How can you house hack a MF and still hold it under an LLC?

8 Replies

Hello BP community. I have been racking my brain for the past few weeks trying to understand how NOT to violate the "Due on Sale" clause.

Here's the scenario: Jane wants to buy a 4-plex. However, as a new investor of multi-family properties, she can "invest" sooner and much easier as an owner-occupant. After purchase, Jane would also like to move out of this 4-plex ASAP to realize it's full cashflow in her growing portfolio. The question that has now arisen is how can she purchase as an owner/occupant AND then hold the property under her current LLC without triggering a possible due on sale clause from a quit claim transaction? 

Any insight on how this can masterfully be done with surgeon's precision would be greatly appreciated. Likewise, if possible, to what degree can this be duplicated?

I haven't had any problems with due on sale clauses being exercised. We have bought properties in our names, then transferred them to our LLC after the deed has been filed, usually two or three weeks later.

Our LLC is Rembert, LLC, so that may help. The lender probably sees the same name and knows what's going on.

If "Jane" gets an FHA, VA, HUD, etc loan that requires her to live there, she must wait 9-12 months before moving out. In the interim, she can transfer title to her LLC and make rent payments to the LLC who is now the Landlord.

With an "owner occupant" during the first year, this could be looked at much more closely, as this would also violate the owner occupancy requirement, and the underwriting requirements of the loan. I suggest, forget the LLC "need", just have adequate insurance and move on.

@Robert E. Medlock II She shouldn't be trying to solve a problem that doesn't exist.  Jane should keep them in her name and get an umbrella policy.

@Wayne Brooks "...forget the LLC and move on". Why would you take this route? "Adequate insurance" still leaves you vulnerable to lawsuits against your personal assets. Isn't that why you would create an company structure in the first place: reduce exposure and taxation benefits.

@Brooks Rembert thanks for the insight. This is how I thought it would play out, just like you worded it. 

From your experience does that also mean, this method works in the beginning, but you eventually bought outright directly from the LLC? Or do you continue to use the same strategy of buying in your name and transferring to the LLC?

The LLC has no tax benefits, it's a straight pass through to personal taxes. After such repeated "I hear I must own in an LLC" talk, I'm going to start a thread, for that purpose. $1-2M of liability is relatively cheap.

Originally posted by @Wayne Brooks :

The LLC has no tax benefits, it's a straight pass through to personal taxes. After such repeated "I hear I must own in an LLC" talk, I'm going to start a thread, for that purpose. $1-2M of liability is relatively cheap.

😆 Wayne thanks for the reply. As I did not obtain or hold an MBA (not that you need one to be in business) I look fwd to your thread conversation on the LLC ownership, and/or why it is not necessary. Learning new perspectives is always great!

We still buy in our name and then switch title to LLC. We also have a $2 million umbrella policy over and above the liability that our homeowner insurance provides for each property.

LLC is a pass through entity, but it allows for a paper seperation between you and your company.

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