Transfer title of properties to LLC in PA

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Transfer title of properties to LLC in PA

Phillip Behrens
Mc Donald, PA · Member since 2016 · 2 posts · 4 votes

Hi Everyone, been a long time reader of BP, but this is my first post.  I currently have 5 SFHs in the Pittsburgh area that I rent.  These are all currently in my name, i manage the properties myself and have no due on sale clauses on the mortgages i have on some of the properties.

After I purchased the 5th this past fall i started to think about how to more effectively run the properties. I wanted to start to treat this more like the business it actually is.  Before my personal and 'rental' income/expenses were very co-mingled.  I only had one bank account for everything.

I formed an LLC, got a separate bank account created and started to use those accounts for all transactions in relation to the rental business. I also did a number of things around getting better leases created, purchasing a property management solution, formalizing a business plan, etc.

Where i am at now is trying to determine if I should move the properties title into the LLC. I have an umbrella insurance policy right now to provide some liability protection. I am concerned long term about liability protection. I have spent hours and hours reading all the posts on BP about this topic. I believe i know all the PROs and CONs of moving into an LLC.

I have also discussed with a local PA attorney who recommended i move them into an LLC.

My last hold up is that in Pittsburgh i would need to pay real estate transfer tax on the properties. Each of these homes has a assessed value between 50-75k. I would cost me around 15k to transfer them into the LLC. If i did not have to pay the transfer tax i would have already executed the transfer. I am just held up on having to shell out the money when i would much rater use that to purchase another property.

I would be curious to hear everyone's thoughts on what they would do in this situation. I know this comes down to my situation and my risk tolerance, but knowing that I will still manage the properties, still puts some risk into my personal assets if I ever had a claim filed against the properties. Is it even worth considering moving them into the LLC since i will be managing the properties myself?

Thanks
Phil

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Jerry Kisasonak
Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
10y

I was in the same situation. I just kept them in my personal name and put all the new purchases in the LLC. It would be easier bookkeeping wise to have them all together, but I don't personally believe it's worth the expense to transfer them. Like you said, it would be better to spend that money on your next acquisition. Just my opinion of course...

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  • Jerry Kisasonak
    Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
    10y

    I was in the same situation. I just kept them in my personal name and put all the new purchases in the LLC. It would be easier bookkeeping wise to have them all together, but I don't personally believe it's worth the expense to transfer them. Like you said, it would be better to spend that money on your next acquisition. Just my opinion of course...

    3Reply
  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
    10y
    Phillip Behrens ask your attorney if you can put the properties in a trust first with you as the beneficiary then make the LLC the beneficiary. Not sure if that will require a transfer tax. Insurance policy changes are used at least by banks as a source to identify change in ownership. Just a thought...not legal advise.
    1Reply
  • Account Closed
    Rental Property Investor · Brighton, CO · Member since 2015 · 37 posts · 36 votes
    10y
    I talked to my accountant about this. He warned that changing ownership from yourself to your LLC, many mortgage companies will use that as a reason to call in the mortgage. He advised only putting new purchases into the LLC.
    2Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    10y

    For PA related transfer tax questions, @Steve Babiak is a good BP resource. From what's posted, I'm not sure there is great benefit in having these properties in an LLC. Having separate checking accounts (and credit cards) specifically for the rental properties might help the most as far as expense organization (and tax) accountability.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    10y
    Originally posted by @Phillip Behrens:

    Hi Everyone, been a long time reader of BP, but this is my first post.  I currently have 5 SFHs in the Pittsburgh area that I rent.  These are all currently in my name, i manage the properties myself and have no due on sale clauses on the mortgages i have on some of the properties.

    ... Is it even worth considering moving them into the LLC since i will be managing the properties myself?

    ...

    I would be surprised to see a mortgage without an alienation clause or due on sale clause or due on transfer clause; not saying they don't exist ...

    And I will guess that you have a single member LLC. Since you self-manage, you would be on the hook for liability issues, so anything you own is at risk - and you own the single member LLC so that becomes at risk.

    Transfer taxes in PA are no fun. And the scenario you describe is one where the PA Dept of Revenue will want to see transfer taxes paid. And the imputed value will be used - take the tax assessor's assessed value and multiply that by the leveling factor that the PA Dept of Revenue publishes for that county for the year of the transfer and you get the imputed value. Then you might have 3% or more transfer taxes there, although most of the state only has 2%. 

    Now one other thing that you can consider is banking. If a check is made payable to a company, the bank upon which it was drawn will not cash it - you can deposit it but it won't be cashed. Then a company will have to get a business checking account rather than a "personal" checking account; business account fees are higher, and so are the minimum balances to avoid fees. For your five rentals, you can have a separate "personal" checking  account (or several) that will be separate from your personal checking you use for your own living expenses. 

    There might be good reason for you to move these five properties into the LLC, but first understand why you will benefit from doing so. You understand already that there are pro and con reasons, just weigh them all first.

    1Reply
  • Ian Hoover
    Bridgeville, PA · Member since 2013 · 395 posts · 105 votes
    10y

    I have moved a few from personal to LLC, first I refinanced them into my LLC then used my attorney to transfer the title.

    If you have any further questions feel free to reach out.

    1Reply
  • Dominic Lucarelli
    Irwin, PA · Member since 2015 · 152 posts · 52 votes
    10y

    Another way to think about it is: "which cost is greater, $15k or a lawsuit laying claim to my assets?" If a lawsuit were filled against you, all of your assets become the target. The LLC will minimize your exposure.

    So the real question is: what are you willing to risk?

    In your situation, I'd do as @Ian Hoover did

    3Reply
  • Account Closed
    PA · Member since 2010 · 339 posts · 168 votes
    10y

    I ran into the same problem when I tried to change the name of my LP. I was not able to figure out how to get around the transfer taxes.@Ian Hoover

    @Ian Hoover You still had to pay transfer tax on the adjusted assessment, didn't you? If not, can you explain how this worked? You may contact me directly.

    0Reply
  • Ian Hoover
    Bridgeville, PA · Member since 2013 · 395 posts · 105 votes
    10y

    Yes I still paid transfer tax based off of the assed value.

    0Reply
  • Phillip Behrens
    OP
    Mc Donald, PA · Member since 2016 · 2 posts · 4 votes
    10y
    Thanks everyone. Your responses were very helpful in helping me make a decision.
    0Reply
  • Ross Yeager
    Rental Property Investor · Mountain View, CA · Member since 2017 · 83 posts · 59 votes
    7y

    @Phillip Behrens, thanks for the post.  I am in the same situation with a property in Philadelphia.  

    I bought a duplex in an all cash purchase. I then established my LLC and have been acquiring new properties under its name. I have been advised by some people to put the original property under my LLC and others tell me to leave it under my personal name. Was looking into putting it under the LLC, but the transfer taxes and fees make it seem not worth it to me, especially since I have a solid insurance policy and only have one property under my name. The only reasons I would consider it would be to qualify for some private loan if I didn't want the loan to be under my personal name or if I was looking to finance a property before the seasoning period.

    0Reply
  • Taeeun Sur
    Member since 2019 · 2 posts · 0 votes
    4y
    Quote from @Ian Hoover:

    I have moved a few from personal to LLC, first I refinanced them into my LLC then used my attorney to transfer the title.

    If you have any further questions feel free to reach out.


    0Reply
  • Taeeun Sur
    Member since 2019 · 2 posts · 0 votes
    4y
    Quote from @Ross Yeager:

    @Phillip Behrens, thanks for the post.  I am in the same situation with a property in Philadelphia.  

    I bought a duplex in an all cash purchase. I then established my LLC and have been acquiring new properties under its name. I have been advised by some people to put the original property under my LLC and others tell me to leave it under my personal name. Was looking into putting it under the LLC, but the transfer taxes and fees make it seem not worth it to me, especially since I have a solid insurance policy and only have one property under my name. The only reasons I would consider it would be to qualify for some private loan if I didn't want the loan to be under my personal name or if I was looking to finance a property before the seasoning period.


    0Reply
  • Ariana Winder
    Investor · Happy Valley, PA · Member since 2018 · 3 posts · 1 vote
    2y

    I'm curious if you could transfer for $1 from personal to LLC, then the transfer taxes are so low. I have not seen anywhere stating the assessed value must be used. If someone could point me to it, I would appreciate it. I'm in a similar situation with a smaller single family (1 unit) home that is lingering. Located in Central PA.

    1Reply
  • Yechiel W.
    Investor · bucks County PA · Member since 2020 · 29 posts · 17 votes
    2y

    I'm considering my first investment purchase and was speaking with my lender and basically if done in my name vs the LLC would be 1% higher in interest rate. He mentioned that there is no issue i.e. transferring with my specific lending product and can due a cost analysis between starting on my name with 1% less in mortgage then paying the 2% PA transfer tax to move it to an LLC. I'm sure there is way more headaches to factor into the equation that I am not aware of. Ie. Accounting headaches.... I was also concerned if would compromise the corporate veil if initially was in my name then switched to an LLC even with a separate account and everything.... I was also considering that it would defeat the privacy of ownership of the property that the LLC provides...

    0Reply
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