Title - LLC transfer

23 Replies

My business partner and I are buying a rental property (2bd/1ba) in Michigan. We’ve also formed an LLC in the same state. We’ve been preapproved for conventional financing. Because our LLC is new, we’re using personal financing. When do we transfer the title to the LLC so that we protect the liability of our assets? Thanks

I'm interested in the answer to this question as well!

Same here. Very interested when and how to transfer.

@Juan Pablo Murillo
Hello fellow BPers!! Due to the financing it will be complicated to transfer to the company. If you transfer after the financing has been provided you have to restart the process.

Side note If you are rehabbing make sure your home building license is on a company not your personal name.

This is dumb if you think about it in depth.... you're creating a LLC to reduce risk right? Well, you INCREASE the risk by exposing yourself to having your loan being called due upon the transfer. Will it happen, probably not, but the chances of you getting sued and needing the LLC are probably slim also.

Now, this assumes you are just a normal person with a normal house. If you're some cash rich secret millionaire buying houses in the ghetto that are unsafe then maybe a LLC makes sense...

Just get umbrella policy and be done with it.

Also are you getting a line of credit or conventional finance ?

@Matt K.

Curious about your comment. I want to make sure I understand it correctly. Are you suggesting not to create an LLC at all and simply get umbrella insurance? Thanks

Originally posted by @Juan Pablo Murillo :

@Matt K.

Curious about your comment. I want to make sure I understand it correctly. Are you suggesting not to create an LLC at all and simply get umbrella insurance? Thanks

 Yes, check this out


@Matt K. I have to disagree with you on this one while I operate currently under my personal name and have an umbrella policy, the article you linked explained the benefits of not doing a LLC from the perspective of being a owner occupant. The only points Scott Trench made in that article that could be applied to this situation is that LLCs need commercial financing. But In this case he is moving his property after the deal closes and the likelihood of a due on sale clause being activated is anyone's guess (I'm not going to speculate on that) but if you listen to @Scott Smith on podcast 109 he points out a lot of reasons as to why a LLC is way better protection vs. just an umbrella policy if set up and ran correctly. If you are risk adverse a LLC really can only help you in the end vs hurt you though there are cost associated with setting it up and running it properly. 

@Jeremy Woods if we really want to get in the weeds...

An LLC owner can be held personally liable if he or she:

  • personally and directly injures someone
  • personally guarantees a bank loan or a business debt on which the LLC defaults
  • fails to deposit taxes withheld from employees' wages
  • intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else, or
  • treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.

Wouldn't buying in your name then transferring to the LLC meet the two bold comments? If the due on sale clause isn't called then it'd be an extension of his personal affairs (he bought it in his name). If it was called, could it be argued that obtained the original loan fraudulently if his intent all along was to transfer to the LLC?

The article goes on to say:

This last exception is the most important. If owners don't treat the LLC as a separate business, a court might decide that the LLC doesn't really exist and find that its owners are really doing business as individuals who are personally liable for their acts. To keep this from happening, make sure you and your co-owners:

  • Act fairly and legally. Do not conceal or misrepresent material facts or the state of your finances to vendors, creditors, or other outsiders.
  • Fund your LLC adequately. Invest enough cash in the business so that your LLC can meet foreseeable expenses and liabilities.
  • Keep LLC and personal business separate. Get a federal employer identification number, open up a business-only checking account, and keep your personal finances out of your LLC accounting books.
  • Create an operating agreement. Having a formal written operating agreement lends credibility to your LLC's separate existence. For more on this, see Nolo's article The LLC Operating Agreement.

All of which seem to go against getting a loan in your name then transferring to a LLC. Maybe I grossly don't understand the point of the LLC, but I thought it was reducing risk and protecting your asset. Umbrella insurance will cover up to certain amount, like mentioned in the other article I find it hard (for myself) to see how I'd be sued for something in excess of the appropriate insurance coverage. Even more so for the people who are in favor of leverage, they'd have little left to sue for (vs the people with paid off houses/cash).

You have to read the note to know for sure, if there is an acceleration clause in the note for title transfers etc then you will be out of luck and they will call the note due and payable upon notice. Your best bet is to find a lender that will allow you to close in the entity (My company allows it, even a brand new LLC but only on investment and max Loan to Value is 75% so there are drawbacks). As @Matt K. explained, if you do anything to allow someone the opportunity to pierce the corporate veil you might as well leave it in your personal name!

@Matt K. I get what you are saying but that's why I said that the LLC has to be ran properly and podcast 109 actually answers most of the issues you pointed out. Honestly I don't know if you have listened to it but it is worth while. It covers a lot of your hesitations/ reasonings for not forming one.

Originally posted by @Jeremy Woods :

@Matt K. I get what you are saying but that's why I said that the LLC has to be ran properly and podcast 109 actually answers most of the issues you pointed out. Honestly I don't know if you have listened to it but it is worth while. It covers a lot of your hesitations/ reasonings for not forming one.

I'll have to check it out, but thanks to the wonderful state of CA.... a LLC is 800 min for me, so it's unlikely it'll make sense here for a long long time. It always seems interesting to me that people create a LLC to reduce risk, yet increase it by the possibility of triggering the due on sale clause (and or not setting it up correctly).

@Juan Pablo Murillo If you think you will go FHA, Conventional, FHA 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

I also work with a lender who allows title to be transferred to my LLC. It can be done, I would just ask the lender to give you written approval of the transfer before committing.

@Jeremy Woods Thank you for the shout out!  And thanks for listening to the podcast. @Juan Pablo Murillo   Yes, anonymous trusts, if done correctly, can be used to protect real estate without violating the due on sale clause.  You can read more about the trusts here.

In addition, to add to the protection, add an LLC or Series LLC structure in conjunction with the trusts. If you have any more questions, message me, I enjoy discussing these topics.

Thanks and best of luck!

I just did this myself on a rental property that was in my name when I lived there years ago to ensure it was in line with my business expenses for tax purposes more than liability reasons.

Was suggested by my accountants, title and attorney. Hope they gave good advice :-).

Great topic I enjoyed and learned a lot!!!

I'm a little confused here. So based on your original post it sounds like you have an LLC but have not closed on the property yet. You are going to be signing a recourse loan regardless, so it shouldn't matter whether you sign on the debt as individuals or as the LLC. In either circumstance you are liable for the debt (I understand the protection LLCs give). Point I'm making is that I don't know why you would close under your name and then transfer. I frequently sign recourse debt in Nashville through my LLC or a brand new LLC we create for a specific project. If the LLC has no history then the bank uses my w-2 wages/rental income/cash to satisfy requirements, but it's still under the LLC's name. Happy to provide more guidance and share my experiences if needed.

@Juan Pablo Murillo

what i’ve learned on the bp podcast is to put your property in a land trust then have your llc be the beneficiary of the trust. but don’t quote me cause I ain’t say ish lol

So I'm still confused on how the title transfer works and the ramifications. I'm looking to buy a property and have two options: One lender is offering a loan directly to my LLC (backed by my personal income), offering 15yr term, 5.5% w/ 5 year balloon. The second lender is offering a conventional loan to me personally, 30 yr fixed at 5.75%. From a cashflow prospective it's a no brainer, but I want the property to be held in my LLC. The conventional lender has already said they have no issue with transferring the title to the LLC after close, but I must close under my personal name first.

If I transfer the property to my LLC, I understand I'll lose my title insurance. Is there "supplemental" title insurance I should buy?

If I want to refi in the future to pull equity out, I understand I have to deed the property out of my LLC back to me personally. Does this create a taxable event?

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