Posted by Marty Weisberg on December 12, 2000 at 05:28:09:
Dale,
You are right. You are right on virtually all counts. So you can tell your wife that. One of the reasons that the LLC is such a wonderful tool for REI is that it does protect or separate the assets from personal liability. The point that you are missing is that we as investors do our best to NEVER use financing in our names (either individual, LLC, or corporate). That is what creative REI is all about. Hang around this site and the other REI sites and you will see that.
Posted by Dale (WA) on December 12, 2000 at 24:01:50:
Hi All,
I am a newbie and I am pretty sure my question will adequately demonstrate that for you (I guess we all have to start somewhere right). I’m currently researching what’s required to get my LLC up and running to use as a platform for REI.
The Limited Liability Company is marketed by many in the legal and accounting professions (and many folk on this site) as one of the best ways to structure a business for those entering the REI game. The LLC provides protection of personal assets for any of the principals, because, as the name suggests, the liability of the company is restricted to only the company’s assets. No surprises here.
Here’s where the bright light has only just turned on. Obviously, when starting out, unless I have large amounts of cash/assets to transfer into the business name, I will need to provide some sort of principal’s/director’s gaurantee for the loans/mortgages created by the business in the normal course of operations thereby compromising any Asset protection objectives. I’d imagine this would be the case until enough assets/income was generated by the LLC alone to warrant the lender not requiring a gaurantee.
As I’m the motivated one and my wife has been burnt with self-employment before, I have told her that whatever we do in the business name will not impact our personal finances, specifically liability. I am thinking I may have been a little pre-emptive but I would love to be corrected on this one. Could you guys and gals please confirm for me that my thoughts are correct or describe any other alternatives. For example, what would a hardmoney lender require in the way of security.
Posted by JPiper on December 12, 2000 at 09:51:41:
Normally the rule of thumb would be a corporation for flips and rehabs, an LLC for properties that you will hold. Knowing which direction you are headed would help to dictate which entity you might want to start with.
If you’re obtaining financing from an institutional lender though they will require personal guarantees, or perhaps not permit you to deed to the LLC/corporation at the outset. You will have to build a track record.
You can side step this particular issue by using “creative financing”…but the type of entity will be driven by what activity you are doing.