Creating an LLC for investment?
I am considering purchasing a residential income property (which I will probably not be occupying). Many buildings are owned by LLCs and I would like to evaluate the financial considerations of forming one. Does it make sense for only one building? One partner? Owner occupied? Which expenses can I handle differently? Does anyone have good…
I am considering purchasing a residential income property (which I will probably not be occupying). Many buildings are owned by LLCs and I would like to evaluate the financial considerations of forming one. Does it make sense for only one building? One partner? Owner occupied? Which expenses can I handle differently?
Does anyone have good suggestions for places to look for help in answering these questions?
The formation of the LLC will protect you if someone sues the LLC. It isolates the asset from the balance of your assets provided you maintain “corporate” formalities. If you get sued, the LLC’s is a asset which a creditor can go after like any other. The previous poster had it mixed up.
The liability issue is a no-brainer but the mortgage issue is a serious one. If you transfer ownership directly to the LLC you will have different mortgage eligibility standards. If you transfer ownership to the LLC after purchasing, you will be violating a covenant of the loan and the loan could be called immediately due. It would probably be considered a non-curable violation of the loan and a big mess. The best route is if you can purchase and qualify for the loan with the LLC.
If anyone needs an accountant familiar with LLC’s I’d recommend:
http://www.minyardcpa.com
They are very familiar with LLC’s including using them for residential and rental property.
Although based primarily in Phoenix, they visit NYC several times a year.
If it’s 1-4 units buy in each owners name. If it’s 5 or more you can buy as an LLC.
Sorry I just re-read your post and assumed that you were buying a 1-4 unit property.
Thanks guys. The liability issue is clearly paramount, but I would be curious as to the loan considerations. Adam you indicate transferring it after is the best way, but what would be the implications of holding a residential mortage on a ‘commercial’ property. I agree the banks have a lot bigger things on their hands, but I would not want to find myself in their ire.
Don’t do it until you purchase the property. You will find it extremely difficult to obtain a residential mortgage with title being held in an LLC.
After you close you can deed the property to the LLC via quit claim. Some banks will call the loan in but the vast majority will not. They have their hands filled currently and as long as you keep up your payments they won’t bother you.
I can’t speak to the mortgage issues, but aside from that I’ll say that an LLC is a good way to do it because of the main thing an LLC gets you, with is liability protection. If you are ever sued for something, the property owned by the LLC would not be considered fair game, as all of your personal possessions would. We–three partners–set up an LLC to purchase a four family; two of us live in one of the units and the third partner is silent/an investor. It was suggested by an estate planner, but to be honest, we’ve been having a terrible time finding an accountant who knows how to handle the tax issues with savvy. We interviewed numerous CPA, as well as tax advisors/lawyers, and no one can agree on what’s the most financially beneficial and legal. CPAs make recs/suggestions and qualify it by saying we should check with a tax attny, and tax attnys make suggestions and say we should check with our CPA. It’s weird, and a giant headache. Taxes are currently being prepared… we’ll see what comes of it. At the moment, other than the liability benefits, we’re not seeing any other benefit… And Christopher is right, setting up an LLC is easy as pie.
I did an LLC through LegalZoom.com.
Pretty easy, pretty straightforward.
Couldn’t use it for my 4 family though, would have made it an “investment property” and the mortgage rates would have changed drastically. I keep the LLC since we are looking at 5+ unit, “commercial loan”, properties as well.
On a related segue, has anyone done a LLC for a tenants-in-common where all partners would be living in the building?