Structuring Rental Real Estate LLCs?
I'm in the process of acquiring a 2-unit residential building with a partner and I'm going to have single-asset entity LLC formed for the property. I'm going to acquire this property with a personal mortgage and re-deed it to the LLC. Eventually, I'd like to pick up more properties under the same construct... once there's a sustained income, I'll get a new mortgage run through the business.
I plan on having partners contribute $XXX monthly into the business to establish a reserve/build equity. The only problem is that once there's mutliple properties, I'm going to have to seperate the contributions and distribute the money into varying accounts.
Here's what I'd like to do... I want to have a seperate LLC established for all capital contributions. Sort of acting as a management LLC so to speak and deposit rents and pay the mortgage through there.
Does anyone have any experience with doing this?
Sorry I'll be more specific... All real estate would be held in a shell. For, as you pointed out, the liability issue. But what I'm thinking is.. could I have the specific property LLC owned by seperate LLC, have 100% of property equity pass through there, and have all capital contributions run through that parent company.
With respect to the "personal motgage"... Commercial property is tyupically lent at an 80% loan-to-value. Consumer loans (1-4 unit) are less stringent. As I don't have 20% to put down and I have no historical cash flow, I'll be taking out a consumer loan on the property and re-deed to the business after closing. After a year or so once there's more equity in the property and there's established rents, i'll get refinance with the business as the borrower. Note that while the mortgage is held personally, despite the asset being deeded and reported with the LLC, I would still be personally liable.
Al the properties will be owned equally by all partners. Rental real estate is better suited as a long term investment. although it will be a cash flow property, all income will be used as equity to fund other projects or strengthen the collateral position of the existing properties. A monthly capital contribution will be made by owners to further contribute equity to the project(s). There will not be distributions of retained earnings in the foreseeable future. I structure commercial loans for a living. I don't need advie on structure, as mine is the most conducive for what I'm trying to accomplish. I need a response on my only question which is having a parent LLC to oversee all SAE LLCs
- LandlordLv 71 decade agoFavorite Answer
You have investors giving you money for this?
- 1 decade ago
Put each separately deeded property into it's own LLC. Think of them as disaster containment units. The intent is to limit the liability loss to that asset. Keep the reserve cash for each LLC in separate accounts. If you "mix" them, you open yourself to spillover of liability to the other LLC's. Also, avoid doing personal work in the units. If you are the one that leaves the banana peel out that causes the accident and liability then your liability extends back to all of your personal assets.
You mentioned you would acquire a "personal mortgage". You want to expand on that? Your lender might become an obstacle here and this is where the concept of partnership gets hazy.
My update with new information.....
Wow! Try and be helpful and the next thing I see is a thumbs down attributed to my comment. Oh well!
I'll add to what I've already said. First, the quick answer is yes, you can have a management LLC overseeing the other LLC's.
Let me ask this though. You are in the business of arranging commercial loans, is there a lender (the one that is giving you a "personal" mortgage) that will allow this to be an investment property that you will re-deed to an LLC that has you and a partner as members?
- 1 decade ago
Seperate LLCs for every property you aquire.
What troubles me is that you are charging other partners for these properties. Is this purchase not an investment? If it is, and I can't imagine why it wouldn't unless you and some friends are buying a place to live, it should, at the veery least, cover all costs associated with it. A good investment will pay you and the investors, so you should be writing a check for the partners, not vice versa.
The mortgage should be in the LLCs name, don't even bother with the personal mortgage and trying to trnasfer....
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