Create an LLC First or Buy Multifamily rental first?

Question

Hello everyone Ive been in analyzation paralyzation for the past 2 years, I finally figured out what I want to start in which is multi family rental investing. Only thing is Im not sure where to take my first step. I have my RE license and have access to the MLS, but I have been reading alot about creating a new business in order to have access to a new business 50k loan. If I can try and get that to start  I think it would be the best way to go in order for myself not to use my own money. My questions to everyone is before getting started should I go with a conventional loan or start up an LLC and work for my 50k loan to get a DSCR Loan and have my property under my LLC?

Greg Scott · Answer

I'd focus on buying a good deal, not the LLC or the financing. I can't imagine a bank or even the government will give a $50K loan to a new LLC.  Otherwise, there would be people churning out LLCs to get loans that would never get paid back.

Early in my investing career I bought a program on building business credit hoping to use that to fund growth. While I was able to obtain some credit, it was never in any amount significant enough to be useful to accelerate my investing.

Greg Scott · Answer

With respect, I disagree.  There are many downsides to investing through an LLC, and for many, especially people without many assets, it may not make sense.  Financing and re-financing is not as favorable in LLCs.  There are annual costs to maintain the LLC.  Also, many people do not handle the corporate formalities correctly and their LLC gets thrown out in a lawsuit.  (According to Garret Sutton 50% do)  In these situations, people have fooled themselves into thinking that they are protected, when, in fact, they are not.

Basit Siddiqi · Answer

You are all over the place.You got your real estate license(not required)You are looking to get a business entity(Not required)Your profile mentions you want to do fix and flipsYour profile mentions you want to do BRRRPick one avenue of real estate and focus on that.Analyze homes, get the down payment, find a lender, make offers, get home.

Justin Hammerle · Answer

I think in general when purchasing investment property outside your residence, it is always best to consider and explore taking ownership through an entity regardless of the programs/grants available.  If you haven't already, consult a CPA on timing.  We all have unique financial situations and a CPA would be best qualified to advise you on whether it would makes sense given your current standing.

Justin Hammerle · Answer

Not knowing the complete financial picture, the recommendation was to seek out a CPA to determine whether or not an entity made sense.  I hope I didn't misrepresent that.  To throw out the idea of using an entity to protect yourself because of some claim that it only works 50% of the time is dangerous imo.  There are some additional benefits outside the reduced liability component, particularly for holders - like owner privacy/reputational risk and tax efficiency using the strategy that Joshuam alluded to.

Joshuam R. · Answer

For other readers, running the LLC accordingly and separate bank accounts/ accounting, etc, plus strong property insurances, auto insurance and umbrella insurance is what you are referring to? Example persons running SMLLC placing their properties in it, adding the SMLLC as additional policy holder on the current landlord insurance helps in those instances of lawsuits bit more.

Create an LLC First or Buy Multifamily rental first?

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