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HMW #110: Do I need an LLC to invest in real estate?

alan corey commercial dti how to start lending llc real estate 101 Jul 12, 2023

Read Time: 4.25 minutes

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To LLC or not to LLC, that is your question.

There is a time and a place for an LLC and chances are you are neither at that time nor place. I (Alan) was 10 years and 10 properties in before I got my first LLC for my personal deals.

I'm going to break down for you 3 ways when you know you are ready for an LLC.  But why are you so concerned about this LLC part anyway?


Ok, good news! You can be a boss without an LLC. In fact, you'll probably be a better boss without an LLC.

Unfortunately most people spend their first 3 months as a real estate investor thinking up a creative LLC name instead of actually looking at deals.  Please don't do this just because...


You think you need an LLC to invest in real estate.


Or maybe you think an LLC and a great punny name are so very important because:

  • This is going to be your brand.
  • This is your new identity.
  • Logos are fun to make.
  • That boss thing.

Ok, no worries. It's natural to be in this state of mind when starting out and I'm going to help you navigate around these wasted months of unproductive LLC-creation time.

First, it takes literally 5 minutes to create an LLC online. So 3 months is insane. 

And second, no one ever sees or knows your LLC name outside of attorneys, accountants, and utility providers. You can call yourself anything you want, it doesn't have to match your LLC name. It's called DBA (doing business as) and you can figure all this junk out later when one of the 3 scenarios below applies to you that officially tells you that you are ready for an LLC.


Scenario 1: You are getting a commercial loan

You get the best rates and the lowest down payments with residential loans. Also the max number of residential loans one person can get is 10, and that can be any combination of single families, duplexes, triplexes, and quadraplexes. Yes, you can get 10 in your name and 10 in your spouses name. (A reason not to put both your and your spouse name on a mortgage as well.)

The one rub with residential loans? You can only get them in your personal name. If you have an LLC, then you have to go commercial loans where they are more expensive to get, more expensive to maintain, and more expensive then it comes to taxes.

And before you argue the tax thing with me, yes, you get the same benefits any real estate investor gets regardless if an LLC is involved or not, so don't make this new investing endeavor more expensive for yourself when first starting out. 

Do you see the power behind residential loans now?


It's okay, I didn't expect you to and this is a very common rookie sticking point. But there is another time when starting an LLC does indeed make sense.


Scenario 2: You are raising money from investors

If you are pooling money together to do a deal, forming a partnership, investment group, or creating a joint venture where members have different roles and responsibilities, then yes, an LLC makes sense.

It's easier to raise money, get funding, and track the finances in this type of multi-operator deal than have it run through ones personal bank account and agree to job roles via text messages and handshakes. Spell it out on paper and form that LLC.

You don't want to be personally responsible for a loan if it's all riding on someone else to carry their weight. Let that risk ride on the LLC, where all the members will be affected if things go wrong.


That's umm, a, err. definite maybe. I want you to take calculated chances in real estate while also reducing as much risk as possible.

LLC stands for Limited Liability Corporation, which is why I want you to have limited liability in a partnership where you are officially not responsible for everything. This is similar to what rapper Limited Liability Cool J does to reduce his risk of being on diss tracks.


Sorry LL! That wasn't you? I must of be thinking of my homie LL Bean then. My bad.

Lastly, let's talk about one more scenario where it probably makes sense to form an LLC.

Scenario 3: You have over $500,000 in equity in your properties

Ok, most investors don't start with $500,000 of equity in a property but if that is you, congrats, you are ready for LLCs. Many will first get there with a portfolio of properties totaling $500,000 in equity, which is a major and huge milestone! And much harder to achieve if you formed an LLC from the very beginning.

When you reach this stage, I would recommend you do a cash-out refinance with a portfolio loan (which requires an LLC) to access this equity and get it out of your personal name.

And guess that this allows you to do? Go back to getting personal name loans because you don't have any after doing this. And you rinse and repeat the process for the next $500k threshold.  And you'll be an official millionaire the second time around!


Perfect, seems like you get it now. Pause on that LLC until you are halfway to being a millionaire. At that point, you can finally do what real bosses do.


Oh boy. 


  • Residential loans are a super power, use it as long as you can. 
  • Partnerships with defined positions are what LLCs are for.
  • Limited Liability Bean doesn't have the same ring to it.
  • Half a million equity means its big boss time.


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