let's talk about how to buy rental properties with an llc
otherwise known as a limited liability company now whether you are an aspiring real estate investor
or if you are a current real estate investor you may want an llc for various different reasons like
maybe you have a tenant that's a little bit sketchy now spoiler alert buying a
rental property with an llc is a lot easier than you may think especially if you are a
new investor because you don't have to go backwards and go through the hassle
of taking an existing property and then putting that in an llc so in this video i'm going to
give you everything you need to know on how to buy real estate property with an llc as
well as review some of the pros and the cons so if that sounds good to you then stay tuned
hey there and welcome to our channel i'm sean with life accounting the accounting company that saves
people from high taxes and low profits listen i love real estate investing because it gives
you some major and i mean major tax benefits such as depreciation accelerated appreciation
and tax-free passive income so before i begin this video if you also love real estate
tell me in the comment section below if you are a current real estate investor
or if you are aspiring to be one we really want to know because it helps to indicate whether or not
we should continue to make real estate investing videos and if you find any value throughout this
video please hit that like button as well all right let's go ahead and dive in so first and
foremost if you are new here let me briefly and i mean very briefly go over what an llc
is and if you need one so there are plenty of real estate investors that buy and own their rental
properties under a limited liability company an llc simply because it separates the legal
liability between your personal assets and your company's assets aka in this case the rental
property so for example if one of your tenants slips and falls in your bathroom they break a leg
and they decide to sue you the most that you could lose is that actual rental property instead of
that person being able to come after your personal assets like your house your car or your good looks
now whether or not you absolutely need an llc really depends on your personal situation and
i think this is a good place to mention that this is not direct financial advice this is simply for
information and educational purposes because i don't know your total financial situation but i'm
sure if you go through this video you'll be able to make your decision much easier so here's what
i do say about owning an llc for a rental property number one if you have personal assets that you're
trying to protect then of course you should have an llc but oftentimes when i investigate
the assets of my clients especially my younger clients they often don't have many assets in fact
unfortunately some people end up having more debt or a negative net worth so if you don't have a lot
of assets then it may be a reason not to rush into getting an llc thus saving you some time and some
money number two if you intend to buy real estate with a business partner it may be a good idea to
have an llc because that will open you up to more ways for partnership for example real estate llcs
make it possible for foreign ownership so you can partner with someone completely overseas and then
number three and a very important thing to know is that financing a property or getting a loan for
property can be much more challenging with an llc than buying a property as an individual and that's
because as an individual you have a track record right like you have income you have credit history
etc so without that track record it may be a little bit more difficult for you to get financing
on top of that you will likely have to get a commercial loan with an llc which is less
favorable in terms of the financial terms you get right so you could have a higher interest rate
you could have larger down payments in an overall shorter lease terms so no 30-year fixed loans
which means ultimately you have higher payments and potentially less profits so those will be
my three top reasons why you may want to or may not want to buy a rental property with an llc
now one other big question that i want to cover for the existing investors out there is can you
transfer an investment property that you already own into a new llc and of course the answer is yes
however with an existing property it's going to require a few more additional steps and it usually
involves working directly with your mortgage lender now the biggest thing to look out for
here is that sometimes there is a clause in your mortgage agreement called do on sale which would
be similar to you selling your property to someone else but in this case you're basically selling
your property to yourself to your own llc but what this means is that you may incur closing costs you
may end up with a higher interest rate depending on the market terms and conditions right now
and you may have to pay a title transfer tax so yes you can transfer your property into an llc
but it could come at some additional cost all right let's go ahead and talk about how to do
it but before i dive in was that a little bit helpful if so please hit the like button for
the youtube algorithm it helps our channel grow it helps this video reach more people and it makes us
really happy overall so thank you in advance for doing that now how to buy real estate with an llc
step number one understand the business structure so if you buy a rental property with an llc
that means your company will operate as the landlord not you as the individual so that means
you need to completely separate your personal expenses from your property expenses or your
llc expenses and this is very very important because if you mix all your expenses together then
in some courts like in nevada you will completely lose let me repeat that you will completely lose
your limited liability protection and you could be exposed to having your personal assets seized
so again separation is completely needed which brings us to step number two get set up here's
some things you need to do now this list may sound a little bit intimidating at first especially if
you've never done it before but trust me these things are pretty easy so number one register your
llc duh right now if you don't know how you simply want to go to your secretary of state website and
then start the process we of course have other videos on llc setup llc costs so if you want to
check out more on how to set up an llc i'll put a link to our playlist in the description below
number two get an ein number a ein number stands for employer identification number
now this is basically like a social security number but for your business okay so you're
gonna need this number for important documents that you register for send up different assets
such as number three setting up your business bank account so remember you want to keep everything
separate and business bank accounts are how we do that financially so you want to set up a business
account for all your real estate transactions your rental property transactions such as the
rental income that you collect and the expenses that you incur such as your advertising fees so
get an account get a debit card and if you're comfortable with it get a business credit card
for all your related rental tool property transactions number four you're going to want
to put together an operating agreement your lender may want to see a copy of your operating agreement
to get the percentage of the business that you own and just overall make sure your company your llc
is legit now we have a video on how to set up an operating agreement as well which of course i'll
go ahead and link in the description below the playlist for that llc so you can check it out
right after this one okay so getting those things done should help you get your llc set up now it's
time to move on to step number three get a mortgage loan under your llc's name now there
are three types of loans that i want to talk about for your loc when it comes to your rental property
first you can get a conventional mortgage under your llc name and you can get a pretty good
interest rate if you're able to accomplish that but it is definitely a hassle to get a mortgage
conventional loan for your llc because of course most conventional lenders don't want
to write a mortgage for a loc they're just not designed to do that that's not their business
model and overall they make it super difficult for you to do that on top of that most conventional
lenders will report your mortgage on your personal credit report which is a problem because you are
typically only allowed for mortgages on your credit report before most lenders stop giving you
money so if you plan to build a big portfolio of rental properties and of course with conventional
lending you're going to hit a ceiling because again you can only have about four mortgages
on your personal credit report the second type of mortgage you can go after is a portfolio loan
so a portfolio loan is a loan that a lender keeps in the house within their own portfolio
rather than selling it off to the open markets like a conventional lender may do with a portfolio
lender they don't report your mortgage on your personal credit report which means there is
no limit to the amount of properties that you can buy in fact you actually get rewarded for
having more properties in a way of getting lower interest rates from portfolio lenders because
they're going to recognize you as someone who has more experience and in their eyes you will be a
less riskier borrower and then the icing on the cake when it comes to getting portfolio loans
is that they are usually cheaper faster and more flexible for example not only can you get
a mortgage under your llc name but you can get mortgages under other types of entities as well
there is the s corp c corp etc so portfolio loans are closely related to commercial loans with some
great advantages now lastly for the properties that need a little bit of love they need to be
renovated you also have a few options but a poplar one is getting what is called a purchase rehab
loan rehab loans come in the form of hard money lenders crowdfunding websites portfolio lenders
community banks and even private investors will give you a purchase rehab loan these are typically
short-term loans that just help you get through the renovation of the rehab project so the
interest rate that you pay for those short term loans are usually a lot higher and after that loan
ends you still need to go out and get a long term loan so you may need to refinance or apply for a
loan likely by using the first two options that we mentioned above all right so awesome that's how
you buy rental properties with an llc now since you made it this far i have a few bonus tips for
you if you do end up deciding to buy rental properties using an llc bonus tip number one
is to keep cash reserves many new investors focus only on the down payment and some of the
minor costs required to acquire a home but there are some other fees to consider for example the
lenders that you work with may have administration fees processing fees settlement fees and we're
charging you just because fees really y'all really on top of that some lenders may require
you have cash reserves for at least six months in the event that something unexpected happens
but of course even if the lender doesn't require it it's still something that you should consider
having because you also never know when you could have unexpected expenses right you could have
a long-term vacancy you could have some unexpected repairs some legal fees and so on okay so
definitely think about keeping some cash reserves on hand as a real estate investor all right bonus
tip number two and this comes in the form of a question but you want to know are you completely
protected in the event that you default on your loc mortgage now just to clarify this question is
talking about if you stop paying your mortgage can the lender come after your personal assets
not in the case where something like a tenant decides to sue you so again this is especially
important for new investors who don't have a track record yet because many investors will have a
clause in their lending agreement something along the lines of the llc is the borrower of the loan
but you are personally guaranteeing the payments therefore you are personally liable for the
mortgage meaning that the lending company can come after you and your personal assets so
moral of the story is don't think you're off the hook for the loan just because you're an llc okay
you still want to make sure you're reading your mortgage agreement and understanding what you're
personally liable for now i'll go ahead and close out with this setting up at llc is pretty easy to
do you just have to go through a few extra steps and some extra costs if you do want that limited
liability protection so of course make sure you're doing your research you're weighing all the pros
and cons and you're making the best decision for you and oh yeah don't forget to tell me in
the comment section below if you are an inspiring real estate investor or if you are a current real
estate investor we really want to know well that's it for now we have two more videos coming up next
so make sure you check those out if you haven't already and we'll see you over there