Looking at getting an investment property and wondering what some with experience would recommend. LLC looks to provide a barrier for me between my property and personal finances but looks like I will need closer to 30% down with higher rates for a loan to an LLC.

Is this correct? What else do i need to know? I plan on having up to 5 properties if that makes a difference

It doesn't really make sense to go that route. It's much easier to obtain financing as an individual. Here's why:

-MUCH Cheaper rates
-20% down as opposed to 30%
-My company will give you credit for 75% of the current market rentals in your area when calculating your new debt ratios. Most market rentals are easily outpacing mortgage payments, so your ratios likely won't increase much at all.


You can always transfer the property to your LLC once its paid off.. Get the cheaper rate, put 20% down, and get insurance to cover you & your assets. Profit.

Would LLC with personal gaurantee get decent rate with 20% down?

Aggie369 said:

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Looking at getting an investment property and wondering what some with experience would recommend. LLC looks to provide a barrier for me between my property and personal finances but looks like I will need closer to 30% down with higher rates for a loan to an LLC.

Is this correct? What else do i need to know? I plan on having up to 5 properties if that makes a difference

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Give Jay Hurst a shout (Agrewards sponsor). They've got some pretty good programs and have done great work for our clients.

It depends on your loan product. Want a government backed loan put it in your personal name. Want to accumulate a large portfolio? Go get a commercial loan from a local bank that will keep the mortgage in house. They will allow 20% down but typically only want a max 20 year am with adjustments every 5. Not as favorable terms, but they will lend to an LLC.

If you only want a handful of properties, just keep them in your name. Want to make a business out of it? Entities are your friend.

Thanks Stacy!


You can absolutely get a 30 year fixed with a 30 year amortization with 20% down in a LLC. The rate will be much higher then a Fannie/Freddie 30 yr fixed but it can be done.

Tonyperkis said:

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I've researched this quite a bit and the answers seem to infinitely go back and forth. Ultimately, I came to the personal conclusion that LLCs don't provide much benefit in protecting my legal liability. The main benefit they seem to provide is anonymity, which could help hide your true net worth to avoid attracting frivolous lawsuits.

I've chosen to go with max liability insurance for each of my properties in addition to an overarching umbrella policy. I'm definitely not an attorney so please don't consider this legal advice. This is just my experience from my research.

Good luck with your investments!

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Could you share the cases where veil piercing was allowed in a properly run LLC?

I see people claim LLCs don't provide the protection but have never seen someone give real life examples

LLCs don't offer anonymity either. Members are disclosed on the PIR annually. LLCs are a great device for holding real estate as a business. For just a couple houses keep them in your name with a good insurance policy

I can't give a personal example (fortunately). However, one of my lenders who owns investment properties himself and originates a lot of investment loans has seen it happen to clients. Yes, maybe these piercing stories are all due to mishandling LLCs, but I couldn't speak to that.

However, I can tell you I've had numerous conversations with investors and even attorneys who have said it's difficult to avoid piercing. I'm not saying it can't provide some or even complete protection, I'm just sharing anecdotal trends I've seen from people in my circles and from research online.

I still have LLCs because I do some investing with a business partner; however, we hold properties in our personal name and then use the LLC operating agreement to define how profits/equity are shared. I've found Biggerpockets.com has a lot of in depth discussions on this topic that I've found valuable.

Another negative to having loans in an LLC is the difficulty of getting lenders to provide them and the higher rates. Some people deed properties from individual ownership to their LLC, but technically this could trigger a due on sale clause so we don't do this. I honestly think it's unlikely for that to happen, but again, I've read stories and I try to avoid breaking rules. We ultimately decided to rely on insurance and not hold properties in an LLC, but we are tiny tiny fish in the pond. People with larger portfolios will likely look at it differently than little guys like us. If just starting out investing in properties individually, I think LLCs are more hassle and less protection than they are worth, but that is just personal opinion and definitely not legal advice.

I believe a way around this is to have "anonymity trusts" own the LLC. I've been told by an attorney this could keep LLC ownership anonymous. But, I agree with you that I would suggest going the heavy insurance route.

Thanks, I have seen the same thing on Bigger Pockets, but yet no examples (there was one example of a due on sale clause being triggered, so that was interesting). I think one of the biggest downfalls of BP is that once people read something they just repeat it over and over even if it is false. I'm not saying that is what you are doing, because I have no idea if the claim is true or false.

I don't know who poster zero is for the veil piercing claims, but I am still searching for them. We are talking about million dollar lawsuits, hundreds of thousands of LLC's, and not even one example of a case where a veil was pierced for a properly run LLC.

The search continues!

Haha, agree on all counts. I hope to avoid ever becoming a legitimate Patient 0.

Correct me if I'm wrong but I believe the entities that have had trouble recently are single member?

I'm about 3 weeks from finishing my first big deal and getting it refi'ed from hard money. It's currently in our personal names as we didn't have an llc for real estate at the time we bought it.

I'm self employed in real estate it made sense to open the llc and since the SE is related to real estate the rentals can be considered another part of the same llc.

I've learned so many things along the way of this now 13 month project. I guess it's time to start increasing the size of my comfort zone and learn some more. I'm meeting my soon to be property manager to discuss the plan tomorrow am.

Yes, you are correct. The LLCs that "supposedly" have trouble are single member.

Congrats on the deal!!!

Tonyperkis said:

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Yes, you are correct. The LLCs that "supposedly" have trouble are single member.

Congrats on the deal!!!

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This isn't legal advice, but I think many LLCs are just sloppy in the way they do things from a business standpoint. Co-mingling funds, insurance policies not written correctly with the LLC, sloppy accounting/records, vendor business conducted in your personal name and the way you present yourself just to name a few. Being single member likely lends itself to more of this sloppiness with just a single person or a married couple and no other "outside" partners to make sure things are run like an independent business.

Makes sense

LLC law in Texas is strong. The only case I have ever seen referenced as a single member piercing the veil was in Florida. Texas law strictly protects a single member LLC the way they do a multi member. People always talk about piercing the veil. Biggerpockets is notorious for it. Piercing the veil rarely happens (especially in places like Texas). If so, there would be case after case that people would cite proving the fact. LLCs should be treated as a complete separate business entity. They are great for compartmentalizing assets from inside and outside threats.

Unfortunately anonymity is nearly impossible. An anonymity trust can work, but only if there is no debt on the property. If you have to take out a loan, the Deed of Trust is filed of public record and it is very easy to see who is responsible for the property. Your name will be on the Deed of Trust either as the borrower, or the officer acting on behalf of the company that is borrowing. If you are paying all cash then it is easier to maintain anonymity, but with debt it is nearly impossible.

Great info Copp!

This is a question of ignorance-- can i still have tax write offs for an investment property without an LLC?

Yes. Income from LLC flows to your personal income tax. Tax benefits would be the same.

That's a really good point Sasappis. It's been a while since I looked into this but I think that is one of the biggest reasons people say the LLC is not worth the extra setup/maintenance costs it requires.

Copp said:

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LLC law in Texas is strong. The only case I have ever seen referenced as a single member piercing the veil was in Florida. Texas law strictly protects a single member LLC the way they do a multi member. People always talk about piercing the veil. Biggerpockets is notorious for it. Piercing the veil rarely happens (especially in places like Texas). If so, there would be case after case that people would cite proving the fact. LLCs should be treated as a complete separate business entity. They are great for compartmentalizing assets from inside and outside threats.

Unfortunately anonymity is nearly impossible. An anonymity trust can work, but only if there is no debt on the property. If you have to take out a loan, the Deed of Trust is filed of public record and it is very easy to see who is responsible for the property. Your name will be on the Deed of Trust either as the borrower, or the officer acting on behalf of the company that is borrowing. If you are paying all cash then it is easier to maintain anonymity, but with debt it is nearly impossible.

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Couldn't the anonymity trust be listed as the borrower/acting officer? I thought that was the whole point. Of course you wouldn't be able to get that when taking a loan out personally, but if the loan was in the name of the LLC, I would think anonymity would be possible. What am I missing here?

Someone has to sign the Deed of Trust. Either the trustee of the trust, or the officer of the entity. So someones name in addition to the borrowing entity is going on the Deed of Trust. That being said, local lenders do not like the complex anonymity structure. They do not understand it, thus it makes it much harder to obtain financing.

LOs always come back and say and they get major push back from higher ups about complex structures where the bank is unclear what your personal involvement even is in the entity. Attorneys can draft up some crazy structures that in a vacuum work, but then you get them out in the real world and try to use them and all of a sudden insurance agents, lenders, etc ask you what the heck is going on. It is a serious impediment to operations trying to explain to outside vendors what you are doing and why you are doing it all the time.

My LLC partner works with a lot of top attorneys. They all demand that he and I set up an LLC for rentals. They also said do an LLC even if one person. Copp is spot on with the reasons.

Good discussion. IMO LLCs have a purpose but you need to look at them at the right time in your investment cycle.

In the beginning of your acquisitions use the cheapest money first. This is conventional (Fannie). Pretty easy to acquire the first 4 properties with this money. It gets harder after that but you might get in one or two more. The problem is Fannie is going to want tax income off the properties as income and not leases. That means me and the CPA are working opposite directions. It gets to the point you wont show enough income to qualify.

Then you go portfolio loans. As said you can use LLC but will not have as favorable terms. You will still sign personally for the loan. And it will most likely be an ARM of some sort so subject to interest rate risk.

LLC at the beginning is just wasting money on cost of the LLC and interest rate.

Furthermore, charging orders are the sole remedy for a lawsuit against an LLC. they cannot liquidate the LLC assets

This is not correct.

I am not claiming to know everything about LLCs, but we use them extensively and have consulted many an attorney as well as done plenty of our own research. Can you point me to a case in Texas where a judge ordered property to be sold to satisfy a lawsuit?

www.lonestarlandlaw.com is a website filled with tons of free reading from a very respected board certified residental and commercial real estate attorney. He talks extensively about charging orders and remedies in lawsuits in some of his articles. Just for anyone who wants to do some educational reading. Below is some information copied from his website on charging orders

Law Applicable to Limited Liability Companies
The law relating to charging orders on LLC membership interests is found at Business Organizations Code section 101.112:
(a) On application by a judgment creditor a member of a limited liability company or of any other owner of a membership interest in a limited liability company, a court having jurisdiction may charge the membership interest of the judgment debtor to satisfy the judgment.

(b) If a court charges a membership interest with payment of a judgment as provided by Subsection (a), the judgment creditor has only the right to receive any distribution to which the judgment debtor would otherwise be entitled in respect of the membership interest.

(c) A charging order constitutes a lien on the judgment debtor's membership interest. The charging order may not be foreclosed on under this code or any other law.

(d) The entry of a charging order is the exclusive remedy by which a judgment creditor of a member or of any other owner of a membership interest may satisfy a judgment out of the judgment debtor's membership interest.

(e) This section may not be construed to deprive a member of a limited liability company or any other owner of a membership interest in a limited liability company of the benefit of any exemption laws applicable to the membership interest of the member or owner.

(f) A creditor of a member or of any other owner of a membership interest does not have the right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the limited liability company.

The charging order is an exclusive remedy. In other words, the judgment creditor gets paid if and when distributions from the LLC occur. The charging order is therefore not tantamount to taking over the membership interest of a debtor or seizing control of the company. Moreover, the creditor may not attach the debtor's membership interest; force its sale or transfer; or (absent a judgment piercing the veil) reach any assets of the LLC itself.
What if the LLC pays a member a salary for services? Is this a "distribution" subject to a charging order? No. Such a salary would not be subject to garnishment since it is exempt under Property Code section 42.001(b)(1) which provides that "current wages for personal services, except for the enforcement of court-ordered child support payments" is exempt "from garnishment, attachment, execution, and other seizure." This includes severance pay.
The exclusive nature of a charging order does not limit a creditor's remedies once a distribution has been carried out. Distributed funds or assets become non-exempt personal property once they are received the debtor and may therefore be reached by attachment, garnishment, or turnover. Stanley v. Reef Secs., Inc., 314 S.W.3d 659 (Tex. App.Dallas 2010, no pet.).

The LLC's assets cannot be sold to discharge the debt of a member, but the LLC's assets can be sold to discharge a debt of the LLC, such as a judgement against the LLC.

I laughed. First time all day.