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How Using Two LLCs Can Boost Your Real Estate Business

Welcome to episode two of “Grant, Teach Me Something.” If you missed our first episode, we talked about the benefits of multiple LLCs in protecting your property investments. This week, we’ll build on that and explore how the two LLC system can also help you make more money.

Why Use Two LLCs?

Quick Foreclosure Process

One of the primary advantages of using two LLCs is the ability to foreclose more quickly on a property. Instead of getting bogged down by potentially lengthy legal processes, two LLCs structure helps you regain control of your asset faster.

Key Points:

  • Speed: Quicker foreclosure process
  • Control: More leverage over your property
  • Protection: Safeguards against long-term holding costs

Charge Higher Interest Rates

With a two LLC system, you have the advantage of charging higher interest rates in owner-financed sales. This extra income can add up significantly over time.

Higher Rates:

  • Using two LLCs allows you to charge higher interest rates, potentially increasing your overall profits from a single property deal.
  • For example, if your Adjustable Prime Offer Rate (APOR) is 3.5%, without the two LLC system, you could charge around 10% interest.
  • With the two LLC system, you can bump that up to 12%, creating a more profitable venture.

Structuring Your LLCs

Initial Setup

Set up LLC 1 and LLC 2. Purchase properties through LLC 1, then sell them to LLC 2 via an owner-financed transaction. This creates a lien between LLC 1 and LLC 2, giving you control over the asset.

Selling to Buyers

Finally, sell the property from LLC 2 to the consumer (your buyer). This structure creates a subordinate lien for the buyer, making it simpler for you to regain control if they default on payments.

Steps:

  1. Create LLC 1: Buy properties under this LLC.
  2. Transfer to LLC 2: Sell the property to LLC 2.
  3. Final Sale: LLC 2 sells the property to the end consumer with a subordinate lien.

Benefits Summarized

  • Speedy Foreclosure: Quickly regain control of your asset.
  • Higher Interest Rates: Charge more, earn more.
  • Secure Structure: Protects your property and your financial interests.

Real-World Example

To put it in perspective, let’s assume:

  • APOR is 3.5%
  • Without two LLCs, you can charge a maximum of 10%, meaning monthly payments of $833.
  • With the two LLC system, you can charge up to 12%, bumping monthly payments to $977.

Over a typical 30-year mortgage, this simple change can earn you an additional $52,000 per property. If you handle multiple properties each year, the financial impact could be considerably significant.

Wrap-up

Incorporating a two LLC system into your real estate business strategy offers numerous advantages. Not only does it enable a quicker foreclosure process, ensuring you can regain control of your assets more efficiently, but it also allows you to charge higher interest rates on owner-financed sales, significantly boosting your profits.

By structuring your LLCs effectively, you create a secure framework that protects your investments while maximizing your financial returns. As demonstrated, this approach can lead to substantial long-term gains, making it a valuable addition to any real estate investor’s toolkit.

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