How to Buy Rental Property with an LLC: 3 Simple Steps

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

Channel: LYFE Accounting

Views: 217,524

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Id: 5d8OGGuqce4

Length: 14min 51sec (891 seconds)

Published: Mon Jul 19 2021