Loan in personal names and putting title in LLC

8 Replies

So my brother and I are finally getting a rental property.

Loan is under way with our personal names. However, we wanted to put the title in LLC from the start instead of transferring it after the closing.

Has anyone else done it this way? will this work?  

Originally posted by @John Lee :

So my brother and I are finally getting a rental property.

Loan is under way with our personal names. However, we wanted to put the title in LLC from the start instead of transferring it after the closing.

Has anyone else done it this way? will this work?  

This is one of the most common threads/questions on here... rather than beating a dead horse and having the same convo that's happened a million times before, I'd suggest using the search function for "LLC" and "due on sale." There have been many heated debates.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

And you likely void the asset protection of the LLC....

@Chris Mason

Yes, I understand. However, most of the threads are about transferring the title to LLC after the closing. I am asking if anyone has done it at the closing.

Originally posted by @John Lee :

@Chris Mason

Yes, I understand. However, most of the threads are about transferring the title to LLC after the closing. I am asking if anyone has done it at the closing.

Oh good catch, I misread, my bad! The biggest difference is that it'll be a commercial loan, not residential. ARM, might be higher rate, and they get to review your financials periodically even after closing even if you've been paying on time. @Sean Walton IIRC has some good rants on the subject.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

I'm not sure that any lender is going to allow you to close the property in a different name/entity than what's named on the mortgage.

Typically, if you want it in the LLC from day one, you must get your mortgage in the LLC's name. Rate will be a bit higher, as you probably know, but that's the cost of it.

305-537-6252

@Chris Mason

NP.  I was thinking that it might need to be a commercial loan too.  Probably with a personal guarantee. Thanks.

@Nicole A.

Yeah, I thought so too.  I explained this to the lender, I guess we will find out soon. Thanks.

I've closed using an LLC lots of times - when buying commercial assets.

The most important thing to me when deciding to LLC or not is asset type.

You and your brother are 'finally getting a rental property'? I'd like to buy a vowel, Pat. What type?  Little houses with debt do not belong in LLCs for me.

Thanks for the tag @Chris Mason

@John Lee I'm by no means a lawyer and this is not legal advice but I've heard of some people putting the property into a trust and then putting an LLC as the beneficiary of the trust. As I understand the trust set up is usually seen as estate planning and ignored by the bank and because the LLC being put as the beneficiary of the trust is not really public knowledge unless the bank really goes looking. I've not done this and am not an expert so proceed at your own risk.

As others have mentioned if this is your first property and you don't have a lot of other assets to protect you may want to just get an umbrella policy for now and wait on the LLC for a while.

I would recommend somewhere putting down in writing what you and your brother's responsibilities are in this arrangement and how it is to be dissolved before anything goes wrong. It is easier now to be safe than get in a difficult conversation later about what one is owed if they want out.

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