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When to Form an LLC for Real Estate?


Hey, folks. Matt Horwitz, LLC University.
Hope you’re doing well. Let’s talk about a major mistake that real estate investors make
in regards to set up their LLC. Just got a phone call today and we’ve gotten
dozens and dozens and dozens of these phone calls. People phone in saying, “Hey.” They’ve
done some research. They’ve learned that they need to set up an
LLC for their investment properties so that they can protect their assets, but they already
bought their property in their name. They think that just setting up the LLC is
going to somehow magically protect their assets. That’s not the case. If you think about it,
those properties are owned by you personally. Just setting up an LLC, it’s not affiliated
with that at all. An LLC doesn’t protect anything you do magically, right? You’re setting up
an entity. You’re creating an entity, you’re creating an entity by state statue. That entity, therefore, needs to own the property
and do the business. What I mean by that is that when you’re purchasing
the properties, you’re purchase contract, your agreement of sale, the deed, any financing,
all of that is in the name of the LLC. The LLC holds title to the property, not you
personally. Got a phone call today from a guy in California who owns three different
properties all financed by three different banks and wanted to set up an LLC to protect
his assets. I said, “Yeah, just so you know, don’t go
ahead and set the LLC up right now. What you need to do is you need to call each one of
the different banks to see if he can refinance or transfer the title and how that’s going
to affect the loan.” Once people kind of understand like, “Okay,
cool. I realize that I need to transfer the title into the name of the LLC.” Right. They
realize they need to do that. Sometimes it’s called a dollar deed. Basically, where you are in the United States,
it’s going to be sometimes the name of the deed may be called something different. There may be different fees, but essentially
you’re going to be selling the property for one dollar from yourself to your LLC, but
if you have financing and you have mortgages attached to those properties you can’t just
knock it out and do it really quickly. You have documents and documents and mortgages
and clauses and things that you signed at settlement. Just because it’s going from you
to your own LLC, it doesn’t matter. To the finance company, it’s going from the
seller to a different buyer, right? You need to pick up the phone, call the different bank
and say, “Hey, look. I need to get this title out of my own personal name and put it into
the name of the LLC.” Now, some people are going to be out of luck
because some banks may not allow it. If they’re going to be lending to an LLC even with you
personally guaranteeing the loan, it’s no longer going to be residential loan. It’s therefore a commercial loan and commercial
loans take place usually within a different department in the bank. They have different
terms and they have different rates. You’re essentially refinancing the property
in the name of the LLC. It’s a bit of a mess really. Hopefully, if you’re watching this
video you’ve caught it before you purchased your property. You need to purchase your property and obtain
your financing in the name of the LLC and order for
that LLC to protect your personal assets.

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