BiggerPockets

Say you decided to place one of your mortgaged investment properties into an LLC for asset protection. You're doing what you can to treat your LLC like a business (it has its own checking account, filed separately from other properties, etc.) However, you want to pay down the mortgage balance as fast as possible with some of your own funds outside of your property's rental income. How do you do that while maintaining your LLC as a separate business entity? Transfer your funds into the LLCs checking account and then pay down the mortgage from the LLC checking account? Is this advisable?

My attorney would say that would be a loan and needs a note and interest. She could be a little extra careful.

All,

Thanks for the replies thus far. I'm discovering that regarding asset protection, LLCs and associated subjects, EVERYBODY seems to have a different opinion. In the question I'm posing on this thread, one lawyer will tell you to funnel money into your property's checking account. The other will tell you to make it a loan. Some lawyers sing the praises of Series LLCs. Others will tell you they are untested and to use multiple LLCs to hold your properties. Some say deed your encumbered property to the LLC. Others say don't because it will trigger the "Due on Sale" clause; instead, transfer the deed to a trust and assign the LLC as the beneficiary. Of course, some people say banks will never call the loan if you're paying it on time. Some say, screw LLCs, just get a huge umbrella policy! Experts, lawyers, CPAs, average joes and investors all have varying views of what should be a much simpler subject. If only we didn't live in such a litigious nation where I didn't have to worry about the best ways to protect what I've worked so hard to earn.

Bryan-- You're absolutely right. There is no 'one size fits all' scheme. That being said, its tough to get 100% agreement from any two experts/advisors for my particular situation. I find myself merging a couple different schools of thought towards my situation. I'm still figuring it out and putting the pieces together. Hopefully I'll have a plan of action soon.

I actually met with my attorney yesterday regarding the "due on sale issue" and can't seem to get a straight answer from anyone. I guess technically they can call the loan if they want, but I have yet to have heard of a case where that has been done. I lack of a straight answer on this makes me hesitant to put my properties into an LLC.

Another issue keeping me from moving forward with the LLC is the fact that to refinance, you would need to pull the property out of the LLC, and then put it back in after the cash out re fi is completed...

Does anyone have any input on this?

Kyle,

Your contribution to the LLC is simply an increase in your shares of the LLC.

It is a contribution and in no way shape or form a loan unless you decide to loan the money. There is no advantage at this point for giving your LLC a loan.

Your own note on the property would mean you pay yourself interest. You would deduct it on the rental and include it in income.

-Steven the Tax Guy

Your guide to IRS laws, rules, and regulations.

Dan,

Are you saying that your LLC makes a lot of money that you don't withdraw and therefore you don't pay taxes on?