Profile picture for Philly29

Should I create an LLC to purchase Investment Properties?

Hi, I am planning on purchasing an investment property and eventually I was going to create an LLC. I wasn't sure if I should form the LLC prior to or after purchasing?

Also, if I purchase multiple properties, should I create a separate LLC for each property or could I use one LLC for all properties? 

Thanks!
  • February 26 - Philadelphia
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Answers (12)

Profile picture for Louis W
as others have stated it is best to speak with your attorney and accountant to recommend what is best for your situation.
  • March 30
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It is always our recommendation that our insureds who have rental properties title them as a business entity which is usually an LLC. But you should consult both an attorney and accountant to see what the legal and tax ramifications are. But from an insurance standpoint, it is always best to use an LLC because it adds another layer of separation from the owner as an individual. Liability claims arising from tenants are very common and that usually results in the landlord being part of the suit. Because of this, we suggest that the owner (whether it is an individual or business) purchase a separate umbrella or excess liability policy. This type of policy can extend an additional $1 million of liability coverage to a rental property. This is a great policy to have because you can list multiple residences under a single umbrella and the coverage is very affordable. Umbrella policies start anywhere from $250 for an added $1 million in coverage for a single property and if it is a personal umbrella the coverage will extend to all policies including your auto and primary home as well as the rental. @MooneyInsurance
  • March 30
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First of all, you should discuss this with the proper professionals - your CPA and attorney, and also likely your insurance agent. There are a variety of reasons you'd want an LLC to limit liability, but insurance should always be your first line of defense.  I've run panel discussions with these exact professionals before to debate this topic and ALL of them agree that insurance is first in line. There are multiple ways to develop a tax and/or liability shelter in these situations with either a lot of individual LLCs, a managing operating LLC as an umbrella over all the other individual property LLCs, or you can lump them all together in one LLC (could be more risky if one lawsuit penetrates and exposes all property to dissolution). This is why you don't take just a lender or real estate agent's advice on this topic.  Plus, each state has different rules so talk to someone (a professional) in your own local area. You should also look into an umbrella insurance policy - smart property owners & investors do.
Lenders on the site are correct, if you need a loan, banks won't loan to an LLC. You must qualify personally.
  • February 26
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I would create an LLC for each property, that way liability is limited to that property alone.  It would make it much harder (anything is possible) for someone to go after your other LLC's, so each LLC is a layer of protection.
  • February 26
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It is a great way to insulate yourself. However, as far as the lender is concerned, you will have to deed the home in your personal name and personally indemnify. If you are paying cash or using a commercial loan for financing, then you can use an LLC. If you finance a home in your personal name then quit claim deed the home to an LLC, the lender may call the note and require payoff in full within 30 days. You have to be careful and discuss with your lender in advance.
  • February 26
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I would certainly create an LLC for your properties PRIOR to closing.  If you are "flipping" the properties, I would certainly maintain an individual LLC for each one of these transactions.  If you are "holding" the properties for cash flow, I would limit the amount of properties in 1 LLC to 4-5 at a time for liability purposes as well.  Don't forget to look for insurance policies which cover properties that are vacant as well.  Make sure your policy covers vandalism, etc.. in the event you're buying vacant properties.

Thanks!

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  • February 26
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My accountant says it is best to have a separate LLC for each property.  Great question for your accountant based on your finances the answer could be yes or no...
  • February 26
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Keeping your rentals in an LLC is a great idea, but you will still be qualifying for the home based on your personal income and credit. Many of my investor borrowers simply transfer title from themselves to the LLC post-closing. Very common practice.

  • February 26
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Many investors form an LLC before they purchase investment property.  As an officer of the LLC your income and credit are used to qualify for the home unless you are paying cash.

I would speak with an attorney and a CPA so you understood the pros and cons of holding real estate in a corporation.
  • February 26
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Profile picture for ajanos
You will definitely want to create before purchase.

You will also want to create one for each property underneath the overall LLC. It protects, the reputation of the parent company if something were to happen on an individual property.
  • February 26
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Profile picture for wetdawgs
A single LLC should be sufficient.  However, be aware you will have to purchase with your name and qualifications as the LLC has no history of income.
  • February 26
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Profile picture for user6064703
It will be much easier to form it before purchasing.  Most investors will use a single LLC.

Read up on the topic, however, as the benefits of having an LLC are sometimes overblown.  
  • February 26
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