I’ve heard there is a specific way to sign documents such as the contract to purchase real estate and other documents when using an LLC. Can someone tell me? I tried the search feature, and saw the following:
John Doe, manager, My Company Name, LLC
Is this appropriate for signing a P&S contract, deed, etc., so that it gets recorded in the name of the LLC and not my personal name?
Thanks!
yep
Wouldn’t it be easier to buy the property into your name, and transfer into the LLC later?
nope
please explain, because I am unclear on this and hear mixed things.
the main reason ive heard is that bc with an llc your credit will not be high, and you LTV will have to be lower.
this is important too, bc, i stumbled onto what may be a huge deal. i am going to look at it tomorrow and what to put a bid in, but do not have an llc formed yet, but would rather buy it directly into the llc rather then buy it personally then transfer it.
btw, i am 3/4 way done my first rehab and I am going to refinance and move into it soon. probably by early to mid july(found a wholesale deal and purchased to rehab to move into).
the main reason ive heard is that bc with an llc your credit will not be high, and you LTV will have to be lower.
this is different question.
yes, you have the signature block correct (1st question)
no, it is easier to just purchase in the name of the LLC than buy and transfer. (2nd question) It also avoids any issues with your having “owned” the property for even a brief time. Keeps you personally out of the title chain.
You didn’t ask if you could get the same financing for an LLC, although my experience is that LLC financing terms with a personal guarantee are not not significantly different from personal terms. I’ve done 90% deals in an LLC.
Good luck with the rehab.
Excuse my ignorance, but i know very little on the llc/financing side.
How do you go about doing a personal guarantee.
thanks for the help!
tell your banker you want to purchase inside an LLC with a personal guarantee of the loan.
mc, thanks as always for great responses.
i guess i did not fully elaborate my question. my question was not only how do you personally guarantee the loan, but if you are paying a loan through the llc that you cosigned, do you not become open to comingling? that question also leads into another similar question in that when you first start up your llc which will none of its own money how do you fund the llc via materials, labor, contractors etc without getting nabbed for comingling?
I guess that become multiple questions, however, the comingling is what i am concerned/confused about.
There is a good chance that the lender will not loan to the LLC without a personal guarantee and you don’t need to worry about it. The loan will be in the name of the LLC with you as a guarantor. It’s a pretty standard deal since the bank wants as many people responsible as possible. Most LLs who rent to businesses want the owner/principal as a guarantor as well, even though the business is the tenant. This situation does not affect the liability protection of the LLC.
To avoid commingling, open an LLC banking account and pay all LLC expenses through that account. Do not pay LLC expenses with your personal funds. Conversely, all LLC income goes into the LLC account. Do not deposit funds into your personal account. If you get a check in your name, I suggest you return it and have a new one made out in the name of the LLC. Some people will sign it over to the LLC and deposit it or deposit it in the personal account and then transfer to the LLC. I think that is too risky, especially for a member-manager. If your LLC is set up where you are just a mananger and not a member, then the risk is less. Even still, I would send it back.
You can make capital contributions to the LLC and take out funds as you wish. (I suggest the OA be written to require members to provide capital as needed. This makes the agreement executory which will become an issue if you or the LLC are sued.) These should be documented on the LLC books. Whenever you make a major decision, for example purchasing a property, it should be documented via LLC resolution. Treat the LLC as if it were owned by someone else and you are a custodian. Commingling and failure to document decisions are some of the biggest causes for veil piercings. There are many good books on running an LLC that cover these topics in great detail. Nolo puts out one of the better ones.
Ok, that makes more sense.
I was under the impression that if you transferred money from your account into the LLC’s you would be taxed on it somehow, or that it would be considered a conflict.
Thanks!
An LLC can be taxed in one of 3 ways: Disregarded entity, partnership, or corporation.
Disregarded entity means the LLC doesn’t exist tax-wise. Tax reporting is done on the member’s personal return. This is the default status for a single member LLC. Many tax preparers and CPAs push this set up because it is easier for them when they do your taxes. What is not discussed is that the liability protection of the single member LLC is not as strong as the multi-member LLC. My opinion is that the SMLLC should only be used when the member is another entity and I see no reason to make someone else’s life easier at my expense, especially when I am paying them. I listen to experts and follow their advice, but only when they explain to me why I am wrong or show me a better way to do what I want. I don’t trust them blindly.
Partnership means the LLC reports income/expenses on form 1065 and is treated like a partnership. K-1s are sent to the members for tax reporting. Money can be added and withdrawn without taxation per rules on partnership taxation. This is the default status for a multi-member LLC and is the most common set up for LLCs that deal with real estate.
Corporation means it’s taxed like a c-corp or s-corp. Taxes are reported on form 1120 or 1120s. This set up isn’t my area and I’ll defer to someone with more experience as I only deal with real estate as investments. My undestanding is that distributions from a c-corp must be salary or dividends subject to taxation.
Good answer from BLL (is it Bill?).
The easiest way to avoid comingling is to treat it as if it is someone else’s business. Everything is at arms length and documented.
Personally paid for company expenses? Complete an expense report and submit it for reimbursement. Company needs cash? Make a loan and have the company sign a promissory note. Need cash personally? Make a loan payment, expense reimbursement, or write yourself a commission check (or whatever).
Just don’t pay personal bills with company cash or pay company bills with personal cash (except for expense report items).
Business is business and personal is personal.