Should I put my first investment residential property into a LLC?

11 Replies

Hello fellow BP friends!

Just agreed on our first residential SFP and waiting for the closing in mid-November. Wondering if I should buy it through our newly setup LLC or buy it under our name.

Background:

-we are both physicians practicing for greater than 10 years, have multiple assets via outside investments and collectible cars, etc, so we set up a LLC for the REI venture

-obtained HELOC (primary residence) for $164k fixed at 3.39% for 30 years ($726/mo) through our long-term bank (since 2007)

-buying our first investment residential property for $215k all cash, due to multiple bids SFP with seller choosing us due to cash buy and they rejected a higher offer that required mortgage contingency (BP calculator: +$145/mo cash flow after HELOC, expenses, etc)

1. We are looking to use this 100% owned SFP and get a cash-out refinance/HELOC and use the capital to buy another property, etc

2. Should we buy it under our LLC or under our name and then transfer it to our LLC after refinance?

I know that some recommendations are use "quitclaim" deed transfer, or transfer it to my LLC after cash-out-refinance under my name and risk the mortgage company calling the loan, or simply keep it under our names and buy an umbrella policy, etc

What would you choose/recommend?

thanks!

Financing will be much easier in your name vs an LLC. Check with your CPA and Asset Protection Attorney about transferring title to an LLC. No matter what, since you own other assets…get the Best insurance you can on the new purchase and always maintain an upper end umbrella policy for maximum protection.

I close in my LLC and I don't have the substantial income, nor collectible cars that you have. Just have a lot of houses and prefer using DSCR mortgages now. I have fewer hoops to jump through, for one. Not so much in the way of reserve requirements, as an example. For another, I can buy in my LLC all day long. Lastly, they don't use my W-2 income, they look at how the houses perform. I have both short and long term SFR rentals. Specifically we use a corporate holding company and a Texas series LLC.

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Originally posted by @Kerry Baird :

I close in my LLC and I don't have the substantial income, nor collectible cars that you have. Just have a lot of houses and prefer using DSCR mortgages now. I have fewer hoops to jump through, for one. Not so much in the way of reserve requirements, as an example. For another, I can buy in my LLC all day long. Lastly, they don't use my W-2 income, they look at how the houses perform. I have both short and long term SFR rentals. Specifically we use a corporate holding company and a Texas series LLC.

So, I think I would need to start showing a consistent rental income through the LLC (preferably 2 years, but at least 6 months) for any lender to feel comfortable to lend/cash out refinance for my property/ies? Now that you have a series LLC with holding company, do you have to guarantee personally on those loans to your LLC properties? Still have an umbrella policy too? Thanks for all your advice!

I think you will find a million differing answers on this one. It really depends on your particular circumstances. I close my properties and keep rentals in my LLC. If financing becomes an issue I will do it in my name and then deed it into the LLC after closing. If you have good LLC laws in your state that offer a lot of charging order protection then it is even better.

I know some investors that keep them in their own name, but for reasons of privacy and asset protection, it is better in an LLC. I don't see any downside at all and a lot of upside benefits.

Originally posted by @Michael Temple :

I think you will find a million differing answers on this one. It really depends on your particular circumstances. I close my properties and keep rentals in my LLC. If financing becomes an issue I will do it in my name and then deed it into the LLC after closing. If you have good LLC laws in your state that offer a lot of charging order protection then it is even better.

I know some investors that keep them in their own name, but for reasons of privacy and asset protection, it is better in an LLC. I don't see any downside at all and a lot of upside benefits.

Would putting the title/deed under the LLC after the loan closing under my name trigger the lender to call the loan? Heard that they have the legality to do it due to loss of cause, but the banks don't usually do it if the borrower has a good record in paying their debt with good credit history.

Thanks for your advice. 

@Hoi Lee "Would putting the title/deed under the LLC after the loan closing under my name trigger the lender to call the loan? Heard that they have the legality to do it due to loss of cause, but the banks don't usually do it if the borrower has a good record in paying their debt with good credit history."

I have heard this is possible. The risk is probably there, so I can really say is that in my personal experience this has never been an issue, BUT I am also in that group of paying on time every single month with perfect credit so that might be the difference.

The other thing you could do is put it in a land trust and then make the beneficial interest the LLC. That achieves the same basic purpose according to an attorney that I talked to but doesn't trigger the due on sale clause.


@Hoi Lee

Physicians and other professionals in the medical field can be considered a profession that is highly litigated by patients so you want to make sure to protect your assets.
Protection can come in the form of malpractice insurance, home owners insurance and LLC's.

Talk to attorneys and insurance agents.

Best of luck