Am a newbie real estate investor needing a lot of advice.
For starters, my spouse and I agreed to form an LLC for this business for asset protection, ie we wanted to protect our personal assets. The LLC will have just me initially as sole member. This process is ongoing right now (via legalzoom). I also have a good credit rating (740 avg). When the right property comes along, do I loan based on (a) my personal credit rating or (b) based on my new, no-credit-history LLC? If the answer is (a) does this mean the contract will be under my name vs the LLC? If so how does the LLC build its credit history?
you’re doing it backwards. first find a property and then worry about
protecting it.
90% of your time should go in finding the deal.10% is everything else.
If it were only that easy to start a LLc and have it borrow millions at no personal risk or guarantee. Maybe in some books but not the real world. Banks, mortgage companies, hard money lenders want you to personally guarantee the loans using your credit score. You can put the properties in the LLC name and get the loan in the LLC name but you will still have to sign on the dotted line. Using the LLC protects some against lawsuits but not from the lenders.
If you are planning on buying residential properties, then you either have to put the loan and the home in your personal name, OR you have to buy it via a commerical loan through the LLC.
Commerical loans have higher interest rates, shorter terms and stricter guidelines for borrowing. Hardly a benefical element, especially if you’re planning on renting/leasing out the property.
You don’t want to purchase the home through the LLC. The LLC is a entity to protect your assets. What you might want to do is purchase the income property and transfer it to the LLC.
No one thinks they can borrow millions with a new LLC, kind of ridiculous, but with his credit score he can certainly start building the credit he will need in the future in the LLC to maintain his properties and protect his personal income.
The true purpose (as I see it of the LLC) is to separate eventually, your personal debt from that of your business the LLC (your investing arm of your portfolio). By keeping your personal credit score high and transferring and paying your debts through the LLC, you’re building your little empire two ways and at the same time.
Roger J’s points are the norm but its not a hard rule. I’m a nubie too, been investing for 1.5 years and I am currently working on the financing for my 5th buy and hold property. My first property I bought and financed in my personal name and then quit claim deaded it to my LLC. Properties 2,3 & 4 were owner financed. In searching for financing for my 5th property I found a mortgage company that would underwright the loan in house allowing me to title the property in the name of my LLC but still requiring a personal garuantee.
So, it may not be common for you to get a mortgage broker to allow it, it is possible. If you don’t ask you won’t get it. The advantage to titling at the time of purchase is that you avoid the Due on sale clause all together which is feared when transferrring property after closing.
Now to build business credit, I was told (please, if you have experience chime in) to register at Dun and Bradstreet www.dnb.com It’s supposed to be free to register but the site constantly steers you toward their pay services (what site doesn’t these days). You’ll start getting tons of credit card apps in the mail. I was told that Some do not require your SS# and some specifically say that they will not appear on your personal credit report. I was also told to apply for business accounts with Lowes Homedepot officedepot etc in my company name.
My intentions are to complete the Dun and bradstreet process (free) start opening those credit card apps and applying for those special ones, charge some on those cards paying them and acquire a lowes business account.