Buying 1st propety
Click here for Top Ten Discussions. CLICK HERE for Q & A Homepage
Receive Free Rental Owner Updates Email:  
MrLandlord Q & A
Buying 1st propety (by Jose [WI]) Mar 26, 2008 2:03 PM
       Buying 1st propety (by Brian [IN]) Mar 26, 2008 2:26 PM
       Buying 1st propety (by bmbingham [ND]) Mar 26, 2008 2:28 PM
       Buying 1st propety (by James [MA]) Mar 26, 2008 2:39 PM
       Buying 1st propety (by Jose [WI]) Mar 26, 2008 2:46 PM
       Buying 1st propety (by mike [MO]) Mar 26, 2008 3:06 PM
       Buying 1st propety (by Jose [WI]) Mar 26, 2008 3:28 PM
       Buying 1st propety (by Brian [IN]) Mar 26, 2008 3:51 PM
       Buying 1st propety (by 16west [MN]) Mar 26, 2008 3:54 PM
       Buying 1st propety (by pmh [TX]) Mar 26, 2008 4:01 PM
       Buying 1st propety (by James [MA]) Mar 26, 2008 4:20 PM
       Buying 1st propety (by Brian [IN]) Mar 27, 2008 8:29 AM
       Buying 1st propety (by Lynda [TX]) Mar 27, 2008 10:58 AM

Buying 1st propety (by Jose [WI]) Posted on: Mar 26, 2008 2:03 PM

Hi guys!

I am on my way to purchasing my 1st property. In my searches and advices that I have received one of them was in regards to doing an LLC.

Would you say this would be needed for owning 1 property?

Thanks for any inoput!

Buying 1st propety (by Brian [IN]) Posted on: Mar 26, 2008 2:26 PM

Depends on your aversion/tolerance to risk. Essentially an LLC isolates your personal assets from the rental activities. The only real negatives of a LLC is the cost associated with setting up the LLC and the fact that the only financing available will likely be commercial loans because most mortgage companies do not have products for LLC owned property (depending on your market this can be more expensive). Some will argue that insurance should cover any liability from the rental activities and that an LLC is not necessary. While in many cases this is true there are scenarios where the LLC would offer much better protection than insurance alone. Whether a LLC is right for you will depend on your situation. Personally I consider LLCís cheap insurance and would not own real estate in other way (other than my primary residence).

Buying 1st propety (by bmbingham [ND]) Posted on: Mar 26, 2008 2:28 PM

An LLC is a good idea since is will protect your personal assets. But with one property is it necessary? I would say no. I have 3 properties and I do not have an LLC. I do plan on getting one in the future though. After I purchase a few more rentals and make a real business out of it. I imagine a few people will disagree with me but right now I'm going for simplicity in my business.

Buying 1st propety (by James [MA]) Posted on: Mar 26, 2008 2:39 PM

An LLC does not protect personal assets unless you plan to let someone else run the property. Taking an active part in its management creates a way around it and makes it about as effective as general partnership. There are also problems with fraudulent transfers/conveyance if you don't transfer the property for value.

Buying 1st propety (by Jose [WI]) Posted on: Mar 26, 2008 2:46 PM

Thanks for all the fast responses!

I know what you are talking about Brian. my plan was to purchase the property then do a qclaim to the LLC. If I ever want to refinance the property though I would have to do it all over again. It alsmost seems like a pain and $$$ just for 1 property.

Buying 1st propety (by mike [MO]) Posted on: Mar 26, 2008 3:06 PM

buy it in the entity you want - dont change title later since this may force a due on sale with the bank --24.171.xx.xx

Buying 1st propety (by Jose [WI]) Posted on: Mar 26, 2008 3:28 PM

"buy it in the entity you want - dont change title later since this may force a due on sale with the bank"

Why would this happen? They would be only considered as a lien on the property right?

Buying 1st propety (by Brian [IN]) Posted on: Mar 26, 2008 3:51 PM

Jose, read your loan documents very carefully (or have an attorney do it) prior to doing a quite claim deed. The quit claim deed is a transfer of ownership and like mentioned above will 99% of the trigger the due on sale cause.

That said, the bank is unlikely to see the transfer unless you default. However, you should realize that you have likely conducted fraudulent transaction and can suffer the consequences if discovered.

Side Note: James, MA law may be different than IN, but actively participation in an LLC does cause one to lose protection of personal assets. A properly set up LLC's asset protection is equivalent to a Corporation, the rules of active participation that apply to partnership law are not applicable to LLC's or Corps in IN (IL, FL, or KY for that matter). The failure to conduct business properly always allows for "piercing" the corporate veil arguments but properly operated LLC's will protect the active Member from personal liability.

Buying 1st propety (by 16west [MN]) Posted on: Mar 26, 2008 3:54 PM

I understand why you would want to form an LLC. So that you can pay the taxes on the net instead of the gross. It will also provide another layer of protection for you if there is a lawsuit.

However, it is far more complicated to do, than to say. Iím not saying ďDonít do it.Ē Iím saying ďDo it rightí

LLCís or other corps are very easy to create, but much more difficult to maintain. Since the benefits of an LLC would be minimal with your first properly, you would be far better off with a good CPA the first few years.

This is not a Do It Yourself kind of thing. To properly put a property in the LLCís name you will need an attorney that specializes in corporate law. If you donít do this correctly you will cloud the title and make it very difficult the sell the property and will most likely expose yourself to a greater tax burden than without it.

If there is a problem with the title, or if the corporate veil in not properly kept up, the insurance company will have grounds to deny any claim, exposing you to greater risk, not less.

It is unlikely a lender will borrow to a brand new entity with no credit history. If you secure the loan personally and then sell the collateral to the LLC, the lender can call the loan due in full.

Get your Attorney, CPA, Lender and Insurance agent fully involved. Do not try to cut corners.

Think of it this way; Itís like trying to cut your own hair. You are perfectly capable of doing it, but if you donít get good help the first few times, itís gonna be a mess!! But, unlike hair, this will be a very expensive mess to fix.

Buying 1st propety (by pmh [TX]) Posted on: Mar 26, 2008 4:01 PM

I pay taxes on net so I don't understand or know what 16west is referring to. having said that, I would suggest, with just one property, you keep it simple and merely carry good insurance coverage with umbrella.

long story short. you really don't need llc.

Buying 1st propety (by James [MA]) Posted on: Mar 26, 2008 4:20 PM

Like you said Brian, it's member, not manager, that gets the protection. You as the manager, as the individual who did something to cause an injury are personally responsible for your own actions. Because you operate under a corporate struture does not absolve you of your personal responsibility. That is the way around the LLC. If you personally built a deck that collapsed and injured people, you are still personally responsible even though an LLC owns the property.

To be clear, I'm not talking about piercing the veil or alter ego or failure to observe corporate formalities or inferred liability due to a management position or some kind of failure to properly supervise. Those are separate issues. I am talking about personal responsibility for personal actions that cause an injury. I have found no case where an individual was not responsible for his own personal actions because he operated under some type of corporate structure. I'll change my opinion if you can direct to such a case.

Buying 1st propety (by Brian [IN]) Posted on: Mar 27, 2008 8:29 AM

I donít dispute the scenario you just described...I agree, personal actions always brings personal liability, no way around it. I did not interpret your first post as making this point. Instead, I was responding to the statement ďtaking an active part in its management creates a way around itĒ this is an over generalization of potential liability and not necessarily true. Actively managing and even performing work on the property does not in itself lead to personal liability unless the actions performed cause the liability. If by no fault of your actions or inactions a portion of the roof collapses and injuries someone, the fact that you built a deck and/or managed the property will not result in personal liability.

Buying 1st propety (by Lynda [TX]) Posted on: Mar 27, 2008 10:58 AM

Jose, I have seven properties and none of them are in an LLC. You purchase the property in the name of a Land Trust at the time of purchase, and the title company puts the land trust name on all the documents instead of yours, and that's the way it get recorded on all the county records. And that's all someone sees when they look up the address. I usually pick an appropriate name like the street address (eg, Garden Road Land Trust, 23rd St Land Trust). It is not fool proof. Other than me, the only ones who know the connection between my name and the property is the bank(if I have a mortgage) and the title co personnel (who promptly forget cause they must do hundreds a month. In the 7 yrs I've been owning properties I have never been "found" by someone I didn't want. Its not foolproof against lawyer's legal aids or other really savy people but it keeps the rifraf away.

KISS: keep it simple... Start slow. Have enough insurance. You DON't need to rush into the most extreme levels on your first one.


Subject: RE: Buying 1st propety
Your Name:
Your State:

Buying 1st propety
Would you like to be notified via email when somebody replies to this thread?
If so, you must include your valid email address here. Do not add your address more than once per thread/subject. By entering your email address here, you agree to receive notification from every time anyone replies to "this" thread. You will receive response notifications for up to one week following the original post. Your email address will not be visible to readers.
Email Address: