Should you put your rental properties in an LLC? This is a very common question in the world of real estate investing. Here’s the quick answer: it depends! There is no one-size-fits all approach to real estate investing, and today we’re going to talk about some of those nuances.
On this episode of Investing in Real Estate, we’re diving deep into the world of LLCs for real estate. I’ll share why most professionals advise investing in an LLC, but also discuss some exceptions to the rule. If you’ve ever wondered about putting your rental properties into an LLC, this episode is for you!
More About This Show
Before we get into it, let me remind you: I am not a lawyer or CPA and I can’t give you specific advice. This is just general information and what my team notices as we work with investors. As always, I encourage you to do your due diligence and seek out your own legal and tax advice.
Generally speaking, most lawyers will encourage you to buy real estate in an LLC for liability purposes. But remember, it’s just a general piece of advice and it might not be right for your situation. There can be multiple benefits to buying real estate within an LLC, but it’s not the right answer for every single situation.
When my team works with an investor, we don’t have a one-size-fits-all blueprint that applies to everyone. We get to know you and your goals, and then figure out the fastest way for you to reach those goals in a way that fits with your unique circumstances. So while many of our investors buy properties within their LLCs, not all of them do.
Part of your decision should include how you’re going to finance your properties, as well as your overall portfolio growth strategy.
One of the most common financing options is conventional financing. As we talked about last week, although rates are rising, they’re still relatively low, historically speaking. But if you’ve ever tried to buy real estate with the bank’s money, you know this LLC situation can be a little tricky. Many banks won’t allow you to purchase real estate in an LLC, because they want you to be personally responsible for paying back the loan.
Same goes for wanting to utilize a HELOC shortly after purchasing your property, the bank is going to want you to be personally liable. If this is your scenario, you may want to pump the breaks on putting it into an LLC. But again, it’s not black and white! At our company, we work with more than 100 lenders, and they all have different standards and underwriting requirements.
The key here is to get an understanding of what’s required of you from your lender before you make this decision. Otherwise, it can be quite a hassle. It can add more steps to the process and cause you to spend extra money dealing with quitclaim deeds and whatnot. Trust me when I say, you want things set up correctly from the get go. I’ve had to restructure things in my business before, and it was a costly mistake.
Non-recourse financing, on the other hand, is a totally different animal. With non-recourse financing, the loan is based on the merit of the investment–not you personally. Because a non-recourse loan is a commercial product, it pairs perfectly with a legal business entity like an LLC. Check out my video on non-recourse financing to learn more about this type of loan.
Another scenario we see a lot is investors buying a property through a self-directed IRA. Generally speaking, an LLC + SDIRA combo is not recommended. However, it can be done if it makes sense for your situation.
Something else to consider is what your investing team looks like. Are you the only person involved? Are you buying real estate with your spouse? Do you have another real estate partner? If there are multiple parties involved, you’ll probably want to set up some sort of LLC or legal entity, generally speaking.
As you can see, there are several factors to consider when you’re deciding whether or not to set up an LLC for real estate investing. It really depends on the type of protection you’re looking for, the purpose of the LLC, the investment type, your financing options, and more.
But even though there’s no simple answer, consider that a good thing. The last thing you want is some cookie-cutter strategy for real estate investing that claims to be a universal solution. You should always do what’s best for you, your personal situation, and your goals.
If you want to know more about our customized and done-for-you real estate investing service, you can schedule a free call at morrisinvest.com.
Book a Call with Our Team
The Truth About Mortgage Interest Rates
The Power of Non-Recourse Financing for Building Wealth
morrisinvest.com/bootcamp ← Download your FREE 90-Day Bootcamp!
Subscribe to Investing in Real Estate on iTunes
Find Your Financial Freedom Number
Subscribe to the Morris Invest YouTube channel
Like Morris Invest on Facebook
DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning, at NO additional cost to you, I may earn a commission if you click through and make a purchase and/or subscribe. However, this does not impact my opinion. We recommend them because they are helpful and useful, not because of the small commissions we make if you decide to use their services. Please do not spend any money on these products unless you feel you need them or that they will help you achieve your goals.
Ready To Build Passive Income Through Rental Real Estate?
Ready to talk about your goals? We're here to show you the tools and teach you the process to begin earning legacy wealth for you and your family.