Considering putting rental in an LLC, HELP!

[Brian Neisig]

We (wife and I) have one rental property, in our own names. I am seeking to limit legal liability in the event of the unfortunate occurring. I have always worked for 'The Man' and have 0 experience in starting an LLC, moving the house into it, or, possibly most importantly, how it will impact my taxes. The house has a mortgage on it, so a new LLC would have no credit history, so how could it have a mortgage? I've heard of a Due on Sale Clause. What could be done if that happens!?! What other things do I need to consider when attempting this? I am in Minnesota and I think LLC's are state specific, right? Any input or advice, especially from another Minnesotan investor, would be greatly appreciated! Skol!

[John Woodrich]

LLCs are easy to setup, with a husband and wife you likely don't need an operating agreement.  To transfer the property you would have to file and record a quit claim deed.  As you mentioned, most mortgages have a due on sale clause and this would either prevent you from recording the deed or require you to refinance into another loan.  Call your mortgage company and see what their position is, some smaller ones are OK with the transfer but many of the larger ones will not allow it.

As for taxes, if one of you is the owner of the new LLC nothing will change. If you both own the LLC, you still can avoid filing a partnership but talk to your tax preparer they handle husband/wife LLCs. Most people ignore the difference.

And yes, LLCs are state specific but all that means is if you setup an LLC in MN you operate under MN LLC statutes.