I am going to be moving into note investing. I currently own some real estate but do not have a company. Can anyone tell me if it is a good idea to form a LLC for the note investing or not? I am considering doing it for my real estate as well as the notes but don't know if I can do both under a LLC. Any suggestions or advice? Thanks.
Yes. That is the way to go.
I'm not quite sure the specifics and the differences but you do want to create as many barriers and safe guards as you can. I'm currently creating an S corp and moving all my properties there, that way if anything happens it shouldn't effect my other assets.
Get a good insurance policy and be protected.
land trust is the best for privacy, llc is good for asset protection..
Yes you can do both under an LLC. If you want extra layers of protection you might form two LLCs one for notes and one for your other investments. Then if say you have a renter who sues you, your notes are safe.
You can put them all in one LLC or two separate LLC. If the ownership structure is the same for both asset types, then it really doesn't matter.
Any tenant issue will more than likely be resolved by your insurance policy. For loans if you want you can look into E&O or D&O policies to hold in the LLC in case any large legal suite comes your way.
When it comes rental property, it makes sense to create LLC under the state where the property is located.
I am curious if it's the same with holding notes? For instance, if the secured properties of your notes are located in state A and the payor/borrower are located in state B, and you as the note holder is in the state C, do you create the LLC under the state A?
Here's an article I wrote awhile ago that addresses this in more detail. More than just the article, read through the comments, very helpful.
Thanks everyone for your your advice.
@Kady Sesa do you currently have the properties under LLCs?
It may be beneficial if the LLCs hold and income is drawn through an S corp that holds the LLCs ... But perhaps you are way ahead of me
Which kind of notes are you looking to invest in?
Aside from asset protection, one of the biggest reasons not to buy delinquent notes under your name is that you want to create distance between yourself and the borrower.
It's easier to build rapport with the borrower when they're dealing with you as "just doing your job and trying to help them" than as the guy who holds their note and is about to foreclose on them.
Obviously if you're only going to buy notes on vacant houses with the only goal to foreclose, then that's different.
Thanks for the link. Can an umbrella insurance policy help w/ attorney's fees? Or if I am sued does the insurance company do the fighting?
I'm not totally sure? (thankfully) I haven't had to worry about getting sued yet. When you are shopping for policies, I would ask that question. It's a good one I didn't think to ask myself actually.
@Daniel Cruz yes, with an umbrella policy, your legal fees are covered on top of the policy amount. Since the insurance company's money is at risk when you're sued, it'll want to protect that money with its own legal team, possibly a better legal team than you could afford on your own.
Umbrella policies pick up where your homeowner's insurance ends.
Very cool. Thanks
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!