Closing on my investment property - now what?

Question

I had a mixed use property in the past. 1 commercial use and 3 apartments. I had that set up under a LLC. I will save the details but lost that property in a divorce.

Fast forward to present - I will be closing on a single family home soon that I was able to pay cash for. Update with small improvements and then rent out. My plan is to BRRR the property.

Question - Trying to understand the pro's and cons of putting this in an LLC. I realize the tremendous write offs for an LLC property, but I've heard other sides of the equation about not getting the same rates to finance additional properties. I would also assume that in the event of a lawsuit the LLC would prevail as opposed to personal property being attacked.

Interested in hearing more experienced thoughts.

Thanks!

Tyler Gibson · Answer

@Jeffrey A DeAngelis There really isn't much tax gain in having the property in an LLC. The only advantage is the asset is sheltered in the event of a lawsuit against you. That being said an umbrella policy could get you the same peace of mind. No conventional lender will give a mortgage to an LLC trust me I have asked around. That means you would have to go to a private lender and they will get you on the rates and the fees. I say keep it in your own name and then finance through traditional lending. You can always gamble and transfer to an LLC after you have the funding in place. I saw gamble in that transferring title could trigger the bank calling in the loan but many times they won't do that as long as the payments are being made regularly (but they could).

Jacob Sampson · Answer

@Tyler Gibson has it right.  Whether you have it in an LLC or a sole proprietorship you are going to get the same right-offs.  The question is do you have personal assets outside of your personal home or qualified retirement plan that you want to protect.  If you do go ahead and get an LLC.  Additionally, the entity that owns the property does not impact what the bank will offer you.  No bank is going to have the LLC sign for the property.  Even if the property is owned by the LLC the bank will require you to be personally responsible.

If comparing LLC to sole proprietorship there really is no significant downside other than SP is free and LLC will cost several $100 to form, plus $75 a year (here in Kansas) to renew and the LLC has to file it's own taxes which will cost whatever it costs to have the taxes done.  With 1 property I guess these added expenses can be significant, but fairly quickly they become pretty incidental.

For me, I didn't do an LLC until my 7th unit, but I had no other assets outside of home and qualified retirement plan.

Just some thoughts.

Jeffrey A DeAngelis · Answer

@Jacob Sampson  Thank you for your insights. I could always move to an LLC later and converse with an accountant when appropriate to do so as you have mentioned. Appreciate your insight.

Jeffrey A DeAngelis · Answer

@Tyler Gibson - Thank you. Helpful information!