Should I transfer my rental prop under my LLC?

Question

Pros and cons of having my properties under an LLC? I would like to know about your experiences and learn from them, should I transfer my properties to an LLC? If yes or no, why? Thanks.

Raymond Latham · Answer

Jody Sperling, my name is Raymond Latham and I'm just starting out as an investor, I just posted a question about this very subject and my question was, should I funnel my cash flow to a Roth IRA..... Jody can you please tell me how I should do this or should I do this?

Justin Windham · Answer

@Roberto Vasquez

The decision to create one or more LLCs for your properties can depend on a few factors. The first factors are the asset value of each property and your perceived liability exposure. You would weigh this against the costs and administration of forming LLCs in the appropriate State. Some States allow fairly easy LLC formation with low costs and an inexpensive or free annual report. Other States may have higher fees or additional requirements to form or maintain an LLC. It's generally recommended that you consult a CPA or Attorney familiar with these factors to help make a decision that fits your risk tolerance and overall investment goals. Adequate insurance is also an important consideration.

Frank Rodrigues · Answer

Roberto,

Most people use their LLC’s to separate their government name from their business for tax reasons and liability. I personally prefer separating the two for everything when it comes to business. My personal is the only property that I own under my government name, everything else is under different entities. I hope that helps and best of luck!

Roberto Vasquez · Answer

I appreciate the answer, you actually responded another doubt I had, it is possible to transfer the properties to an LLC after the fact.

Thanks.

Michael King · Answer

@Jody Sperling same here, all mine in my own name.

Frank Rodrigues · Answer

Raymond, why would you want to transfer your Cashflow into a Roth when there’s a lot more flexibly and benefits with a SDIRA?   and unless you are over 59 1/2 years old there really isn’t any benefits either. Ideally what you want to do is use funds from an IRA that is giving you single digit returns and roll it into RE to maximize your assets, especially with passive income. If you have questions PM me. I hope that helps.

Jody Sperling · Answer

Pros: (1) Begin building business credit history for future loans and banking products directly to the LLC. Helps if you decide to buy commercial real estate. (2) Expands options for borrowing money. Many states require an LLC to borrow hard money. (3) Decreases liability, minimally, from legal action.

Cons: (1) Costs to own and upkeep. (2) Often adds a costly step to buying property, as banks tend not to lend for single family housing directly to an LLC and therefore must be transferred from personal ownership into LLC. (3) Only limits liability if set up correctly—and many aren't. (4) Transfer from personal name to LLC can trigger "due on sale" clause.

I'm probably the rare one around here who owns all my rentals under my own name. Don't plan to change that. Maybe I'll change my mind, but I get the same tax advantage either way.

Justin Windham · Answer

@Raymond Latham

As @Frank Rodrigues mentioned, a self-directed IRA can be used to combine the tax benefits of a Roth IRA with the ability to invest directly into real estate. While you will not be able to convert your personal investments to a Roth IRA, you can take existing Roth IRA assets and transfer them to a self-directed Roth IRA. If you want checkbook control of those funds, a Roth IRA LLC can be formed. If you are self-employed, you might be eligible for a Roth Solo 401k which offers quite a few benefits over a Roth IRA LLC. While a Roth IRA cannot be transferred to a Solo 401k, the Solo 401k allows for much higher contribution limits and you can borrow from the plan.

Roberto Vasquez · Answer

Thank you Frank, makes sense. I've read keeping under a business makes more sense because the limited liability, in case someone decides to sue you and they will only be able to go after that LLC and not everything else you owned, I need to dig more into that as well.

Should I transfer my rental prop under my LLC?

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