Building LLC Business Credit?

[Aeron]

Scenario: I have an LLC and want to borrow from the LLC to buy rental real estates.  At first, I have to use my name to cosign for the loan, but later on I want the LLC to borrow money on its own.  Many people told me that I cannot just borrow money from an LLC itself to buy real estate and most of the bank will require personal guarantee.  In addition, they advised me to have 1 LLC per property.  How am I going to build a business credit if I have 1 LLC per property where each LLC has its own TID number and bank account number?  But if I have only 1 LLC then it will not be a good way to protect my assets.  I want to build the LLC credit but also must have solid asset protection.  

Thank

[TMCG]

first of all, reread your post.  read it several times. especially towards the end.  what do you think?

insanity?

yes.

private message me.

[gatorgirl]

Borrow in the name of the LLC but personally guarantee.  Over time, if you maintain a relationship with a lender, repay within terms, they may not require a PG.  These HML's require such equity, the credit of the borrower is rarely an issue.

Keep the same LLC for each property.  Start buidling biz credit right away.  If you want to learn how, visit creditboards.com  It's a great resource for building biz credit.  They provide all the steps.  It's just a forum where business owners exchange tips on building credit.  I'm not affiliated with it--I think it's been around for years.

[TMCG]

gatorgirl, how is this working out for you?  how long have you been in the business?

[gatorgirl]

Rehabbing?  Or building business credit?  I've been in the construction business 15 years (mostly new construction), but I have found the rehabs to have more profit.  I'm buying 400k homes in hot areas, investing 100k in rehab and reselling for 800k.  No investors want houses at this price, so I get what I want.

Building business credit is something I've done for three companies I've owned (various industries).  If the right steps are followed, good credit lines with Lowes, HD and HD Mastercard can be attained in 60-90 days with NO PERSONAL GUARANTEES!

Creditboards is a godsend.  

[TMCG]

roger that.  i've got crediboards on my favorite list, but i have not been there. guess i'll check it out.

[TMCG]

so i went to creditboards.

i'm wondering if Wells Fargo biz CC reports Paydex?

[gatorgirl]

most credit cards do not report to DUNS or Experian.

[TMCG]

so Equifax is best to use when checking credit?

[gatorgirl]

Actually Equifax is the "new boy" on the neighborhod.  I think GE is the only company that uses EQ.  Most companies use DNB but beware--they are difficult to deal with.  They try to sell you their "credit builder" everytime you call in---to the point of it being extortion "we will mess with your file unless you pay us $599".

Experian is getting more popular and they report as is reported to them.  

[Aeron]

Thanks a lot Gatogirl,  but since you are doing rehab, you are not going to worry about liability much compare to rental properties.  If I am using 1 LLC to buy properties then I will be able to build my credit but what is about asset protection.  If I get sued, will all of my properties be at risk? My strategy is build business credit for 1 parent company and hold real estate in 2 different LLCs.  For instance, Set up LLC A to borrow money and build its credit but deed everything under LLC B or LLC C.  The purpose of LLC A is to manage LLC B and LLC C while the purpose of LLC B is holding less risk properties and LLC C holding more risky properties.  

Aeron

[TMCG]

well aeron,

if you link each company together, i.e. - LLC A owns and operates LLC B and/or C - then if LLC A gets sued - B and C are thrown into the mix.

when i read posts like yours, i have to be honest - i think they sound totally insane.  and i'm not making fun.  i'm simply reading the post and shaking my head.  it seems like an aweful lot of stuff to consider.

S I M P L I F Y

how do you plan to build biz credit for A, and "deed" everything under B and C?  are you financing your purchases?  because if you are - "deeding" or changing title ownership on any property is considered a violation of DOSC.  this could cause your lender(s) to accelerate the loans.  you can't just do whatever you want - when you BORROW money.  now if you're paying cash or using other types of lenders (HML for instance), then you may have more "flexibility".

frankly, i just don't think things have to be that complex in order for you to avoid the possibility that you are sued.  

if you take excellent notes of everything you do.  take good precautions to try and make sure your property sites are well kept, run your business like a business, and you obtain liability insurance - you improve your defenses against law suits.

start up a dozen LLC's and miss a meeting here, forget to take notes there, quit claim properties over there, while not doing X Y and Z here - you may find a court of law disregarding the legitimacy of LLC A, B, C, D, E.....

S  I  M  P  L  I  F  Y

[johndito]

TMGC and co.,

Are you suggesting that obtaining insurance is the way to protect against liability?  As I would like to take your advice to keep things simple, I, like Aeron, have found a lot of advice somewhat confusing.  In the real world of REI banks do not want to lend to an LLC (a least I ran into this issue), so Aeron's question is legitimate - how does one limit liability (be it a land trust, LLC, etc.) while also keeping access to OPM.  I am looking to keep things as simple as possible and would be interested in your thoughts n the mechanics of how to do it.

Thanks.

[TMCG]

john,

with an LLC you still have access to OPM, even without biz credit.  but this comes down to personal preference.  

if you want to purchase rehabs or rentals - you can obtain financing, but you will most likely need to personally guarantee the loan - thus you would need credit...or obtain a partner who has good credit and use his credit to obtain loans.

LLC, if it is managed correctly, still will offer limited liability.  however, you or your partner will be personally liable to pay back any loans taken out.  

what you want is financing for your company, in the name of your company, and you want the financing to be under your biz name, so that your biz name recieves credit for repayment of the loan.

you want all this while you or your partners name is only required to sign a personal guarantee for the loan - i.e. loan won't show on personal credit.

NOW, this is PERSONAL PREFERENCE.  you yourself must answer the question:  do you want to personally guarantee loans?

some questions to accompany that question might be:
what do you own?
how much do you have to lose?
how comfortable are you with such risk?
are you married? if so, how does your wife feel about such an arrangment?

IF you decide that you do not want to personally guarantee a loan - you can then start NOW building your biz credit by getting biz CC's and begin investing in small deals that you can possibly pay cash for - i.e. vacant land you buy at low cost to flip for small profits.  

or you can choose another investment strategy such as "wholesaling" - where you don't necessarily need financing, credit, or money. you just need to find these deals and know the ins and outs of a assignor-friendly contract.

or you can become a realtor, partner with another experienced investor, etc, etc, etc...

the choices are yours...and there are alot of 'em.  

think of let's say...Microsoft Corp.  - i don't know exactly the history, but lets say Bill and the boys had these great ideas for personal home computers...but their business had no money and they were using all their own money up to just make it through the next month...so, with their business not having any credit - they decided to personally guarantee a loan and put the money into the company....that's essentially the same thing that we're talking about.  

the GOLDEN rule for any business is:
Have a customer first!  this means you project you will have a product/service that will MAKE MONEY.

real estate MAKES MONEY...but that depends on the investment and the investors savvy.  

i say build the "savvy" and reduce risk.  i don't care if it takes me 2 years to get there...where am i going?  lol  it takes time to build a business.  sure there are guys on here that will write about "analysis paralysis", but if you keep plugging away, do it RIGHT...it's definitely doable.