4-plex - Posted by Tarone

Posted by ray@lcorn on October 31, 2002 at 18:53:03:


Sorry, I sort of lost track of who had what!

Do the LLC no matter what, but check with the loan originator first. I really don’t know the FHA regs, and don’t want to steer you wrong. You may get some help on the finance forum too.


4-plex - Posted by Tarone

Posted by Tarone on October 24, 2002 at 17:05:16:

I just purchased a new 4-unit residential building and now I have some questions concerning my best options. As far as setting up a bank account specifically for the building, is it necessary for me to get a business name or better yet, an LLC? This is my first property and I do not have any real substantial assets at risk at this point, so I am wonderign if it is necesary to bother.
Secondly, can anyone give me some suggestions as to what bookeeping methods I should use.

As you can tell, I was quite the newbie in RE and coudl use all the helpful advice out there. Anyt helpful advice that comes to mind is greatly appreciated.

Thanks again.

Heed Paul’s advice - Posted by ray@lcorn

Posted by ray@lcorn on October 25, 2002 at 15:12:35:


Paul is right. Never, never, never take title to investment property in your own name. The liability exposure is just too great. Take the time to set up an inexpensive LLC to hold properties with. Ask this same question on the Legal Forum and John Hyre will spell it out for you. John also has a text written for beginning investors about bookkeeping. You would be smart to get the help he offers.


Re: 4-plex - Posted by tyler, nc

Posted by tyler, nc on October 25, 2002 at 07:21:31:

Since this is your first purchase and you have mimimal assets, i would hold off on putting it into seperate entity -you can always transfer at a later date. Get a seperate checking acct. just ask your bank to set up a seperate personal checking (not business acct) with no fees, give it a name, also, open a personal savings acct. “trust account” listed in name title -put security dep. in this acct. Highly recommend buying Leigh Robinsons: “Landlording” book. also check out mrlandlord.com web site

Re: 4-plex - Posted by Paul Zankowski

Posted by Paul Zankowski on October 25, 2002 at 07:55:23:

I respectfully disagree with tyler, nc. There are many tax advantages to be enjoyed from parking even your first asset in a limited liability entity (e.g., LLC). And I would not delay seeking the liability protection these types of entities provide either. The fact that you may not CURRENTLY have substantial assets is less important than the fact that you should be carefulu to protect your FUTURE substantial assets. By this I mean simply that judgment creditors (should you, god forbid, eventually have some (e.g., slip-n-falls at your 4-plex)) can attach and seize and sell and take away from you your income and your assets as you earn and acquire same. But if you park the asset in a single-asset entity and follow the legal advice and tax advice you SHOULD get to make sure your entity is respected by the law (i.e., to make sure that your entity is treated as legally distinct and separate from you), the only thing at risk should be the single asset itself – and NOT your future. Not your potential. Not the substantial assets you someday hope to amass.

Good luck, and good investing.


p.s. it doesn’t have to be outrageously expensive to get an entity set up if you’re willing to do the work yourself. NOTE – you do not need a lawyer to organize and create legal entities. But you will have to spend time and energy and brain cells figuring out how to do it yourself if that’s what you want to do. AND, finally, I do recommend you get at least some legal and accounting advice to make sure your plans are the best plans for you.

Re: 4-plex - Posted by tyler

Posted by tyler on October 25, 2002 at 12:58:07:

Paul, everyone has an opinion. However, I’m concerned. On one hand your stating that a seperate entity is needed to protect your future income streams (since no present assets) then at the end you say that you don’t need a lawyer. For what it’s worth, if one is so worried about protecting assets/income, one should not be so cheap as to not getting proper advise in setting up a corp entity. And by the way, unless you are making a lot of income, no lawyer is going to waste his time going after you if there are no assets and no major income to attach.

Re: 4-plex - Posted by Paul Z

Posted by Paul Z on October 25, 2002 at 16:57:50:

Tyler, you’re right. My last post was internally a little inconsistent. Sorry. What I meant was that non-lawyers can do a lot of the work themselves by reading books about the reasons to have limited liability entities, etc., and non-lawyers can actually set up the entity, maintain the corporate records, etc. themselves as well. On the other hand, legal and accounting advice at the outset to make sure (a) the non-lawyer in question has figured it out correctly and (b) the non-lawyer has figured out most of the issues/problems is a good idea.

I was really just trying to say that you can REDUCE the costs of professional advice by doing independent thinking and research. I did not mean to say that you can (or should) eliminate those costs entirely.

On your last sentence, that may or may not be true. I don’t know. But I know if your assets are in a separate legal entity, it’s much more of a non-issue.

I’m not trying to give you bad news or rain on your parade. Far from it. I want you (and the rest of us on this board) to be wildly successful. I just don’t happen to think it is a good idea to hold investment assets individually.

It is harder and more expensive to set up a legal entity, to do the things you have to do to make sure the courts/law will treat that entity as separate and distinct from you, the individual. But I think it is worth it.

BTW, Ray Alcorn had a post or 2 on this same topic several months ago. If I remember correctly, Ray said that in his business, he owns all his assets in limited partnerships or limited liability companies. And each asset is owned by a separate legal entity.

Food for thought.
Good luck.


Re: 4-plex - Posted by tyler

Posted by tyler on October 28, 2002 at 07:07:02:

Paul, your not rainy on my parade. I actually have a LLC for my property. My origianl point to (i think) tartone was that he was just starting out, bought his first rental, has no assets, and not a large income stream. I believe in protection, but I also believe the parallis (sp) by analysis kills people. Give the guy a chance to see if he enjoys landlording, educate him, and when he decides this is a business he will continue, and acquire more, THAN he should think about entity sturcturing and assest protection. You heard him, he has no assets. What he needs is a $1 or 2MM umbrella policy for now. I believe in education and proper measures for protection; but, entity structuring and the fear of legal issues are sometimes overblown to scare people into buying products they don’t neccessarily need -yet.

Re: 4-plex - Posted by ray@lcorn

Posted by ray@lcorn on October 28, 2002 at 10:13:33:


I understand that your intentions are good, but I disagree with the conclusion.

Whether or not someone has assets makes no difference as to setting up a business the right way. A judgment for negligence may or may not be covered by an insurance policy. The list of exclusions from coverage grows longer every year. That judgment then attaches to any future income or assets.

An LLC can be set up for a few hundred dollars, and provides lasting protection in ways no insurance policy can match. To not take advantage of that because of the expense is in my opinion, penny wise and pound foolish.


Re: 4-plex - Posted by tyler

Posted by tyler on October 28, 2002 at 13:05:10:

No problem Ray, I’ll drop it. However, if theres negligence than the corp. entity wont protect the individual either

Re: 4-plex - Posted by J

Posted by J on October 28, 2002 at 10:40:07:

was told it is easier to buy (qualify) an investment property (un-occupied) in our own names, then change title over to a newly formed LLC for the purposes of a long term rental property.

Looking to buy first property - from a liability point of view, as long as we set up the LLC prior to renting it out (SFH) - does this make sense?

Sorry for the question, but: How do we transfer title from ourselves as a married couple to an LLC owned by us and NOT have to get a new loan, eg., wouldn’t the first mortgage have a due on sale clause?


Re: 4-plex - Posted by ray@lcorn

Posted by ray@lcorn on October 28, 2002 at 15:43:40:


I’ll have to disagree again. The separate entity will protect against negligence. The only thing it won’t stop is a fraud conviction.


Re: 4-plex - Posted by ray@lcorn

Posted by ray@lcorn on October 28, 2002 at 10:50:37:


If you get a NOO (non-owner occupied) loan, the lender won’t have a problem with you transferring the loan to an LLC owned by the same principals as the loan was made to. Some lenders are skittish about putting that in writing, but I have done it a number of times and not had a problem. I’ve always told them up front that I was going to do it, and some have said “don’t tell me.”

To do the transfer, draw up a deed that transfers the property subject to the existing loan. No one sends notice to the lien holder, and they aren’t going to come looking as long as the loan is being paid as agreed. In fact, in today’s rate environment I would dare them to call the loan.


Re: 4-plex - Posted by Al M

Posted by Al M on November 11, 2002 at 10:39:04:

Do you recommend setting up a seperate LLC for every investment you acquire?


Re: 4-plex - Posted by Drew Kaplan

Posted by Drew Kaplan on July 18, 2003 at 19:00:24:

I have four guys that want to form a partnership and buy a 4plex with me. How many of the four should actually qualify for the loan and what type of loan should we get?

Re: 4-plex - Posted by tarone

Posted by tarone on October 31, 2002 at 17:54:49:

This is somehting I had not considered. My loan is an FHA loan that is assumable. I am not even sure yet if they woud have a problem with me transfering to an LLC, but if they do, you are suggesting keeping them in the dark? This sounds a little unethical. What would their reasons be for objecting is I can prove that I am the officer of the LLC?

Re: 4-plex - Posted by ray@lcorn

Posted by ray@lcorn on October 31, 2002 at 18:05:17:


No, read my post again. I said I always tell them, it’s just that usually they don’t want to know.

If your loan is on your residence, different rules apply. Garn St. Germaine doesn’t apply to non-owner occupied houses. FHA is another set of rules, and I’m not up on them.

I don’t do a lot of single family stuff. Usually only when someone calls and wants to give it to us. Then I place an NOO loan on it and title it to an LLC.

You’ll get better answers to single family stuff on the main newsgroup.


Re: 4-plex - Posted by tarone

Posted by tarone on October 31, 2002 at 18:11:59:

It is not an SFR, it is a 4 unit (I am the original poster for this thread). I will be living in it for 6 to 12 months (depending on the market) but then I intend to move out and keep it as an investment property. Eventually I will trade up.

Does this complicate the original question of whether or not I should put it in an LLC? Since I do have tenants the liabilities are the same right?

Thanks again btw. I appreciate your time.