Cash-out with LLC question. Please help!

My question is how to properly use an L.L.C. in my situation.

This is the first time I’ve used an LLC so I want to make sure I take the right steps.

I am buying a property with cash and then am going to do a cashout refi. The property will be a rental.

Should I buy the house in my name or the LLC? I don’t know how this would affect my options when doing a cashout.

I think I read somewhere that I could buy in my name and then after I cash out deed it over to the LLC. Is that correct? the best option?

Thanks in advance and have a great weekend.

For the easiest refinance you would be best to buy it in your name with cash. Refinance it with a no-seasoning cash-out and then deed it over. Make sure you have your exit strategy in place though. If you have not had your file reviewed by a lender you could be doing yourself a great disservice. Guidelines have changed tremendously in recent months and a 620 with no reserves will not get it done anymore.

Thanks a lot Chistopher.

I know what you mean about the mortgage guidelines changing. I bet all the changes alone are keeping you busy. :banghead

I would have to go stated but luckily for me my wife has a great income so we will be buying it in both of our names and then using her income to qualify for the cashout. Our ratios and credit are fine. Do you see any potential problems with this as long as we are both on the title and both members of the LLC?

Thanks :smile


How you structure really depends on what your goals are.

There’s 4 scenarios that could take place here.

  1. Buy the property cash using the llc. Refinance into a commercial loan with the financing in the name of the business and title in the name of the business. This keeps the loa off your personal credit. (Previous owner must have been on title for 18 months for this option using some lenders). 75% is the max. Since terms are commercial, closing cost will be extremely low but rates a bit higher than wholesale. As well, no 30yr fixed. 30yr amortization possible but loans are balloons coming due in 3,5,7…etc.

  2. Buy the property cash using the llc. Refinance with a conventional lender in you personal name. There are a couple lenders that will allow title to stay in the llc.

  3. Buy the property cash using the llc, quit claim to your personal name, and use a conventional lender to refi. As long as all parties within the llc have transfered personally and will be on the loan, lenders will do this (if they allow no seasoning cash out refinances - which many do not)

  4. Buy the property cash using your personal name. Simple refinance after.

Do you have an attorney who helped you set up the llc? I’d also speak to them. You should also contact a mortgage professional who specializes in investment loans.


What is your reasoning for using the LLC? Assett protection is what I am going to assume because you stated that both you and your wife have good credit. You will still have to personally guarantee the loan so I think you would be better off going with a conventional loan getting the best rate and fees possible and then quit-claiming it to your LLC. However if you choose to stay with the LLC you should be fine as long as both memebers of the LLC are on the loan. As Ben stated above you will not have a 30 year fixed loan. It may be a 30 year amortization, but it will have a balloon come due at some point.

Thanks. That’s what I should do.
I should pay cash and buy in our name, then cash out with a conventional loan getting the best rate and fees possible and then quit-claiming it to the LLC.

The LLC’s only purpose that I know of would be for asset protection. I think every book I’ve read suggests it.

Thanks for the help! :biggrin

I am also about to partner on another deal doing the same thing except I will have an investment partner. The partner will be using their equity line and then cashing out.
Should I take the same steps in the same order in this case?

A book I read suggested, when partnering with another investor, to hold the title as tenants in common.

Would that be correct when using this technique with another investor? When he cashes out, will there be a problem with him being the only one on the loan and us both on the title?

Thanks again!

You have been reading some awful books. An LLC for asset protection is just like handing over the property to your judgment creditors. Asset protection, as commonly used, is illegal and not respected by courts.

This is the time to use an LLC. Each of you defines his roles and responsibilities and ways to cash out.

I was told you can still use an LLC formed in Nevada or Wyoming for asset protection. Those are the last two states that still have a charging order as the only means of collection. Also, I was given advice to have all the investment properties in my name, and all the personal stuff in my wifes name. That way if they can pierce the corporate shield of the LLC, your personal stuff is safe because in the eyes of the courts you have no personal assets. Does that make any sense?

Where did you get this information? Several states limit a creditor to only a charging order. Nevada and Wyoming are fine as long as you conduct business in those states. They do nothing if all your property is in another state. The operating agreement is much more important than the jurisdiction.

It works until your wife decides she doesn’t want you around any more.

I am not sure where he heard of using those states but I read about one strategy using them in a book. “Rich Dad’s Real Estate Advantages” Tax and Legal Strategies of Successful Real Estate Investors.

It just gave one example of the benefits of setting up LP’s and LLC’s in Wyoming and Nevada for someone living in Texas or California.
The example was very detailed and I don’t think it would be a strategy most investors would want to use.

It stated that in some states, California was given as an example, there have been court cases that have minimized the protections of LLCs and LPs. It then stated the best defense is to organize your LLCs and LPs in the two states that have excellent asset protection laws in place, Wyoming and Nevada. After they are set up in one of those states, then you have to qualify them to do business in your home state which it says “should be easy”.

It goes on to say the key to using an LP is to make sure that the general partner is another corporation or LLC. This way you encapsulate the unlimited liability of the general partner into a limited liability entity.
You give the general partner only 2% interest with the other 98% is given to the limited partners. It requires the set up and maintenance of two entities. The LLC and the Limited Partnership.
Then you can use the one LLC as the general partner for multiple LPs. Again the LPs holding 98% interest and the LLC holding 2%
The book says another reason behind this was to only have to pay the annual $800 fee California charges for the LLC and not each of the LP’s.

Finally it states Wyoming and Nevada have statutorily enshrined the charging order as the exclusive remedy for creditors.

Most of this is over my head but hopefully I explained it halfway decent. I don’t have a clue if it works but that’s the gist of what the book said.

I read the actual statutes and case law that is used to determine how these things actually work.

You explained it just fine and I will tell you why the author of that book is full of crap. NV and WY laws do not apply in CA or TX or any other state besides NV and WY, respectively. You can organize your LLC in any state to own property in CA, but the property is subject to CA law and CA taxation. You will pay the LLC fee for two states instead of one, while a CA judge is not required to consider the laws of the foreign state. He is only required to consider CA law and public policy. Organizing in state other CA gives you nothing except higher operating costs. It doesn’t offer any more protection than organizing directly in CA. A properly drafted operating agreement is the way to protect yourself. Unfortunately, gurus can’t do this cheaply. it’s easier to sell an LLC kit.

As for your LLC/LP combination, it is no good unless you have a valid business reason to justify it. Otherwise, it looks like you are up to no good and the judge will look for any reason to stick it to you. Contrary to what most gurus spew on the lecture circuit, creating roadblocks to prevent paying your bills is not respected by the courts.

An LLC is next to worthless when it comes to protecting assets from bankruptcy and foreclosure. It does give asset protection - but not in that way.

An LLC gives legal protection from liability only. For instance, if you have a rental, the tenant slips on the porch steps and sues you (happened to me) and you own it as a partnership or as a sole proprietorship, then all of your assets are fair game for the tenant’s lawyer to go after.

Even if you have an LLC to own the property, but you do the property management or maintenance or some of the daily activity with the property, if the tenant slips and falls you still an be held liable - not only for the property the LLC owns but your other assets too- because your activities as a direct manager of the property would make you personally liable.

However, if you are at “arms reach” - you have a property manager who handles everything and who uses a maintenance service to do the work and it is owned under an LLC then if there is a legal action than most likely only the property owned by that LLC will be subject to the legal problems. Your other assets, in most cases, would be safeguarded.

But it does little if anything as far as protecting your properties because of financial problems. This is because in almost all situations the loans on a property must be personally guaranteed by the principal (you). That means the foreclosure is against you, as well as the property. That also means your interest in all of your LLCs are also at risk.

Your best bet is to get a good real estate attorney and accountant - both of whom are knowledgeable about real estate law and LLC/corporate law for your state. it will cost some money, but they should be able to tell you what is the best way to protect your assets in your situation in your state.


Those are strong words. He indicated that he was looking for help with asset protection not hiding debt. Since LLC and LP are not options for him is there some other type of protection he should seek out? Perhaps more insurance?


Then what did he mean by asset protection? Most people use the term to mean protection from lawsuit judgments and that seems to be the focus of the LLC/LP description provided. I didn’t see anything about tax savings, loss minimization in down markets, income substitution for disability and incapacitation, estate planning, business continuity, or any other legitimate need. I read about limiting liability with the implication that the set up is a means to defeat a judgment creditor. That is the same thing as not paying your bills. A judgment is a valid debt that should be paid.

I didn’t say an LLC and LP aren’t options. I said he would need to have a business reason to use the convoluted scheme described in that book. LLCs and LPs may be useful. They may not. The only way to know for sure is to evaluate his entire situation. What is certain is that the vast majority of asset protection gurus are hucksters and the vast majority of the material is pure junk.

Even the good stuff becomes useless when it reaches the mass market. Do you think collection attorneys hide in caves all day? They read all the AP material and have their own seminars that describe how to defeat the plans. If you read something in a book, chances are the guy who sues you did too and already has a way around it. Asset protection planning doesn’t look like asset protection planning. It is subtle, not in your face.

I’m obviously still learning and the only reason I’m asking about the LLC is because I keep reading and hearing that I should do this for rentals.

My current situation is as follows:
I will be purchasing properties with home equity lines.
I will be purchasing rentals with my wife whose income we’ll have to use to qualify for the cashout refis.
I will also be partnering with investors who will provide their funds and I do everything else with a 60/40 split in their favor.
My wife and I aren’t wealthy but some of the investors I’ll be working with will be.

I’m not trying to do anything shady, just asking about the LLC because I keep reading that you should do it with rentals.

What do you do for a living? You seem to really know your stuff. :cool


I would like to think that he was looking for help with protecting his assets from frivolous lawsuits. It has become evident that we live in a sue happy society and for a small time investor starting out one lawsuit could put someone in the poor house. If he was looking to avoid paying debt I imagine his post would have started out like this “I am about to file a BK; how can I hide my assets?”. All I am saying is don’t always assume the worst about people and try to be positive with your comments until you know someone is a scumbag and then you nail them!! LOL!

Since LLC and LP are not options for him

why not?

even if you are managing the properties yourself today, and thus not achieving many of the benefits of the entity, it is still a sound business decision. it allows you more flexibility in minimizing taxes, more benefits you can receive and much more.

next year you may have so many properties that you must hire a property management company. if the properties are already held in the entity, so much the better. otherwise you have much extra work to do.

I always recommend that anyone seriously pursuing real estate should never hold property in their name. It only costs a few hundred bucks to set up and only a few hundred a year to maintain. If you cannot afford that, you should reconsider your real estate career…

the benefits far outweigh the costs.


What do you mean by “protect assets” and “asset protection”? The vast majority of material available talks about making it harder for judgment creditors to collect. You may think that is acceptable. The law does not agree with you. Any transfer made with the actual intent to hinder, delay, or defraud creditors is fraudulent, and that is what people mean when they use those terms. They use asset protection to throw up roadblocks so that plaintiffs attorneys decide not to sue or settle for a smaller amount or never collect at all. People who don’t understand the law use asset protection as the reason for setting up LLCs, etc. Those are the people who lose in court. People who do understand the law use the same set up but use legitimate, not asset protection reasons, to justify it. The only difference is their stated intent.

A good attorney will get the frivolous lawsuits dismissed. Yes, there is a cost to that and there is limited disincentive to plaintiffs for filing suits with little or no merit. The place to address tort reform is Congress and the state legislatures. Using the junk that passes for asset protection won’t do you any good.

For the record, “not paying your bills” and “asset protection” as most people mean it is the same thing. When the judgment is entered, it becomes a valid debt and courts do not accept anything that prevents that payment.

Mark has provided an excellent example of using entities with a legitimate reason. The protection from creditors is just a side benefit.

Continue reading, but stay away from material that recommends whole systems. I recommend books that discuss various entities generally so that you can decide for yourself when they are appropriate and when they are not. When it comes to these situations, less is more. The more confusing and convoluted your plan looks, the more judges and juries will think you are trying to hide something. Also, avoid anything that uses deception or secrecy. Assume everything will come out during discovery. Once you are caught in a lie, no one will believe you.

An LLC or LP would work for this situation. Personally, I would use the operating agreement or partnership agreement to limit the investors’ involvement to financing only. They get no management say. I strongly urge you to review your plan with a partnership attorney. He will draft an agreement that protects you and your wife. I would also suggest you work with an entity specialist to determine the best structure to contain the liability to the entity.

I know you are ethical and just want to protect yourself. Just keep in mind that you never do anything to prevent the payment of valid debts. There is always a business reason to justify your actions. Asset protection is subtle. Creditors have a hard time collecting, but it doesn’t look like that’s why you did what you did. That is the difference between gurus and true professionals. Gurus are in your face with convoluted systems. Professionals use subtly to achieve the same thing.

Good luck to you.