slim. You can always transfer the property into an LLC at a later time. Don't let this question hold you back from taking action. Lots of people come up with repeated concerns that prevent them from pulling the trigger. Keep looking for a deal and when you find one go for it.
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6y
@Shonari Wynter you definitely want to set up an entity before you do business. Most people use an LLC but each state has different laws regarding corporate liability and piercing the corporate veil.
Best thing to do is discuss structures with your attorney and accountant to make sure you are set up correctly for your personal situation.
Investor · West Monroe, LA · Member since 2015 · 196 posts · 70 votes
6y
I would say it depends-
If you plan on buying a B to C class property, I would probably buy in my name and purchase an umbrella policy from my insurance agent. Buying in your personal name opens up more options for longer term financing on rental properties. If you are planning on buying D class or F class properties, I would purchase in an LLC and just max out the liability coverage per policy on each property since these are riskier.
If you plan on buying a B to C class property, I would probably buy in my name and purchase an umbrella policy from my insurance agent. Buying in your personal name opens up more options for longer term financing on rental properties. If you are planning on buying D class or F class properties, I would purchase in an LLC and just max out the liability coverage per policy on each property since these are riskier.
I don’t think this is good advice. The class of property has little to do with the decision to form an entity to hold title to the property or not. Regarding LLC's, they offer asset protection so long as you operate the entity properly but no tax advantages as they are pass through entities. The use of an entity or not should be determined by your personal assets. If you have little to no assets, then you have little or nothing to lose and a simple insurance policy will suffice. If you have assets, then you will want to protect them and if you plan on running a business and not a hobby, then entities are preferred. Discuss which entity to use with your CPA.