I would form an LLC but you should talk to a competent Real Estate Attorney to advise you in setting one up correctly. Also, check with your accountant before forming an LLC to make sure each of your personal situations are taken into consideration when deciding how to file taxes.
When you go bigger you enter the Commercial loan arena which comes with a lot more hoops to jump through. It's easier to qualify for an owner occupied 3 flat than an Investment with more units. You may have the income and the credit score but the lender will take into consideration your experience in doing such rehab work and the projected rental income (they'll use a % of the rental income and factor in vacancies along with expenses etc). You'd be surprised at how many cosmetic rehabs turn bad after work starts (plumbing is inadequate to accomodate a new kitchen/bath, electric service needs upgrading to accomodate new lighting/appliances etc). That's why a lender wants a greater portion of the purchase price put down so that they're protected if there's a problem.
Talk with a lender that knows the ins and outs of such a loan. Feel free to contact me via my profile and I can put you in touch with individuals that you can discuss your plans with.
Good luck, Ken.
The other advice here has been excellent. Good luck.
As for LLCs, it is worth noting that Illinois now allows "serial LLCs" that can enable investors to compartmentalize their assets into separate companies each one separated/protected from the others.
Pundits and Investors are all reporting significant improvements in the local rental market, with a very positive trend here for all of 2008. thats the good news.
The bad news is that the Chicago Landlord Tenant Ordinance is very tough on landlords and pending legislation in Springfield will only create new challenges. There will be SIGNIFICANT risks ahead, not just from the perspective of putting your money and credit on the line to acquire the property, but from a day to day operational standpoint as well. Be sure to select knowledgeable and experienced legal counsel to help guide you through the process. Acquaint yourself well with the nuances of the tenant ordinance. Join a landlord or building owners association for additional resources and support.
It will be the LLC that is sued and not the building in question that has the problem with the plaintiff.
I think what's more important from a liabilty perspective is to make sure you are protected with an Umbrella insurance policy. These policies range from a million to 5 million and are not that expensive.
I completely agree with Ken that you need to talk to an attorney, an accountant and the lender.
It's still very helpful to get Dirk, Mwas, Ken and Greg's input too. I'm curious to hear more about the financial aspect of the LLC when it comes to getting a loan.
An LLC is a great vehicle for you guys. LIABILITY...say it with me. That is the name of the game here and avoiding it with rental Property is crucial. This in most markets is the proper vehicle to use. So you are on the right track there.
Now as to the issues of going bigger. That is all about the financing. I think that I would try and go bigger if you can. You will need a good lender and I think your down is ok for 4-8 units but after that things could get a bit tough. Look for owner Financing and or a 10% carry back as that may help. Your on the right track here. Pooling your cash to obtain wealth is a great idea and mulitfamily property can really help you to get there!
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