Transferring rentals to LLC

5 Replies

I currently have 6 single family rentals and 2 flips at the moment. My goal is to start treating real estate as a separate business (I also have a day job).

I have an LLC set up with a bank acct and all that. But the issue I'm running into is I can't transfer the properties to the LLC for a number of reasons (I have 30 year mortgage on all of them, except flips obvs). My LLC's and properties are all located in Houston TX.

Issues

1. Notes will be callable by lender

2. Title insurance will be canceled and that will notify lender, and then I’ll have to buy 6 new policies at around 1k each

Questions

1. Would it be better to “re-fi” with a blanket type Mortage product? It would need to be around 25-30yr amortized and under 5.5% to keep similar cash flow.

2. If I keep the properties titled under my personal name, can I still write the leases between my LLC and the tenant, leaving my personal name out of it?

3. Are there any angles I’m missing? I’m trying to scale this to 10 rentals once my flips sell.

Open to all suggestions. Thanks!

@Thomas Roberts you can't maintain the conventional loans and transfer the properties into an LLC. Usually it makes more financial sense to just keep the properties in your personal name due to the better financing. You could use your LLC as a management company and write the lease between the LLC and your tenant. Your name will be on the lease, assuming you are the signer.

Ultimately since you own the management company and the properties, liability will naturally find it's way towards you. The best strategy to limit risk in this area is to have a good liability umbrella policy. The other thing is take actions to reduce risk. Simple things like inspecting properties regularly for safety hazards. Fix reported safety issues immediately. 

My guess is your have limited assets to pursue so if you do get sued, they would be more interested in the insurance money. LLC become more important when you have considerable assets. I know you have 5 houses, but the bank probably owns 80% of the value.

Thomas,

If you do use your LLC for Property Management you should look into separate Insurance for it. Some policies you should consider:

- General Liability

- Professional Liability

- Workers Comp.

If you use the LLC for your Flips, you may be able to combine coverage for the General Liab. and the Workers Comp.

Originally posted by @Thomas Roberts :

I currently have 6 single family rentals and 2 flips at the moment. My goal is to start treating real estate as a separate business (I also have a day job).

I have an LLC set up with a bank acct and all that. But the issue I'm running into is I can't transfer the properties to the LLC for a number of reasons (I have 30 year mortgage on all of them, except flips obvs). My LLC's and properties are all located in Houston TX.

Issues

1. Notes will be callable by lender

2. Title insurance will be canceled and that will notify lender, and then I’ll have to buy 6 new policies at around 1k each

Questions

1. Would it be better to “re-fi” with a blanket type Mortage product? It would need to be around 25-30yr amortized and under 5.5% to keep similar cash flow.

2. If I keep the properties titled under my personal name, can I still write the leases between my LLC and the tenant, leaving my personal name out of it?

3. Are there any angles I’m missing? I’m trying to scale this to 10 rentals once my flips sell.

Open to all suggestions. Thanks!

 Hey Thomas,

It sounds like you have yourself set up pretty well and are asking the correct questions as you grow. I will primarily focus on your asset protection questions, as a lot of the strategies I utilize will actually solve your financing concerns. Everything I recommend scales with your portfolio, so I will explain the big picture approach so you can see the vision. 

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I often break it down into the "four pillars" of protecting your assets. The first pillar is a good insurance policy as that cover the majority of your exposure. However, it only protects you from one type of liability: accidents.

After that you want to compartmentalize your assets, which is often accomplished through the use of LLCs or corporations. I personally find the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely - check out this article to learn more. The third pillar is somewhat similar - you want to separate your operations from your assets. That means you establish a Traditional LLC to carry out the operations of your investments, in order to separate the liability from your assets, including: paying property management, paying contractors, collecting rent, marketing, etc. Finally, with the use of Trusts while establishing these structures you can add a level of anonymity by removing your name from public record.

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The issue you face with banks being able to claim their notes if you transfer the property to an LLC are resolved through the use of a Land Trust. You will still purchase the properties in your own name, offering the same financing options you are used to, then transfer the property into a Land Trust. This will not trigger the same alarm bells because it is an estate planning tool. There are also ways of dealing with insurance issues by using this strategy, though those recommendations can vary depending on carrier, type of LLC, state, etc.

None of this is legal advice, it is simply my personal thoughts on your situation. It is really important to connect with an experienced attorney and explain your entire situation before developing a strategy. I would highly recommend the Series LLC because of your future goals. And since you are operating buy and holds along with fix and flips I would work to separate those, as they both hold different levels of liability. Would love to connect with you and discuss this further!

Great question by @Thomas Roberts and feedback from @Joe Splitrock , @John Mocker and @Scott Smith . I am also in early stages of similar situation ( 2 SFH with 30 yr fixed conventional loan). I am piggybacking Thomas question regarding managing rental with traditional LLC and loan under personal name / land trust?

1) Background: The owner /manager of Traditional LLC , Series LLC, rental property and mortgage note is the same.

In state of Texas, Can LLC manage rental properties (which are owned by personal name / land trust or other LLC) with a real state brokerage license? With my limited knowledge, what I heard is that you can manage your own rental properties without  real state brokerage license. correct me if I am wrong. 

2) In the above scenario, where traditional LLC is managing rental properties under personal name/ trust or series LLC, Do I need a documentation or contract between two parties, eventhough you youself is running the entire show?

thanks

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