My partner and I have established an LLC for RE investing. We are looking to purchase our first turn key rental property within the next 2 months and are wondering:
1. When we get financing and purchase the property, is it through myself and my partner or the LLC?
2. When the purchase is complete, is the house in the LLC's name or ours?
3. What are the steps to putting the house in the LLC's name during this process if it is not done immediately?
We currently have the financing and the deal in place, but we are just looking to iron out the above so we know before we go into it. Thank you!
What type of property is it?
Typically for a single family or small multi (2-4 units) if you get traditional financing from a bank you can't put the property in the LLC's name. The property has to go in someone's name and if the deed is transferred they can transfer the due on sale clause.
If you have the LLC set up then use it. Just tell your bank you want to purchase it through the LLC and you're good. I am not a lawyer or tax expert but the LLC will give you some liability protection and under the new tax code, some tax benefits. I have all my investments properties in a LLC and operate as a realtor within a different LLC to keep them segregated from each other. Should I get sued on one side the other side of my business, and my personal assets, should be protected. Or at least harder to get at.
Since your LLC is so new, with $0 of income, you'll need to use your personal assets to guarantee the loan but just tell the bank your setting up an LLC to operate the company within for legal and tax reasons and they should be good with that. It means your pretty serious and hopefully bringing more business to them soon.
That being said the bank may want you to do a commercial loan instead of a residential loan, the key difference being interest rates are a bit higher on the commercial end. But you can buy a SF, Multi-family, condo, or really anything at all (company outings, cars, or meals w/ clients) in the LLCs name. It’s all about the intended purpose of what you’re purchasing.
Like @Sean Mcevoy said, if you transfer it into an LLC after you purchase it with your own name, they could enforce the due on sale clause. But, that doesn't usually happen. Although investors have experienced this situation before, and have transferred the property, and nothing has happened, there are others who have had the hard tragedy of the bank enforcing the clause after the transfer.
It depends on your level of risk your willing to take. I can tell you that, most likely, 85% of all banks over look the transfer.
But, when another 2008 comes, the banks will start foreclosing and most likely start using the do on sale clause to take properties, which they can do legally and painfully. After all, if you transfer the property, they have all the right to enforce the clause, which they might when another 2008.
It all depends on your risk level.