Converting Rentals from Personal to Business (LLC):

[Jake Walton]

Hey all -

We're at the stage where we now have 2 long-term rentals and we want to convert things into an LLC to clean things up starting in 2023. I'm seeking advice on converting our rentals from personal bank accounts/names over to a business. We manage the rentals ourselves, but everything is still in our personal name (leases, mortgages, banking). What tips/advice can you share about this process? Things I'm curious about:

• Business Bank Account / Credit Card
• Transfer of Title: Quitclaim deed?
• Any addendums needed for current tenants to sign as we move out of our name?
• Best Finance / P&L Software for tax purposes
• Anything else that you've learned along the way.

I appreciate any insights in advance from those who have gone through this process and hope this post can start some dialogue in the comments that will benefit others in the group down the road as well.

[Jason Marino]

Hi Jake,

There is a lot of information needed to respond to this question, and I think that it would be difficult to describe everything in detail in a single post. Generally though, you will need to first create an LLC or LLCs. Creating more than a single entity is going to spread the risk and have the ability to compartmentalize your properties into separate LLCs. You will need completed LLCs with Certificates of Formation, Operating Agreements, and EINs to be able to open a bank account. The LLC or LLCs should each have their own bank accounts. You will additionally keep a book of business for each entity. At this point, you are ready for a property transfer. You should be able to use either a Quit Claim Deed or a Warranty Deed for this purpose. As noted in the post above, you will need to be aware of the risks associated with a due on sale clause violation. You should additionally be aware of potential transfer taxes or a tax reassessment when a property transfer is made. As for existing Leases, these are usually inherited by the new property owner. That said, you could assign the Lease from yourself to the LLC as part of the property transfer. You will additionally need to notify your insurer, and add the LLC or the LLCs to your insurance policy covering the properties.