Anybody heard of a “Pocket LLC”?

I'm going to try this again to bring this question back to the top. Has anybody heard of a "pocket LLC"? Please read my original post at the top.

I have not heard of such a thing, nor see the benefits of it. I could be easily missing something, but it sounds more like gimmick than a technique. If I knew more I could get a better idea of how helpful it could be, if at all.

No I don't think it's a "gimmick" and I think it could be a good technique to add to our tool box. It sounds similar to a double closing I'm just trying to figure out the paperwork behind it.

Here are two links you can read more about it at. Too long to post here.

http://www.biggerpockets.com/forums/93/topics/37929-beginners-guide-to-w...

http://www.343homes.com/getting-around-non-assignable-contracts/

Thank you ~smcss for your research.

I have never heard of it referred to as a "pocket LLC," however, I think what you're referring to is more of a strategy for assigning a property when it is not assignable. Basically, you take title in an LLC name (some investors have several names that they have reserved)and they sell the LLC to another investor and let the investor close on the property. This method can be used for purchasing REOs because banks do not like investors assigning their contracts. Hope this is what you were looking for.

KimmyJ
Press on...

Kimmy, thanks for expanding on that!

Indeed I have read about this technique before. I don't know anyone who has actually done it, so I don't know how much is theory versus reality, but in theory it sounds great, but there are problems that come with it.

I've never heard of it referred to as a "Pocket LLC", and it sounded like a product you buy and not a "technique", hence my skepticism. Maybe I was thinking of the "Pocket Fisherman" or something, lol.

While it does sound like a creative loophole, and it actually is, I think there are other problems that come with it from what I have read about it.

1) Your end buyer is going to be really limited to investors who understand wholesaling. Explaining this to a retail buyer and having them buy an LLC to get rights to the property is going to be tough to do.

2) LLCs are simple in practice, but buying any business (LLC, C Corp, Partnership, etc) is a process in and of itself. Discovery and due diligence is required to avoid taking over unknown and untold liabilities. Although this LLC should be "blank", who really knows. If you are working with regulars than your reputation will make it all easier to do and a standard contract will be easy to do, and everyone knows it goes smoothly. But, I surely wouldn't purchase a company without a air tight contract that ensures no liabilities follow along with it. For instance, an unscrupulous person could create a LLC, write a contract with their brother they get a $5,000/month royalty for 10 years for providing some type of service rendered in the past, sell the LLC to you, you are on hook for the monies if you didn't properly protect yourself in the purchase agreement. This is why the LLC transfer might be more difficult when working with random buyers.

I have never bought or made an offer on a deal as an LLC, but I would imagine an LLC has to establish some type of financial ability with the bank like individuals are required to do now? Maybe someone can clear this part up?

I would be interested in hearing more about submitting offers as an LLC in general to see how banks respond and what, if anything, differs in the paperwork/contracts, because I could imagine several reasons it would.

If anyone here has done something like this it would be great to learn more about how it played out.

Good points on this subject,Dean.

I not Dean, I am simply the person that keeps things running smoothly on the site, but thanks for the post. If someone has some actual hands on experience with this we will look at it deeper to see if this is something that can get results. Dean nor our team will tell people to put effort into something that we aren't sure can get results. This might be a great angle to pursue, but so far the only things I have read/seen on it talks about in theory, as opposed to actually talking to someone who does this in real world application.

Again, there could be something here, don't get me wrong. If you are looking for new angles, by all means, take a deeper look. Like anything else, once we know it works and can replicate it we will dispense the information to the community.

I have heard of the technique for avoiding a double closing or assignment prohibition. I have also heard of investors buying condo in pre-construction some years ago. The condo developer would prohibit them reselling the unit since the developer usually still had lots of units to sell themselves. The investor would resell his LLC to an end buyer and pick up a fee for doing so. The end buyer would close on the purchase when the condo was complete. The usefullness will depend on what it costs to set up and maintain a LLC in your state.

In CA, you can reserve LLC names for up to 60 days and it costs around $20. To form an LLC it is only $90 if you do the paperwork yourself. The idea is that it gets formed and sold to your end buyer before the LLC fee is due. In CA's case, there is an $800 fee due by the 15th of the 4th month. If I sell the LLC, my name is off it. Therefore, it is my end buyer's resposibiity to pay the taxes and fees. Remember, when you do things to accomplish an assignment of contract, you should be getting the money you put out back from your end buyer.

KimmyJ
Press on...

Thank you DG family.. I'm going to keep researching this one on the paper work end. I think there might be some deed issues to tend too not sure though. I've googled a few blogs on the topic. When I know something I'll update.