- Hi, Clint Coons here with Anderson Business Advisors,
and in this video, I'm going to discuss buying property
with a limited liability company.
Now, if you are a real estate investor,
you've probably been told that you can acquire
property with an LLC and in fact,
that would be the best way to go because,
why buy it in my own name if I turn around and
just deed it into an LLC?
And I get a lot of new real estate investors that
will come up to me, they'll see me at one of my events,
and, or they'll just email me.
And the last week, how do I go about buying property
in the name of an LLC?
Well, the first question I'm going to ask you is,
what type of financing are you using?
If it's just cash, not a problem.
You can close directly in that limited liability company.
However, when you have financing involved,
there's going to be the problem.
If you're using traditional financing,
if it's a Freddie/Fannie loan,
then, if the property itself is residential,
it's going to, they're going to require that you close
in your own name.
You're not going to be able to close in the LLC.
So it's a non-starter.
So don't even attempt to put that deal
together in that LLC name.
Now if it's not a Freddie or Fannie loan,
lets assume it's a loan from a community lender,
so it's what we refer to as a portfolio loan,
so this community lender bank that you're working with,
they don't intend to sell it,
they have different guidelines,
they will probably allow you to close
in the limited liability company.
So, in that case, you could set up the LLC
in order to close.
Now, one thing to also consider here,
when you're thinking about closing in the name of an LLC,
the question I would have is how is that purchase
and sale agreement put together?
Was the purchase and sale agreement written up
between yourself and the seller?
Or did you leave yourself some wiggle room?
Because many times, a lot of people,
they don't follow my advice and set up a few LLC's
and have what I call them, on the shelf LLC's
ready to go to put in their offers.
And so they're scrambling.
I mean, this just comes from experience.
You should have LLC's set up ahead of time.
That's something I do a lot with my clients,
is I create two or three LLC's and I tell them,
these are always going to be there for you,
make these offers in these limited liability companies
so that we can close in the name of them.
Now, if you begin, or you have a subscription to
procrastinator's monthly, and you're a little slow on that,
then what you should do in your purchase-sale agreements,
and write them up as follows,
lets say you're going to buy in your own name,
or you're putting it in your own name,
or maybe you have a corporation,
you would put down Clint Coons and/or designated entity.
Alright, use that language, not and/or assigns,
which a lot of people have used in the past,
which is now looked at skeptically by sellers
and their agents.
I use and/or designated entity.
And then, here is what I tell people,
if I'm ever questioned on that,
I explain to the seller or their agent,
the reason I include that extra language in there
is that I have not yet talked to my tax professional
or my attorney about how I need to take title
for estate planning and taxes,
and that they may advise me to take it in a limited
liability company.
So that's why I'm putting that additional language in there.
Because I may close in an LLC.
That explanation works, okay?
I have not had anybody reject that explanation
because now you've told them that it's your local
professionals, or your professionals,
that are advising you to do this,
and so, they don't want to practice law without a license.
So the realtors will often back down when you
give them that rationale.
So anyhow, if you're using anything other than
traditional financing, like I talked about,
if its a community bank, then you can close directly
in that limited liability company.
And if you are going to do that,
some things you need to keep in mind,
you better make sure that, with the LLC,
that you're not using a nominee on there.
There's a lot of people that, you know,
we even talk about it, in the battle of limited liability
companies with a nominee manager, well the problem is,
if you are using a nominee manager, it's not you.
That's going to create title issues for you,
trying to close in the name of an LLC,
and your lenders going to have a heartache with that.
So, you're going to want to set up an LLC
where either your information is publicly visible,
or if you want anonymity, what I often tell people,
set up a fresh, new Wyoming LLC, or Delaware LLC,
where your name and your information is not
provided to the Secretary of State,
then you'll close in that entity and with title,
and with your lenders, they'll just ask to see
a copy of the operating agreement,
showing you as the manager and member of that company.
Funny thing about that is, what has occurred before is,
I'll have a lender or title ask me or ask my client
to update the state, have their information listed.
And it's kind of comical because we call them back,
and we tell them, inform them that's impossible.
The state doesn't accept that information.
So even if I sent it to them,
they wouldn't put it up there.
And then they come back to us and say,
oh, we understand, okay great.
As long as we have your operating agreement,
it shows your position in that company,
that you're the owner, you're the manager,
we can proceed forward with this.
So, you want to make sure that either your name is listed
on the entity itself as a member or manager,
with the Secretary of State where the LLC is set up.
Or you're using an entity such as a Wyoming or Delaware LLC
that provides anonymity.
The other thing you're going to need is a
certificate of good standing.
Typically, this needs to be acquired
within 30 days of closing.
So be prepared to obtain that.
You're going to have to contact the Secretary of State,
request the certificate of good standing in order to close.
If you do not have that certificate of good standing,
it will hold up your closing.
It's kind of a ridiculous requirement from my opinion,
that many of these LLC's are just recently set up
within the last six months.
There's no way they could have been revoked.
But again, rather than fight them and try to argue
they don't need the information,
just give them what they need so you can
close on your property and move on.
Now of course, if you are buying for cash
or you have private money that's coming in to fund a deal,
its never going to be an issue.
But, when working with lenders,
those are some of the things that you need
to take into consideration.
Get that LLC set up ahead of time.
Make your offer in it.
If not, you and/or designated entity.
When you go to closing,
make sure you have your operating agreement ready
for title for the lender.
And also make sure you have a certificate of good standing.
My name's Clint Coons with Anderson Business Advisors
and we just covered how to purchase real estate
with a limited liability company.
(upbeat music)