Does anyone know the requirements:

Question

I want to buy a triplex or fourplex using FHA financing but then would like to change the ownership into a LLC that I will create. Is there a time frame when something like this can be done?

Second question ties in with the first question:  Will FHA allow this to be done?

Curt Davis · Answer

Not sure about other states but here in Memphis TN a duplex or greater is taxed commercial.

Des Shei · Answer

Jackie,
II'll quickly answer your questons, then i'll dive in a bite more.

What time frame can this be done? Whenver you want, i would advise after 6mos of ownership.
Will FHA allow this to be done? Possibly, FHA insures loans for OO dwellings so it may/may not be a problem.

Now to dig in more since both of the questions are tied together i'll tackle them at the same time. Literature in your Mortgage agreement stipulates that ownership of the property which you purchase cannot be transferred from one entity to another with a ; hence the inclusion of the "due on sale clause". The explanation as to why the clause is there is best left for another discussion( it has to do with interest rate levels). Because of this clause, your lender has to right, but not the obligation to call the loan due in it's entirety if ownership is transferred (either to another person or an entity such as an LLC), however in this current Real estate market, most lenders will look the other way even if they discover ownership has been transferred as long as the payments are current. FHA insures loans for OO properties, so transferring ownership to a business entity may pose problems for you as well; maybe if your LLC is a sole proprietorship, you would be ok( i don't use FHA at all so others may be better to advise on FHA's stand on this) My advise to you would be this, don't worry about transferring the 3 or 4 unit into the LLC just yet, till you have a few properties/assets. Also realize that asset protection involves more than just creating an LLC and transferring propeties into that entity. If not coupled with other strategies it may be quite easy to pierce the veil of the LLC in case of a law suit.

Regards,
Desmond

Jackie Patterson · Answer

It wouldn't be a commercial property. 2-4 units.

Vincent Martinez · Answer

The triplex or fourplex would fall under the 1-4 unit residential property that the FHA approves. Once you purchase the property you have the options that Curt mentioned.

Curt Davis · Answer

Not sure if FHA will allow you to buy a commercial property or not.  If you buy a home in your name and want to switch it into your LLC you have only a few options:

1. You can quit claim it into your LLC after the close but be careful, if your lender discovers this they can call the loan due.

2. Pay the home off completely, then switch it into the LLC.

Why do you want it to be in your LLC anyways?  You might want to wait until you have at least 4 units or more before you do this.