Buying Rental Property with a Limited Liability Company (LLC)

– 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)

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