I have read many stories from a lot of people who seem to be pretty successful and if not successful, at least have experience. I plan to buy and rent for my first property, so long as I can get cashflow, it seems like my safest route as i will not be quitting my full-time job to do this. Not yet. Too inexperienced…
For those of you who have been successful and own many rental properties, do you buy these on your own, or do you purchase them through a business (LLC, S-corp) that you created?? Secondly, as a 24 yr old that will have 20K saved by December, decent credit score, only 8K school debt (100 bux a month), 61K a year job - how tough is it to get financed? If i create a business and try to purchase through that to limit liability, how hard will it be to obtain financing? Some mention to tap into family and friends, but for me, that is not an option.
I want to get my ducks in a row so come winter time, I can purchase my first property. I would love feedback about who has businesses and who just buys under their own personal libaility. Also, about my difficulty in obtaining financing and how people go about getting it when first starting out. Thanks so much!!!
ermie12 - please note that I am just starting out. So take my advice for what it is worth…
My understanding is that it will be very difficult for your to limit your liability by opening an LLC or Corp. Considering that you are liable for your own actions - if you open an LLC and buy property under it, you will still be liable for your actions. So if you are involved in the LLC management, than it will be difficult to limit your liability. I believe most of the experienced investors here will tell you that the best way to limit your liability is by having a good liability insurance that would kick in if you are sued.
It is also my understanding that you will need to personally garantee the loans made to the corporation to buy property. It seems that lenders are not willing to extend significant credit to new corporations, which makes sense… I believe that until you establish your LLC and operates it well for few years you will need to personally guarantee your loans.
I hope this helps. I am sure that you will hear from more experienced investors.
Ernie, when I started a few years ago, I started a LLC. I think it is a waste of money, and i’m going to be dissolving it soon. If you title the properties into this LLC, you will have lots of problems with financing unless you have a REAL good personal relationship already with a bank.
I do almost every bit of the work on my rentals, so I could have the property titled into my dogs land trust, and I will still be sued personally because I wired a switch backwards that burned down the house and cause emotional grief to my low tenants.
Don’t waste your time with LLC’s, wish I hadn’t.
As long as your credit score is above 720, you shouldn’t have a problem. And trust me on this one, don’t mess with any lender that sells the loans on the secondary market, it was a waste of time and money. I made a lot of mistakes when I started, luckily every property I bought is at or under a 50GRM and cash flowing well. That is the one mistake I was luckily enough not to have made. This just takes patience and quick reactions when you do find a deal.
If you’re going to be in the rental business in a serious way, then I would recommend using LLCs to hold the properties. The rental business is very prone to lawsuits and I am a strong believer in a layered asset protection program. One layer is the entity. Another is insurance. Yet another is aggressively fighting all lawsuits.
Holding all of your assets in your own name means that all your assets are at risk from a single adverse event. I don’t believe that’s very smart. In addition, insurance does not cover many of the things that tenants like to sue for - such as mold and other environmental issues.
You will need to personally guarantee loans for your LLC, but getting a commercial loan is no more difficult than getting a normal mortgage loan.