Hi all,
I purchased my first property a little over a year ago. I've been living in it, and plan to purchase my next property soon to continue with house hacking. Once I find my next place, I'd like to put my current property up for rent.
Just some high level questions:
I'll be looking for a lawyer/CPA to help me out with this, but I wanted to get the high level answers down first.
Thanks!
Pete
I didn't form an LLC until I got several properties and had another investor that wanted to partner. Just had adequate insurance prior to that. That said, a good attorney and CPA will make your life a lot easier from the start. And yes I refinanced my properties and moved them to my LLC. Setting up the LLC was done online in about 20 minutes online, but I have other businesses and was familiar with the process.
If you decide to rent and try to place that existing property into an LLC you may run afoul of your mortgage terms and they can call the loan. I would start by reading the mortgage you signed. That will tell you what you can legally do without violating the loan terms. That is not to say people do not do it, just be aware of the risks.
Pete,
Set up an LLC for your next investment and purchase your next deal in the name of that entity (you can do this easily on line but you may want to pay a lawyer (in pittsburgh Max Bier or Phil Scoleri) to do it for you.
On your current property- do not transfer it into the LLC and the mortgage is fine in your name. Unless you are seriously concern about the liability of the property being in your name, which in my opinion is probably not that great of a concern if ...
1) you are properly insured
2) you run a tight ship
3) do you really have that much to take? If "it" does hit the fan then you are better off (see insurance tip below).
It will cost you a lot to transfer the property and then refinance into the entity name . Instead, take that money you would have spent , or actually a small portion of the saved money, and if your worried about liability get another insurance policy to cover the unknown "an umbrella policy" in addition to you property policy.
That way you will have millions of dollars of insurance back up if something would happen which I think is most of the times better than having just the "corporate protection" alone.
In the future do both. LLC + good insurance + being a good(good does not mean be a push over but take care of you property and be responsive to tenants) landlord = limited issues
Thanks a lot, Joe. This is very useful, especially the reference to lawyers in Pittsburgh!
If you decide to rent and try to place that existing property into an LLC you may run afoul of your mortgage terms and they can call the loan. I would start by reading the mortgage you signed. That will tell you what you can legally do without violating the loan terms. That is not to say people do not do it, just be aware of the risks.
Thanks Brian, I will look into this. It was something I didn't even consider.
I didn't form an LLC until I got several properties and had another investor that wanted to partner. Just had adequate insurance prior to that. That said, a good attorney and CPA will make your life a lot easier from the start. And yes I refinanced my properties and moved them to my LLC. Setting up the LLC was done online in about 20 minutes online, but I have other businesses and was familiar with the process.
Good to know. Perusing the internet led me to believe that I had to set up an LLC, so I'm glad to hear from you and a few others that I don't really need to do that right now (for the first property at least).
This has always been a question of mine. Do I need to or more like, Should* I have a business entity in hand before investing at all? Good info here. I'm becoming increasingly aware that a great accountant and lawyer will make things much better for me!
If your current primary has a lot of equity, you will lose your tax-free gain status by putting it into an entity.
To save the tax-free gain, sell within 36 months of renting. Do you have a lot of equity in the house @Peter B.? Occupy longer than 24 months? Taxes are our largest lifetime expense. Something to consider!
If your current primary has a lot of equity, you will lose your tax-free gain status by putting it into an entity.
To save the tax-free gain, sell within 36 months of renting. Do you have a lot of equity in the house @Peter B.? Occupy longer than 24 months? Taxes are our largest lifetime expense. Something to consider!
I'm actually around 18 months right now. I don't have too much equity - it's actually a condominium.