How to start a real estate investment company?
I am currently in the middle of construction of my first flip home. I want to start planning now to have a real estate investment company and have multiple properties at once. If I start an LLC, I will need to show 2 previous years of income through the company in order to be approved for a property. But if the source of income for the company would need to be brought in through the purchase, repair and sale of homes, how do I show income when I have no properties through the company?
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Answer by Real Estate CFO
Since I'm assuming you will be a single-member LLC, you have some flexibility, but it involves blurring the lines a bit between you and the LLC. First, contribute the property you are in the middle of into the LLC. You can do it through a quit claim deed and, in most jurisdictions, you can avoid transfer taxes if you are transferring to a related party. That will start your track record as an LLC. If you have good credit, get a line of credit in the name of the LLC, most likely it will require a personal guarantee from you.
If you don't have credit, consider paying someone who does a fee to guarantee your line of credit. The line is critical to buying property, since you will be able to make cash offers not contingent on getting a mortgage, which sellers love to see.
The other alternative is to find investors that either contribute to your master LLC, or contribute capital to a separate LLC that buys particular properties. Be careful in raising that type of capital, since you may be subject to Securities and Exchange Commission rules regarding soliciting investors. If you go this route, talk to an attorney with SEC experience.
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