Should I pull equity out before putting my property into an LLC?

3 Replies

Good evening to you all. I am new to real estate investing and am looking for some guidance.

I have a SFH which I own free and clear. It is rented and I am wanting to transfer it into an LLC for asset/personal protection.

I would like to pull some equity out to update the property, when the current tenants vacate, as well as use the equity to purchase another rental property.

The question is should I pull the equity out now or transfer it into an LLC and pull the equity out then? I'm looking to see what i should do first. I would imagine it is harder to pull equity out of a property in an LLC. Am I mistaken? I appreciate any and all advice.

Putting a rent property in an LLC can be problematic BECAUSE when you want to do a cash-out refi, you cannot use conventional mortgages and will have to pay higher interest and often have a balloon payment with a bank loan. I know many people that wanted to cash-out-refi a rent property that was in an LLC. To get the best terms, they had to transfer the property back into their name, wait 6 months for seasoning, do the refi, and then (if they chose) put the property back in the LLC.

@Greg Scott

Thank you so much Mr. Scott. I appreciate that information. Sorry I didn’t say thank you much sooner. I never received a notification that someone commented on my question. Hope you and your family have a blessed Memorial Day.

@Christopher Cowell

This issue comes up all the time. Legal entities, such as a LLC, are not eligible for conforming residential loans. Many investors are dealing with residential lenders. So, since they only know and can loan to an individual, they advise moving the TItle back and forth. Consult with a professional who has your interests aligned with yours. Having the TItle and mortgage in split names is asking for trouble in my layman's point of view. Here is one my posts where I lay it out:

There are many other discussion threads on this. If you want the legal limited liability protection afforded by the LLC, you need to operate it properly which includes putting all the assets and debts under its name. Its a legal entity. Now two entities are intertwined in the operations.

Remember, the LLC doesn't provide any accounting/tax benefit, unless you are investing with a non-spousal partner.

You might also want to take a look at this posting on LLC's.

Good luck.