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.

48 comments on “When to Form an LLC for Real Estate?”

  1. The Invisible Man says:

    Great Info thanks … Where is the best place to find information on creating an LLC?

  2. shutterassault1 says:

    Can you still get conventional 30yr fixed financing if you go through an LLC instead of your name?

  3. Dennis Noone says:

    very informative, what if you own and rented the property for 4 years which is free and clear, would that be a problem? do you still have to pay the recapturing taxes even if you sell it to yourself for $1?

  4. Paxton Grant says:

    Hey but how would you convince a lender to lend money to a brand new LLC without you using your credit history?

  5. MrSimoMlt says:

    You can transfer property to an LLC by a quit claim deed. Or you can put the property in a trust then have that LLC own that trust. Talk to a Real Estate lawyer in your state on how it's done.

  6. jrodowntown says:

    Great advice. Thank you!

  7. mytuber81 says:

    I know you should set up an LLC first, but when do you know that you SHOULD set up an LLC as far as the type or amount of property you have? For instance if I'm interested in buying a multifamily 4 unit property is an LLC a wise decision? How about a simple duplex with me living in one side for a year, should I get an LLC on that investment/deal? Is there a special number of units or properties that would warrant an LLC? Thanks so much for taking the time to read and respond to peoples comments.

  8. Unnikrishnan Gopal says:

    hi . great info. i am in cayman islands and i am planning to buy property under LLC for business. what do you recommend

  9. Terri Reed says:

    I've purchased each of my properties cash. Would I need more than 1 LLC since I have multiple properties?

  10. Anthony Casola says:

    Recently retired, bought 2 houses all cash. I live in 1 and rent the other. As long as i'm honest on my taxes, claim all the rents and deduction, can I use some of that money for myself before the end of the tax year ? Thank you.

  11. Christopher Payos says:

    How about I set up an llc then let the llc buy my property below the market value?.?.?.?

  12. Jessiah Yoder says:

    Thank you for your videos; they are very helpful! If I have a holding LLC that holds an operating LLC, the way I understand it, the holding LLC should hold the asset and the operating LLC should perform all business transactions. If I were purchasing a rental property with cash, should it be purchased by the operating or holding LLC? Since the purchase is a transaction, should the operating LLC purchase the property with cash and then do an asset transfer to the holding LLC or should the holding LLC just go ahead and purchase the property outright? Thank you for your time! 🙂

  13. Airrick Paulmatear says:

    Bro, I wish you abundance. It seems like you are genuinely interested in serving. Keep up the good work.

  14. Trust Valentino says:

    After my property is paid off i will likely transfer the title to an LLC because i plan to buy another property for investment. My plannis to use equity from my paid off home to fund all or part of my next property. My questiin is: Would lenders such as my bank approve a heloc (home equity line of credit) to the llc, based off of the equity of the property? Is this a common practice or am i trippin?? Lol thanks in advance

  15. ABCDEFG says:

    How about transferring the title from my self to my llc for a paid off property? How easy/ difficult?
    Thanks

  16. NJNG18 says:

    Great vid. I created an llc to form a self directed IRA. Can this same llc also be utilized to buy rental property? If so does it require some seasoning to obtain financing for this property since its a new llc? Thank you!

  17. Matt Alexander says:

    You spend more time in this video being smug and condescending than you do explaining how to get out of the "mess".

  18. Evan Sweetin says:

    So I have a sole goal to buy properties and profit off of rental income, I intend to have many units over the course of my life, so would it be reasonable to set up my LLC before making any purchases? And when should I consider a holding company? Some people say I need to wait until I have multiple properties and some say do that first. Any advice/tips?

  19. Crottinger says:

    I have had an LLC for five years that is treated as an S corp passing to my personal taxes. It was started for another industry other than real estate but that industry is declining in general. I plan on doing some house flipping and putting the flip properties in the existing LLC. I need more income in this LLC as I am the only employee of the LLC and need a certain amount of income to be able to fund my 401K. If I get also into buying and renting real estate, (in addition to flipping) should I have a separate LLC just for the rentals? Or is it ok to have both flip property and rental properties in the same LLC? Thanks

  20. Makis Samuels says:

    Hi, the video made sense and exactly what I was looking for. I just formed a LLC and I want to purchase my 1st rental property. I contacted my lender and he advised me that I would need to purchase a home in my name and quick deed it to my LLC. I don't want to do that, I want to purchase in my LLC right away. Should I look for more lenders? Is it because I'm a new business?

  21. Whittney Price says:

    wooooooow, Im glad i watch this first! THANKS!!!!!!!!!!!!!!!

  22. Esneda TB says:

    A buena hora!!! Thank you for your teachings. GBU!

  23. jovan prunty says:

    What if you’re buying with your LLC subject to the existing mortgage? I know of investors doing this without having to refinance the loan already in place

  24. wizardswordplay says:

    What if I want to buy a home for myself to live in then eventually move and hold the property? Would I just be out of luck and have to refinance?

  25. Miguel Dominic says:

    So I live in Idaho, I could have an LLC in Wyoming and that LLC owns another LLC in Idaho and within that Idaho LLC is my real estate property or the Idaho LLC owns a land trust and the property is in that land trust. Is this correct? Also I say Wyoming because it's not a public LLC correct? As in people can't have public access to see what's in it

  26. Louis says:

    What LLC means?

  27. Linda Culbertson says:

    Very useful, but you could make this video significantly shorter but cutting out some repetition.

  28. Tee Bee says:

    And I've learned to check for Due At Sell clauses if you did want to switch to LLC after not starting with it to begin with.

  29. Jared Braun says:

    Can I use a heloc from my personal house I live in to buy a property free and clear through an LLC. Then refinance once it’s renovated to pay back the heloc?

  30. LLC University says:

    Hey folks, make sure to check the site for most up-to-date information: https://www.llcuniversity.com/when-to-form-llc-real-estate/. Or select your state and start forming your LLC with our free guides: https://www.llcuniversity.com/

  31. John Watcher says:

    Lets say I invest a million dollars into an apartment building, but I am smart enough to use an LLC. So now, if I get sued, they can only take my million dollar property and not my personal homel. Awesome. That still sounds like a raw deal. I would look into an insurace policy the covers everything instead. In that case, the LLC has less weight unless I own another million dollar property somewhere else.

  32. mudda bryy says:

    Thank you for that info!!

  33. Momentum says:

    Ryan from The Office? Lol you even sound like him! Thanks for the video, good stuff

  34. KD NOFYUDBN says:

    What if I bought it cash no financing?

  35. DapperDan says:

    So… if I’ve already purchased the home & own it out right & I just started an LLC. What the process to get it transferred over?

  36. Angela Reuss says:

    What if the property was already paid for in cash, but still needs to be transferred to the LLC? Should it be sold to LLC? Transferred? Quitclaim Deed? What are the benefits and drawbacks of these options?

  37. Sandra Coppedge says:

    One thing I still don’t understand and I have yet to see an explanation anywhere, is do you have to have an LLC for each and every property? That seems like it could get expensive! But if not, how could each property be protected?

  38. Adam William says:

    Do you really even need an llc? Can't you just get homeowners and umbrella coverage? That's enough protection

  39. cc young says:

    I have a house in Los Angeles, could I file my house under Nevada LLC ( where I live) to avoid the 800 franchise fee in Cali?

  40. Fail2Learn says:

    So I closed last week in my name, is it…NOOOO why they kill off Hodor! So upsetting LOL. After reading the comments I see all I need to do is call the title comp to change it over because its paid off. But if I wait 2 years then refinance should I be able to sell it to the LLC with a business loan?

  41. Raw Roy says:

    i just bought my first land with cash..no loan. Should I setup an LLC and transfer it?

  42. Dee Sean says:

    Bro thank you.. Ive been searching high and low for clarification on this.

  43. Carlos Salazar says:

    What if I own the properties Free and Clear from any mortgages, is it easier to put them on the LLC?

  44. Bryant Caminero says:

    Thank you for this video. Question, I am a realtor part time just to making extra income, but I also have a full time job. I do not own any properties at the moment. I do sales and rentals, would you recommend having a LLC for my situation for tax purposes?

  45. jen reynol says:

    what if i buy a food business in my actual name, im assuming as a sole proprietor, can i later change my bus structure when i create an entity such as llc scorp etc? if something goes wrong will i still be protected? or not because I, personally am the signed owner? how to go about this- in the post p.a. duration now- 1st business buyer. Help me
    how to change this, and what are fees in a dollar deed… about ballpark range in california for 1 business, no loans or mortgages.

  46. Alex O says:

    Hi what if I want the property back to my name? I can just sign it over? Great info thanks..

  47. ______________ says:

    Do a video on how to actually buy a property using an LLC, you touched a lot on Using LLCs after the fact….thx

  48. Tim Riehm says:

    Man really wish I could chat with you a minute. I haven't started my business and need consulation.

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