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

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