Should I create an LLC before purchasing my first investment?

Rehabbing, Fix and Flip, Rental Properties
1

I am planning to purchase my first investment property. I would like to hear whether I should go through the process of establishing an LLC for my first investment. Any pros/cons you can provide would be great, such as would it affect acquiring a loan? Thanks…

2

If you have significant personal assets that could be at risk from owning property, you should consider the LLC. It’s certainly easier to finance a property into an LLC than getting it over there after the fact. Plus it’s better if the property has never been owned by you personally.

3

im getting ready to soon buy a property (hopefully) and do alot of cosmetic upgrades and sell hopefully within a year. I will be living in the property and it will be my first house. I was going to keep it in my name so that I can get the tax benefits. Is that not a good idea? Should I just purchase it into an LLC?

4

phatman,

You have to live in the property 2 of the past 5 years to get the capital gains exemption. So, if you’re going to sell it in a year, i’m not sure what tax advantages you’re talking about?

Mike

5

You can forget about high LTV allowances with a LLC/S or C corp…a majority of lenders will cap you to 80 LTV…

Regards,

Scott Miller

6

Buy it in your name, then transfer it to the LLC. You’ll get better rates with the property selling to you, not to a company.

7

This is great information and I really appreciate the support. There seems to be a disagreement between buying the property through an LLC and buy a property and transferring to an LLC.

Is it easy to transfer a property to an LCC?
And I’m correct in stating that if I buy through an LLC, I will capped at 80% and there are no options to go higher?

Thanks for your input…

8

I recently purchased my first property and did it directly into an LLC. I was referred to a commercial lender by another investor. This lender was willing to to an interest only oan up 75% LTV of the “before” repair value of the property. I purchased well below the appraised value and my down payment worked out to 15%. So, yes it is possible to get more than 80%. A couple of things to consider when buying personally and transferring into an LLC:

  1. You will pay title transfer taxes at closing AND when you record the quit claim deed into the LLC. Double taxation.
  2. You will need to have your homeowners insurance transferred into the name of the LLC. Some insurers, like Erie, will not insure business entities,so you would have to get a new policy. Even if the insurance company will insure an LLC they may have to write a new policy. For this, they may charge you a new premium. I imagine, but am not sure, if they would have to notify your lender, as loss payee, that the policy was being transferred or canceled. Someone else on this site who has done this can comment.

I have come across two commercial lenders who were willing to lend up to 95%, but there were penalties for pre paying the loan within 3 years. These were obviously best suited to a buy and hold strategy.

9

for one, single family property, i wouldn’t necessarily recommend an LLC.

I did create an LLC when I started my investing (only one property last year) but I did not put the property into the LLC. Eventually, I will purchase properties in the LLC, but with one property, the homeowners insurance should be enough protection should a suit come up. once i have multiple properties, I will look at putting them in LLCs to protect them from exposure from each other… I don’t know at what point (how many) I will put them all in LLCs.