Question: I intend to purchase an Arizona real estate property for investment in the near future. My plan is to rent the home or I might fix it and then flip it. I know I need to put the property into a limited liability company to limit my liability and protect my life savings from things that could go wrong with the property. Should I form the LLC before or after the acquisition?
Answer: Either way is fine, but you can save yourself some administrative tasks and some money by forming the LLC first so it can be the grantee on the deed that conveys title. The important fact is that you make sure the LLC holds the title so that it will be the defendant in any lawsuit that arises from the property.
The benefits of forming the LLC first so it can take title are:
1. The LLC is the original owner named in the deed from the transferring property owner.
2. The LLC can be the insured on the property and liability insurance policies from day one.
3. The LLC can be named as the insured on the title insurance policy if you purchase title insurance at the time of acquisition, which as a real estate lawyer I recommend you always do.
If you purchase the land in your name first instead of in the name of your LLC then you must do the following after you form the LLC and acquire title:
1. Prepare a deed, sign it and record it in the county where the real estate is located.
2. Cancel the property and liability insurance policy and get a new policy that names the LLC as the insured.
3. Get an endorsement on the title insurance policy that names the LLC as an additional insured.
Warning: Do not sign and record a deed to the LLC before it is created. You cannot put the title in the name of the LLC unless it exists at the time the title is transferred. A deed to a nonexistent entity is void and creates a cloud on the title.