A couple friends and I want to buy an investment house, fix it up and then sell it. Here’s a few questions I have about that:
Is forming an LLC the best entity for this?
If we went to an attorney to create the LLC, would we then spell out who is responsible for what and how we would split the potential profits?
Since we've all got the desire but no experience, would it best to find a person experienced at this at the local REIA and make them part of the LLC or maybe just hire them as a project manager/consultant
If we wanted to get a hard money loan for this deal, would that be in the LLC's name or one of the individuals in the LLC?
Thanks for any help that you can give me. I’m sure I’ll be adding to this question list later.
I use a LLC, you will contact a lawyer and do what is called an Operators Agreement, this delagates all responsibilities and the profit splitting will be handled as well. With no experience I suggest reading a few books. It helps to have a lot of good contacts as well,plumber, carpet guy, etc…people who can get it done cheaper but still done right. You have to get in,then get out,time is money. The longer it takes, the longer you holding costs go up, but you should estimate these into your budget. Hard money loans are a lot higher interest rates. But the loan will be in someones personal name, you can quit claim deed the property to your LLC after.
A quit claim deed is simply signing a title over to another individual or entity. This can be done easily however, do keep in mind that technically this does conflict with the terms of most loans and a bank could call the loan due in full. Most of the time this doesnt happen as the bank would be silly to call a performing loan due. They do have the option though. This is the big controversy about asset protection using an LLC. Most banks wont give you a loan in the name of an entity. They need someone to hold accountable for the loan and someone to go after if it isnt paid.
As far as the flipping…unexperienced beware…investing isnt risky, being uneducated is risky. Know the market that you plan on buying in. Do a home inspection and your “due dilligence”. Things to consider when looking at flipping…
Is the market saturated with other homes for sale?
How long can you afford to make the mortgage if it doesnt sell?
Do you have an alt/exit plan?
Know what helps sells vs. things you might do that you wont get your money back on.
Watch out for unexpected/unforseen expenses (foundations, mold, mechanicals, etc.)
This isnt meant to be a deterant by any means, just want to emphasize the importance of “due dilligence”.