Hey guys. Just had an offer accepted on my first property. This property is going to be in my partner and I's personal names, as we don't have an LLC as of yet. We've been advised to close in our name, and then transfer the deed into an LLC via Quit Claim deed.
Here’s my question:
How concerned should I be with the"Due on Sale clause"? Is it better to simply close in our names, and refinance into the LLC in a few months? It seems putting a property into an LLC is much more complicated than I originally thought.
Hey Ryan, I bought my first rental a few months ago and after closing and getting my renovations done and the renters in I finally had time to sit back and think about an LLC. I got an LLC and I went to a local CPA to see how I would transfer the house over, he told me don't bother with it right now he said when I go to buy another rental to get a new LLC and buy it through that. Because of the fact that I am a single owner of my LLC he said even if something did happen I'd be ****ed either way lol. He said I don't need to worry about an LLC really because I'm the only owner/manager of the business. For you it might be another story, because like you said you ha e a partnership.
@Ryan Johnston “due on sale clause” is an ugly ghost story that is actually true. Something that most people never see but few have actually experienced. Some people will swear it’s something you don’t have to worry about, but as a lender I can say that it truly is a thing. I can say banks are not in. Shines to accelerate mortgages to only be stuck with a property they foreclosed on. They just want their payments and on time. Once you start doing weird things that raise a red flag that’s when they start to come collect your soul.
@Nicholas Covington So would it be best to go ahead and do the quit claim deed transfer into an LLC, or just keep in our names? Worst case scenario: Let’s say we did in fact transfer, and the bank came back demanding the mortgage to be paid in full. What are my options? Am I overthinking all of this?
You could hopefully refinance if you couldn't make the call. Loans would more likely be called if interest rates go significantly higher than your existing rates however banks are not predictable.