Once I create my LLC I will be buying properties under the name of my LLC.
What about the credit for my new LLC?
I have excellent personal credit. Will my personal credit show up in my LLC?
to lend to your LLC, the lender will probably qualify YOU personally, but then extend the loan to the LLC with a personal guarantee. This will not show up on your personal credit records, and will help the LLC establish credit.
I read in one of the REI posts that it is best to hold each property under seperate LLC’S. If this is the case do I need to establish credit with multiple LLC’S?
Yes , each LLC has its own EIN#.
In my personal opinio, you can put up to 3 prop per LLC or 250k in equity…!!!
Thanks
In my situation, I formed an LLC, and began to establish credit in that entity. This entity does marketing, has JV partners and does other various activities. That LLC owns multiple LLCs, each of which owns 1 property each. This has worked for me.
this business of owning multiple LLC’s…
it makes no sense.
the more i think about it, the more silly i believe it is.
first, a real LLC is a COMPANY.
if the COMPANY manages real estate, then it should manage those properties accordingly.
this business of starting YOUR LLC is cause for concern.
YOU ARE NOT THE LLC.
it’s not YOURS. the loans, properties, inventories, employees etc. are not yours, they are parts that make up THE LLC.
i think the problem here is, everyone in their brother is starting an LLC, and their not really LLC’s. they’re just general partnerships or hell, even sole proprietorships dressed up to be something entirely different.
this idea of “building credit” for LLC is a joke as well. A company must have some kind of product or service to offer FIRST. BEFORE it can “build credit”. Without this, the idea of “building credit” only means, using your personal guarantee, to put your businesss (and yourself) in DEBT.
Real Estate is all about managing debt and receiving money through debt financing and being creative enough to do things that seem…at least somewhat…scammy?
a true LLC has multiple members, knowledgeable about the mission of THE LLC and come to the table with money and look to achieve outside funding to market a product that will drive the business.
just remember, it is not YOUR LLC. if that’s how you’re going into this, stop and start learning about business more.
look at it this way:
the LLC owns an income producing asset that it rents out to people. Little Suzy slips and breaks her neck on that loose board the manager didn’t repair. Mama sues the LLC.
Now, every asset the LLC owns is subject to being tied up in the lawsuit. Maybe they have mortgages, maybe they’re owned outright, maybe you have friendly liens on them, maybe maybe maybe. But ALL the properties in the LLC are now involved. The LLC can’t sell them, certainly doesn’t want to buy more, the equity in and income earned from ALL of them is at risk.
So, to combat this, you put one or at most a few properties in each LLC, thus insulating properties from liabilities arising at other properties. Multiple entities are a simple and effective way of further managing risk.
LLC’s can build credit, just like any other business. And there’s nothing wrong with single-member LLC’s.
I have to disagree here. I have worked in Big Four accounting, and many, if not most, investment/private equity firms employ the use of literally hundreds of LLCs in their structure. LLCs are a great tax planning tool and offer tons of flexibility.
Further, a true LLC can have one member, that fact is specifically stated in the internal revenue code.
As far as LLCs being dressed up as sole proprietorships: they are taxed the same, the only difference is that the LLC requires further legal documentation and can provide asset protection. If the law allows this, why shouldn’t a real estate investor take advantage of it?
Yes real estate investors need to be aware of what they are doing and should avoid co-mingling funds, but to the extent the LLC is legitimately formed and run, it can be a great tool and shouldn’t be discouraged.
What is the reason for forming an LLC as a marketing company which owns multiple LLC’s?
And what is a JV partner?
JV is joint venture.
how do you acquire Joint Venture partners?
JV Partner = Joint Venture Partner.
For me, having an LLC as an umbrella (PREO LLC) owning other LLCs is mostly about uniformity. The incremental cost of forming one more entity is very small. I want one company that markets itself, runs the website and gives K1s to the investors, however I do NOT want that LLC owning multiple properties.
Since the other LLCs all have a single owner, they are all disregarded and I only have to worry about filing the tax return for the top tier entity (PREO LLC).
If I have 25 or 30 properties, I do not want my partners/investors getting K1s from 25 or 30 different entities. I just think it would be too complex and difficult to market this kind of situation.
or better yet, what type of partner is a Joint Venture partner to an LLC?
Do you create a seperate LLC for the joint venture?
i want in on a joint venture! someone help me… :-\
I would say it is a good idea to put a JV in a separate entity. You’ll have to get someone to do a partnership tax return for you though.
As far as finding partners, I would say you just need to find like minded real estate investors who you find trustworthy. (easier said than done?)
I personally like JVs because it spreads risk and lets you diversify.
I’m a little late replying to this as I am new to the boards, however, I wanted to give you a link to a message board that is specifically geared toward teaching folks how to build credit for the business. This link to to a thread that was started as a step-by-step guide to building business credit. I hope it helps:
http://creditboards.com/forums/index.php?showtopic=29113
Christine
Hello,
What exactly do you mean by “co-mingling funds”?
I have a friend in california who started an LLC and is currently working on his first investment. I plan on getting started myself out here in Nevada by investing in properties and putting them in the name of the LLC, after i become a member of it.
Would this be a good move or should i file for a LLC in Nevada? ???
“Co mingling” of funds means using your business account for personal expenses and vice versa. This means don’t use your business checking account to pay your dry cleaning bill. If you do this, a court could “look through” the company and go after your personal assets since funds are co mingled.
Given the low cost of forming an LLC, I’d form another in Nevada, you don’t want to risk your NV investments being taxable in CA. Read the boards here for numerous discussions on forming LLCs. There is a lot of good info. Hope that helps!
Very interesting discussion here.
Keep in mind that if you are sued, a judge could easily look past the LLC if it is ruled that the LLC is an “alter ego” company. Which is why your operating agreement should specifically state the role you play as a managing member and in most standard agreements there is a clause that states your liability as a manager of the LLC which is basically ZERO. It also depends on the lawsuit.
has anyone used http://www.coveryourassets.biz? I spoke with an APG consultant and they use 1 entity, A Nevada C-Corp. Then depending what assets your protecting you would use an IBC, International Business Corp. They claim that this also shelters your assets from the Patriot Act, which allows the government to find out everything you own. They charge approximately $3000 per year which includes formation, maintenance of the corp, and unlimited free consultations regarding your corp.
I am still researching this field myself and I am explaining what i have heard of and/or found out when talking to my attorney and other Asset protection consultants.
David,
I believe the organization of the LLC is governed by state statute not the IRS. Not all states permit single member LLCs. The internal revenue code only says that a single member LLC will be treated as a sole proprietorship for tax purposes unless the LLC has elected to be treated as a corporation.
The organization of an LLC is by state. In states that don’t respect the single member LLC for tax purposes, you would usually have to pay corporate state tax, however this wouldn’t affect the fact that for federal purposes you would still get flow through treatment. The regulations under 7701 are complex. I was merely stating that it is well established that in most jurisdictions, single member LLCs are allowed, and the IRS specifically allows it. Hope that clears it up.