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If I invest money towards a property via a downpayment, and then form an LLC, would that downpayment money be considered initial capital contribution?

I can't find a clear answer online. It seems like initial capital contribution is for startup expenses, which this isn't (in the sense that I'm not buying offices, or doing advertising, etc.), but I guess if we don't buy the property, then we wouldn't have an LLC, so maybe it counts.

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  • Are you planning on assigning your rights relative to that payment to the LLC?
    – George White
    Aug 28, 2022 at 23:06
  • (I'm new to this, so excuse any ignorance on my part). Are you talking about like ownership percentages / voting rights? Yes, at least initially, the percentage of the downpayment that each member covers will end up being the ownership percentage, and we'll get the same % of distributions back. This will be complicated down the road when we buy multiple properties though
    – pushkin
    Aug 28, 2022 at 23:13
  • I was pointing out that if you put money into the property before the LLC is formed you would not be putting money into the LLC but instead putting in whatever the money bought you. Trying to help you clarify your thinking and your question.
    – George White
    Aug 29, 2022 at 0:25
  • @GeorgeWhite Ok, so the initial contribution that we'd list in the operating agreement would be some percentage of a property if all members are contributing a portion?
    – pushkin
    Aug 29, 2022 at 0:36
  • I was not answering the question I was giving you some insight to use in editing your question so it makes more sense and gets a better answer
    – George White
    Aug 29, 2022 at 1:03

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The normal way to do the transaction would be to contribute the downpayment cash to the LLC first, as a capital contribution, and then to have the LLC purchase the real property with that cash and being obligated on the loan primarily (probably with the owner of the LLC as a guarantor).

When you buy the property first and then contribute it to the LLC (which could trigger a due on sale clause in the mortgage, if there is a mortgage and permission from the lender is not obtained for the transfer to the LLC) then strictly speaking, it is the real property subject to the mortgage, and not the down payment itself, which is the capital contribution to the LLC.

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