Rental Property Investor · Orlando, FL · Member since 2016 · 76 posts · 19 votes
Hi my BP Family!
I've heard a few times that you can't buy/mortgage a house as an individual and then transfer it to a business. The primary reason one would want to do this is to get a mortgage since most banks won't give a mortgage to an entity.
However, I also keep hearing the great Brandon Turner saying he's mortgaged property under his name and then placed them under a business.
Anyone have any experience or thoughts on how to do this?
Thanks for the help!
- Alvin
Attorney · Atlanta, GA · Member since 2016 · 5 posts · 5 votes
10y
Steve, you are correct. A quitclaim deed provides the least amount of protection for the acquirer of real property. It conveys any interest the grantor (i.e., seller) has to the grantee (i.e., buyer), but it provides no warranties of title. A special warranty deed or limited warranty deed is better because it warrants title against the grantor and any of his heirs, successors, or assigns. A general warranty deed is best (although rarely given), and it is a warranty of title up the entire chain of title. Quitclaim deeds do not negate title insurance. I am not sure where you heard that from. In fact, quitclaim deeds are routinely used in numerous jurisdictions across the country every day without any sort of effect on title insurance. I am not sure why a quitclaim deed, in of itself, would be a red flag for you. It's simply a way of conveying title without providing any warranties. Some parties feel inclined to convey property that way; others do not. As for my professional designation, I am a commercial real estate attorney licensed in Georgia and South Carolina as well as a licensed broker in South Carolina. I hope this information helps.
Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
10y
Look into what it takes to form an LLC in your state. I don't really think it's necessary to have rentals in an LLC, but I would for my flip homes. In Washington State, I've heard it doesn't take more than an hour of a lawyer's time to move the property in an LLC. But do more research, there are lot of pros and cons to an LLC, and definitely not the first thing you need to think about if you are just starting out.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
Putting a little house inside an LLC is easy. Making a real mess using a QCD is even easier.
Not addressing your title insurance and hazard insurance (which is in your name) is easiest of all.
Now you have a messed up title chain on a completely uninsured asset. All in the name of asset protection we presume? Why are you trying to put little residential property inside a commercial entity?
Rental Property Investor · Orlando, FL · Member since 2016 · 76 posts · 19 votes
10y
Steve Vaughan I'm interested to understand why you would prefer investing under your name versus under a business. Any tips in particular?
Thanks for the help! :)
Steve Vaughan I'm interested to understand why you would prefer investing under your name versus under a business. Any tips in particular?
Thanks for the help! :)
Alvin, I do invest with LLCs. Commercial assets only, from day 1. As my little houses are paid off, I will transfer them (properly) in groups of 4 or so for asset protection and estate planning purposes.
Most transfer their leveraged houses the wrong way, in fear of things that rarely happen. I was only warning you to not use a QCD, to address insurance and have an exit plan in case your mortgage is called due on you. Cheers!
Rental Property Investor · Orlando, FL · Member since 2016 · 76 posts · 19 votes
10y
Steve Vaughan Oh, interesting. I never really considered them transferring in groups. I would imagine that would make it easier since it's one transaction no?
In that case, since they're paid off, what do you do transfer them? I don't believe the "due on sale" mentioned earlier here would apply correct?
Also, what does QCD mean? - pardon my rookie lol
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
It will still be 4 individual transfers per, just meant one LLC will hold 4 houses (after being paid off.)
I will transfer via a properly drafted warranty deed - probably special. I'll be seeking competent legal advice first.
QCD = quitclaim deed. The weakest and most problem-prone of all deeds.
@Alvin Pereira I asked days ago - why are you trying to transfer a little house with debt on it that is insured in your name into an LLC? What is the purpose? I'll take your answer off the air. Peace
Lindsborg, KS · Member since 2015 · 31 posts · 11 votes
10y
Ideally, for a variety of reasons, I recommend you form your entity first then buy the property. You can find a bank that will lend to your LLC as long as you personally guarantee it. You will have to put more money down and take a shorter term. That can be undesirable but in reality saves you money in interest long term. If the bank charges a higher rate on the loan, it is likely a wash long term.
Buying in your name with a personal mortgage and personal insurance then transferring to your entity can certainly cause issue in both the financing and insurance areas.
Many investors fly by the seat of their pants and it works well for them...until it doesn't. In that regard it is a personal choice based on tolerance for risk and willingness to deal with potential hassles.
Also, for the thread, I realize I didn't clarify if the house would be paid off or owe upon being transferred. I think general consensus is if it owes, you're in for some risky business and if it's paid off then that should be simpler as long as you have a solid legal framework.
Attorney · Atlanta, GA · Member since 2016 · 5 posts · 5 votes
10y
I would agree with John above. I would just add that if there is no mortgagee or lender in the picture, you should be able to simply deed the property from yourself to your entity via quitclaim deed without fear of triggering any type of due on sale provision that would otherwise be contained in a mortgage. There are different types of deeds that one can use (general warranty deed, special warranty deed, etc.) for conveying property, but for purposes of transferring the property from yourself to an entity such as a limited liability company (LLC), a quitclaim deed should suffice. While drafting a quit claim deed is not too complicated, it would wise to consult an attorney to make sure it's properly drafted and to ensure your jurisdiction's recording requirements are met.
I would agree with John above. I would just add that if there is no mortgagee or lender in the picture, you should be able to simply deed the property from yourself to your entity via quitclaim deed without fear of triggering any type of due on sale provision that would otherwise be contained in a mortgage. There are different types of deeds that one can use (general warranty deed, special warranty deed, etc.) for conveying property, but for purposes of transferring the property from yourself to an entity such as a limited liability company (LLC), a quitclaim deed should suffice. While drafting a quit claim deed is not too complicated, it would wise to consult an attorney to make sure it's properly drafted and to ensure your jurisdiction's recording requirements are met.
Josh - of all the deeds available to properly transfer free and clear property into an entity, why would one choose a quitclaim deed ? Because 'it should suffice'? Most QCDs negate your title insurance and are red flags to me in the title chain. Why not use a better deed type?
If you like - please better describe your 'professional' designation. That may help alleviate anxieties about your recommending a QCD. Thanks!
Attorney · Atlanta, GA · Member since 2016 · 5 posts · 5 votes
10y
Steve, you are correct. A quitclaim deed provides the least amount of protection for the acquirer of real property. It conveys any interest the grantor (i.e., seller) has to the grantee (i.e., buyer), but it provides no warranties of title. A special warranty deed or limited warranty deed is better because it warrants title against the grantor and any of his heirs, successors, or assigns. A general warranty deed is best (although rarely given), and it is a warranty of title up the entire chain of title. Quitclaim deeds do not negate title insurance. I am not sure where you heard that from. In fact, quitclaim deeds are routinely used in numerous jurisdictions across the country every day without any sort of effect on title insurance. I am not sure why a quitclaim deed, in of itself, would be a red flag for you. It's simply a way of conveying title without providing any warranties. Some parties feel inclined to convey property that way; others do not. As for my professional designation, I am a commercial real estate attorney licensed in Georgia and South Carolina as well as a licensed broker in South Carolina. I hope this information helps.