Thoughts on Starting a LLC

8 Replies

Hey Everyone,

I am about 6 months out from starting the actual process of hunting down my first deal. I am renting for another 12 months. I would ideally like my first property to be a house hack (looking for a 2-4 unit building to stay in the residential space and not get into commercial just yet). After reading Garrett Sutton's book "Start Your Own Corporation" it seems like an LLC would be the best way to protect myself from lawsuits and situations of that nature. That being said, I know it can be more difficult to obtain a loan with a business that does not have a financial history. What are your thoughts here?

Thanks,

Tom Houpt

If you plan to househack, @Thomas Houpt , buy under your own name. Then, if you think it's appropriate, move title to a LLC at a later date. In order for a LLC to provide asset protection, it needs to be property maintained. That may be not be worth the trouble in the beginning when, frankly, you don't have a lot of assets to protect.

Originally posted by @Thomas Houpt :

Hey Everyone,

I am about 6 months out from starting the actual process of hunting down my first deal. I am renting for another 12 months. I would ideally like my first property to be a house hack (looking for a 2-4 unit building to stay in the residential space and not get into commercial just yet). After reading Garrett Sutton's book "Start Your Own Corporation" it seems like an LLC would be the best way to protect myself from lawsuits and situations of that nature. That being said, I know it can be more difficult to obtain a loan with a business that does not have a financial history. What are your thoughts here?

Thanks,

Tom Houpt

As mentioned before, buy the house through your own name and then switch the deed to your LLC. I used legal zoom to form my LLC, it works to get started off but when you're net worth is higher, I'd recommend reconstructing your LLC through a lawyer.

I'm not a lawyer or an accountant, but if it's your first property and only major asset why would it help you? An LLC can still be sued and wouldn't stop anyone from suing the LLC if they had a serious issue on your property. If you had like 10 properties or one that was completely paid off then maybe I'd worry about asset protection.

I've held commercial assets in LLCs for years, but not residential and certainly not my primary res.

I'll let tax pros speak to whether you'll be able to claim the sect 121 capital gains exclusion in an LLC or not, but I bet it gets messy. Like good financing, the exclusion is probably for natural persons only.

'Switching' to an LLC later after purchasing in your own name can kill your title insurance, hazard insurance and expose you to due on sale mortgage violations if you just quitclaim it. There is also an obvious title chain trail so no anonymity. Lots of risk for no reward IMO.

Search BP for 'I put my residential property into an LLC and now I can't... finance it, evict my tenant ' etc. I'd stick to commercial assets in business entities.

I am going to piggy back on this thread; we have a rental property that was paid for in cash. It is a duplex and we rent it out on Airbnb. My understanding is that creating an LLC for it will allow tax write-offs. I am sure there are many other benefits to creating an LLC - but can someone advise if there are any cons to creating the LLC? Or any other information I'm not familiar with?

@Jennifer Thomas

In case of STR you can reduce your taxes by creating two entities. One Corp that operate the STR and one LLC that owns the STR and yearly leases to the Corp. Your C Corp will be taxed at 20% on its operating profit while your LLC will have passive income that was not possible if it leases on short term.

@Thomas Houpt agree with your assessment on thinking it may not be the way to go right now due to the hurdles you face. As you get further along and have other assets to protect, or have properties where you are involved with a partner, then it's probably worth getting into. In the beginning, probably not necessary

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