1. Do I need to have an LLC for when I buy my first rehab?Can I buy this online or have to go through an attorney?
2. Do I need to buy a new LLC for every property I buy and call it a different name. I am confused on this part of being an investor.
3. I have this house I found. Property tax value is 40,000, comp around are 40's. Is has an asking price for 10,999 on foreclosure site. It is in bad shape. Do you think I would be wrong to start me offer at 5,000? The land values for 6,000 and thats all I really want to give. Would a bank take your first offer? If the bank owns it would I not have to worry about a second lien? Thanks for any help.
LLC is just a waste of money for you at this time.
I would have to agree with the last statement that starting an LLC at this time would be a waste. You are new however and have come to this board for advice so here it is.
- You need to learn a lot more about the market you are in
- Tax values mean virtually nothing, don’t ever value an ARV on tax values
- Join a local REI club and find a mentor
- My personal opinion is “yes” eventually an LLC would be a good idea. Multiple LLC’s depends on the situation. I have done them if I believe the ownership of a property could jeaopardize another asset at some point.
- Start an offer at whatever property you believe you can make the numbers work. I tend to buy at 65% of ARV value with the offer including my costs to renovate. Keep in mind I see many properties that they could give to me and I wouldn’t take them. It depends on a lot of things. Location, renovation costs, ARV, etc… Land means nothing to me in my area of investing. And remember, it costs money to bulldoze and remove all the debris. Permits, utility shutoffs and the cost to tear it down and dispose of what’s left.
- Opinions for what is considered bad shape varies from investor to invstor. All the SFH I buy tend to be under 30K but have ARV’s between 80-120K. My sweet spot.
- If a bank owns it typically the title will be fairly clean at purchase. I would still recommend title insurance which typically runs $175
Hope this helps. Study, learn, find a mentor, birddog, then consider taking the plunge
He maybe starting out but if he keeps going, an LLC will be needed. The LLC does give him the assest protection needed but also will give some tax breaks along with that. Plus since it is a rehab, if someone gets hurt and the LLC owns the home, then his personal assets are safe. I think it is never to soon to form an LLC.
In fact, my CPA recommends everyone to go out and start a corp when they turn 18. Even if you plan on not using it for years. The reason is… WHat happens when you want to start doing everything (meaning financing) with the corp. It needs age. The older the corp, the better it is. To maintain it is relatively cheap if inactive. Just keep it active. Many people make alot of money selling Shelf Corp (aged active but unused corps)
As for asking price. Do not be afraid to low ball the offer. If your not afraid or feel like your offending the owner, then you just offered to much. You need to negiotiate the terms… So start at 4 or 5K. It is good to know the estimate repairs to help justify the asking price.
Remember buying a home, rehab or rental is a business decision that needs to make money and work for you. If the numbers do not work, move on
Acting as a manager or taking an active part in the business will create a way around the LLC to personal assets. An LLC has virtually no protection when a member takes an active role in the LLC. Only non-managing members enjoy the LLC protection.
An LLC is not cheap. Some states charge a minimum of $500 - $800 per year to keep it active. Annual meetings, resolutions, and other corporate formalities are required to keep the protection in place. There’s also the added work of taxes and the cost of the registered agent. Never mind that many states require a lawyer to represent the LLC in any legal action.
Shelf corps are a rip off. They are way for comanies to recoup the cost of setting up an entity when a client didn’t pay the bill.
[quote author=BLL link=topic=31870.msg147879#msg147879 date=1191216058]
Acting as a manager or taking an active part in the business will create a way around the LLC to personal assets. An LLC has virtually no protection when a member takes an active role in the LLC. Only non-managing members enjoy the LLC protection.
My understanding of an LLC is that as long as you keep your business and personal finances seperate, your personal assets are protected.
Am I mistaken in this?
I am not a lawyer but the concept is that you place each house in its own LLC or maybe a couple of houses in each LLC. If a person has a mishap at one of those houses and they sue and win, the only assets they will be able to get are the assets of the LLC. What their lawyer will attempt to do is pierce the corporate veil and get to all your assets. They do this by finding situations where you are acting inside and outside of the LLC the same. An example is if you are doing some fix up and you go to Lowes to buy a washer for a leaking faucet at that rent house. You pay for it with your Lowes credit card which is your personal card. You have to reimburse yourself from your corporate account or you are acting indiscriminately with regard to the entity and they will argue it is a sham.
In Texas an LLC is only needed if you have a real reason for it. I do have LLCs but not to protect my assets. My assets are protected by how I run my business. If you don’t have any money to get no lawyer is going to spend time representing a person no matter how bad or negligent the act. I have a $1million umbrella liability policy and I keep my properties heavily leveraged. A lawyer would look at my properties and all together see no more than a few thousand dollars. In Texas if he sues and wins, he can’t get my home, my cars, my tools of my trade, my retirement accounts. That leaves any cash I may have my insurance policy and my rental property. Since my rental property is highly leveraged, the lawyer won’t see any money there and thus he won’t spend much time going after that. He will focus on the insurance policy. I wouldn’t get much more protection from an LLC.
Unfortunately, only TX has very generous exemption laws. Most states don’t and the lawyer can get to assets you own personally if he can show that the liability arose from your personal actions (e. g. you are the one who built the deck that collapsed and caused the death/injury several people). It is not a matter of piercing the veil. It is a matter of assigning responsibility to the individual whose actions caused the injury. That is very easy to do with small business because the owners are usually the only ones participating in the business and do all the work. Discrimination and violation of fair housing laws are another easy way to make people personally responsible. The LLC shield fails very quickly when the member and manager are the same person.
Several LLCs is no protection in this case. Once the individual is deemed liable, all personal assets, including all the interests in those LLCs become available to satisfy the judgement. Hopefully, the debtor was smart and didn’t use the single member LLC. If he did, then about $12,000 is all it takes to start an involuntary bankruptcy proceeding, where the LLC will have no charging order protection. The assets will either be transferred to the creditor or liquidated with the proceeds going to the creditor.
Bluemoon06 brings up a crucial point. The LLC and any other entity for that matter must have a business reason. Anything done to delay or hinder the collection of a valid debt is a fraudulent transfer and courts are under no obligation to honor the structure.
i think this entire conversation makes the original point that BLL made - you’re not ready for this step yet.
you don’t “buy” an LLC. you pay to create its existence.
they ARE costly, complicated and above all, require a defined business goal to make money. if they lack these things, then they’re a waste of time.
mine buys and sells land. i manage it along with my partner. we are managing members of the LLC. it also does other things and may one day become an owner of a real estate brokerage firm (long term goal)- but unsure about this…
if you’ve got little to no experience in business - lay low for a while. no need to complicate things. when you’ve got a well-defined business plan with goals and MONEY/FINANCING - then move to that step of incorporating, etc.
In my mind, a new REI shouldn’t bother with an LLC. The sole exception to this is if you are trying to buy REOs to wholesale. Then you can use the LLC to sidestep the typical “no assignment” clauses.