General Real Estate Investing

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Krystle Irvin
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Transfer to LLC and insurance

Krystle Irvin
Posted Oct 7 2022, 07:47

If you transfer your rental property to an LLC, do you notify your insurance company and have it changed to a commercial policy at that point?

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Russell Brazil
  • Real Estate Agent
  • Washington, D.C.
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Russell Brazil
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ModeratorReplied Oct 7 2022, 09:09

Yes....if you do not update your insurance, then the new owner of the property of the LLC is not insured.

Also, you will need to refinance to a commercial loan. Once you update your insurance, the insurance carrier will notify the lender and that will trigger the due on sale clause.

The reason the due on sale clause is typically not triggered, is because people do not update their insurance....thus in an attempt to limit their liability they do the opposite and blow up their liability by forgoing insurance. 

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Todd Rasmussen
  • Rental Property Investor
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Todd Rasmussen
  • Rental Property Investor
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Replied Oct 7 2022, 09:27

@Krystle Irvin

No, if you have a rental dwelling policy you just change the named insured to the LLC. (You can review your insurance policy for the specific language of who is considered a named insured) We have our personal names listed as additional insured, along with our property manager even though us personally and our property manager are covered in the policy language, it feels nice to have it on the declarations page as well.

Depending on the age of your conventional loan, you can change ownership without consequence to your loan structure. If you don't, the lender most likely has the right to accelerate your loan payments, however if you are paying your loan they never do. Of all the mentions of the due on sale clause on this forum, I've only met one person who even knew of it happening to anyone and in that case, the borrower asked the small-town bank manager personally if he could do it, was told no, and then did it anyways.

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John Mocker
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John Mocker
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Replied Oct 8 2022, 09:19

Krystle,

The first thing to do is contact your agent and see if the current policy can be changed to have the "Named Insured" changed to the LLC. If not:

1. See if they have any other companies that will do the LLC as a first Named Insured

2. If the current agent can not, seek quotes from other Independent Agents.  There are Multiple companies that can do this.

You do have the option to move to a Commercial form.  Generally they tend to be more expensive than a Personal form (dwelling/fire) but that is not always the case.  

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Steve Vaughan#2 Creative Real Estate Financing Contributor
  • Rental Property Investor
  • East Wenatchee, WA
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Steve Vaughan#2 Creative Real Estate Financing Contributor
  • Rental Property Investor
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Replied Oct 8 2022, 10:17

Title insurance also. Will the owners/members be exactly the same?

If the vesting integrity changes, you are risking this as well.  Quitclaim deeds are weak conveyors.

Why change to an LLC at all?