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Buy/own investment property in LLC or individually (and better financing options)

1,838 Views | 16 Replies | Last: 2 yr ago by mncag
MAS444
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AG
Want to buy an investment property - single family rental home. We already have a small commercial rental property owned by an LLC that has positive cash flowed since we've owned it for approximately 3 years. The commercial property is the only asset and business of the LLC. The rental home we want to buy will need some updating prior to renting it.

What are the pros/cons of buying/owning the rental home individually vs in our LLC? What are the best financing options? For liability and accounting/bookkeeping purposes I think I'd rather do it in the LLC. I damn sure want to be able to expense all rehab costs to the greatest extent possible. But curious about tax and financing advantages for both options, among whatever other factors.
itsyourboypookie
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Do you want to sell your watch to pay a SJW tenants bs judgement against you?

Do it in an LLC, and get a good e&o policy.

MAS444
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AG
Yeah as I stated personal liability is a factor but we'll have the property insured either way. An E&O policy wouldn't be applicable to my knowledge.
SteveBott
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AG
You cannot buy with conventional financing in a LLC. If you buy and put into one it can trigger a note call. You can buy with an LLC through banks but they will require a personal guarantee for the loan and you will get worse terms.
MAS444
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AG
Thanks, Steve - that's what I was afraid of. Probably a better question for my CPA - but I assume/hope there's nothing wrong with the LLC "managing" the property, including paying for improvements, etc.?
SteveBott
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AG
That question is outside my zone. What benefits would that do for you?
MAS444
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AG
Maybe nothing after it's all said and done...but just thinking about tax and accounting benefits. Maybe more convenience than anything else.

Like most things, I'm probably overthinking it.
Buck Compton
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AG
Single member LLCs have been easily run through by competent lawyers and offer no extra liability protection over personally owned properties. You would need an umbrella policy in either case.

And until you're big enough (millions of dollars in collateral), you'll likely have to sign a personal guarantee on any debt anyway.
SteveBott
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Let's put it this way. I've sent all my Austin's clients to a sip for 20 years. Good guy just wrong school. He is a Mays's graduate, a CPA, and an attorney. He makes money write up LLCs. He says they are not worth the cost.


As said over insure all you can and get an umbrella and call it a day.
Gigem_94
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Buck Compton said:

Single member LLCs have been easily run through by competent lawyers and offer no extra liability protection over personally owned properties. You would need an umbrella policy in either case.


So wrong.
Buck Compton
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AG
Gigem_94 said:

Buck Compton said:

Single member LLCs have been easily run through by competent lawyers and offer no extra liability protection over personally owned properties. You would need an umbrella policy in either case.


So wrong.
Without VERY STRICT financial and operational controls from the get go, it's very easy to pierce the veil of SMLLCs in cases of a lawsuit. Go bankrupt or out of business, sure, liability limited to your invested assets.

Which doesn't even matter because the most likely legal issue to end up in is a default on a loan that you personally guaranteed. Or an injury or other lawsuit that will easily pierce the veil and prove unity of interest.
MAS444
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AG
The cost is almost nothing if you set it up yourself which is very easy to do. There is a filing fee and that's about it. And I definitely keep all LLC stuff separate. Separate bank account, credit card, books, etc. makes it much easier for accounting/taxes. In my real life job I've alleged corporate veil piercing, but have never had to actually prove it. Can't say I'm an expert at all but didn't think it was easy in texas (from a tort liability perspective anyway, which is all I'd be concerned about). Of course you'd probably sign a personal guarantee anyway on any significant note.
gig em 02
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Buck Compton said:

Gigem_94 said:

Buck Compton said:

Single member LLCs have been easily run through by competent lawyers and offer no extra liability protection over personally owned properties. You would need an umbrella policy in either case.


So wrong.
Without VERY STRICT financial and operational controls from the get go, it's very easy to pierce the veil of SMLLCs in cases of a lawsuit. Go bankrupt or out of business, sure, liability limited to your invested assets.

Which doesn't even matter because the most likely legal issue to end up in is a default on a loan that you personally guaranteed. Or an injury or other lawsuit that will easily pierce the veil and prove unity of interest.


Please provide the relevant case citations for this claim.
jja79
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AG
We have a portfolio 10/1 ARM loan program that allows an LLC to purchase investment property. It's fairly new and I believe is capped at 75% LTV.
one MEEN Ag
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AG
Even if its 'easy' for a 'competent' lawyer to do, why would you make it easier on them? You know how many incompetent lawyers there are out there? Your renter isn't going to pay for premium representation for any simple housing matters. They'll be underwater on lawyer fees in their claim about you withholding their deposit unduly before the lawyer finds that $3 starbucks claim thats gonna be their #payday. (That a judge would throw out).

You've got to really suck as a landlord in Texas to get raked over the coals in court for a discrimination, slip and fall, mold/mildew livability claim. Set up an LLC, keep your finances separate, and keep all records and receipts, and don't do shady stuff with the company credit card.

You do that with the holding company that holds all your individual llcs.
MousepadMarauder
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AG
I would also appreciate citations to any cases showing an easy ability to pierce the corporate veil. TIA.
fka ftc
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Fraudulent transfers and comingling of finances are the two more common ways the LLC gets pierced.

If you setup the LLC correctly, keep separate financial records / bank accounts and do not conduct shady business to avoid liability then the LLC should offer the protection you want. On that last point, fraudulent transfers occur when you try and transfer assets out of the LLC in order to avoid a debt or potential claim.

I would advise keeping minimal cash and other assets in the LLC to the greatest extent possible. Carry good insurance and do not keep significant cash or other assets in the business. Find a CPA who has a solid contact for a business related attorney - particularly one experienced with real property leases / rentals.

Bet of luck!
"The absence of the word accountability is not the same as wanting no accountability" -unknown

"You can never go wrong by staying silent if there is nothing apt to say" -Walter Isaacson
mncag
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The only reason i see to keep in personal name is if you trying for conventional financing (meaning Fannie/Freddy)


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