Move property to LLC?

Question

Wife and I turned our first home into a rental.  It's still in our name.  Going great for 4+ years now.  No issues.  But now we are considering increasing our real estate portfolio.

Think that we'll go down the LLC route.  Having said that - do you have any recommendations around moving that first home over to our LLC?  Should we?  Advantages/Disadvantages?  Difficult to move it?

Thanks!  Love reading the forums here.  Learning a TON in a short period of time!

Jesse Waters · Answer

Oh, as far as moving property to a LLC, it was fairly simple.  It cost us $220 total to move the deed's on our last two properties to LLC.  Our insurance company listed the LLC as an additional insured.  We didn't really worry about the due on sale since a) we told the bank we were going to do this when we got the loan and b) we are still paying the mortgage & personally liable for the mortgage and c) we are going to roll all our properties under a blanket loan and get it all under a new loan to the LLC.

Pyrrha Rivers · Answer

@Brian Gray

Thank you for asking this great question. I am preparing to do the same and was waiting until I'm actually in the US to visit the attorney and check out the different options. After reading @Mitch Coluzzicomment, I will still check with an attorney but I think I'm leaning more toward the quitclaim route.

Mitch Coluzzi · Answer

You can file the paperwork for an LLC yourself for under $100 in most states.

Although I would recommend sitting down with an attorney if you're new to the process / templates. Make sure you chat with your accountant as well, there are strong benefits to each solution from a taxation standpoint... If you extend into flipping some properties and holding others, really discuss with your accountant how to structure accordingly.

[I use different LLCs, costs a few bucks more to file but well worth it]

As to the cost of transfer and due on sale... You can fully disclose your intent to the bank (although it will likely cost you a refinance fee and a higher interest rate).  Or, you can quitclaim it over to the LLC and wait for them to call you, they likely will never get around to it.  Really depends on the relationship you have / want to have.

Jesse Waters · Answer

I put all my rental property that I hold with my business partner into LLC.  We still hold the loans personally, but we are working on rolling all our properties under a blanket loan with the LLC as the mortgagee.  For us it was the better option, and we eventually will have our personal credit's clear of the mortgages.  Depending on your state, a husband & wife still count as a sole proprietorship & as a result are granted less protection by the LLC.  Give your favorite lawyer a call, it didn't cost us anywhere near $1000 to set up the LLC.  It was closer to $500.

The income from the LLC is pass through & there is a lot less paperwork than a C or S-Corp.

@Christopher Gilbert is correct, it is much harder to get financing as a LLC, particularly with no history.  However, if you are looking at larger commercial properties then some lenders will require a new LLC set up for that specific property.  They will want to know where the down payment is coming from and the numbers on the property.

Hope that helps.

Brian Gray · Answer

Thanks for your thoughts!

Christopher Gilbert · Answer

In my opinion if you only have a handful of rental properties I would not bother with an LLC.  Just go buy a liability umbrella insurance policy for enough to cover your assetts.  The umbrella will give you protection not only from your rentals but also a lot of other situations where you might get sued.

Setting up an LLC will cost you at least $1000 plus you have to pay someone to take care of the taxes for you (several hundred dollars per year), have "meetings" with minutes, etc.  Even if you set it up as an S-corp you may have to claim income even though it is tied up in the business and not your pocket which increases your tax burden.

It can also be difficult to get financing in an LLC and credit while it is easy as a sole proprietor to get more mortgages, etc.  Putting personal property into an LLC is also difficult and requires some time from a lawyer and tax accountant to make sure it is done correctly.

Move property to LLC?

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